Playing wrong card: Europe to pay 100 billion euros for gas maneuvers

The refusal of Russian gas will cost the European Union about 100 billion euros. Experts warn that LNG, on which Europeans made their bets, may not be enough: the supply volume is too low. And one can't rely on renewable energy sources so far.

To cope with the energy crisis, the EU countries have already agreed on 330 billion euros of investments. However, as estimated the International Energy Agency (IEA), this is not enough. Expenses will have to be increased by another 100 billion euros, mainly due to the substitution of Russian gas supplies.

According to the IEA's preliminary estimates, by the end of 2022, the supply of pipeline gas from Russia to Europe will drop to 60 billion cubic meters from last year's 140 billion cubic meters. Next year, there is a risk of further reduction of gas supply from Russia and even its complete stoppage.

Against this background, the restoration of demand for gas in China, which is expected in the IEA, will bring more problems to Europe: the competition for LNG will increase, and the fuel deficit in the EU in 2023 will be around 53 billion cubic meters. According to the Agency calculations, the EU will be able to compensate for about 30 billion cubic meters - the introduced tough measures on gas saving will help. However, in order to overcome the remaining shortfall additional investments will be needed.

Last year, Russia was providing Europe with about 40% of its gas consumption. However, the EU's efforts to overcome its dependence on cheap Russian gas has collapsed the pipeline supplies. Algeria, Norway, Azerbaijan and Libya are already exporting gas to the EU and have no opportunity to increase the pumping, other countries, due to their geographical location, are not able to supply fuel in the same way. "Europe has only one option left - to reduce consumption and buy the LNG," said Nikolay Vavilov, a specialist of the Total Research Strategic Research Department.

However, the LNG market has its own peculiarities, which make it difficult to find the necessary free volumes.

"About 70% of deliveries are made under long-term contracts. The remaining volumes are sold on the spot market and go to the highest bidder. Until this year, almost all deliveries went to Asia, but the situation has changed somewhat, and in 2022 the European continent became the premium market. The shipments from Qatar and Russia also increased. The export of Russian LNG to Europe increased by 42%, to almost 18 billion cubic meters, taking 16% of the market," said Vavilov.

As the expert explained, the volume of the LNG market will increase only from 2026, when the main exporting countries will launch the appropriate projects. At the same time, new volumes are already being contracted by different countries, mainly by China. If the demand in Asia recovers and prices rise, tankers will be easily directed there.