EU measures on Russian gas imports needed 'sooner or later': Michel

The EU will need to take action on Russian gas imports "sooner or later" to maintain pressure on Moscow over its invasion of Ukraine, European Council President Charles Michel said April 6.

While the European Commission has signaled its intent for a sharp reduction in EU demand for Russian gas -- by as much as two-thirds by the end of the year -- contracted European buyers, mostly privately owned companies, have pledged to continue buying.

The EC has pledged to phase out Russian gas imports completely by 2027, but there are growing calls for Brussels to take more immediate action in order to reduce payments to the Moscow regime.

"We are toughening our sanctions to keep maximum pressure on the Kremlin," Michel said on Twitter April 6.

"The new package includes a ban on coal imports. And I think that measures on oil, and even gas, will also be needed sooner or later," Michel said.

The EC proposed on April 5 a ban on imports of Russian coal and on Russian shipping from EU ports and said it was "working" on curbing Russian oil exports.

However, reducing dependence on Russian gas is less straightforward, especially as imports from Russia -- which totaled some 155 Bcm in 2021 -- meet 40% of EU's gas demand.

France's TotalEnergies pointed squarely to the problem in a statement in March laying out its principles of conduct with regard to Russia.

"Contrary to oil, it is apparent that Europe's gas logistics capacities make it difficult to refrain from importing Russian gas in the next two-to-three years without impacting the continent's energy supply," it said.

Russian revenues

With European gas prices still at sustained highs, state-controlled Gazprom is bringing in significant amounts of money.

Gazprom's contracts typically have a time lag of six-to-nine months before payment, which Gazprom says improves financial visibility.

Contracts are priced against a variety of indices including pure European hub indexation, a hybrid of hub and oil indexation, and some remaining with just oil-based pricing, and within the hub-indexed contracts, there will also be a range of different measures from day-ahead to month-ahead and further out to season and year-ahead.

Since August 2021, the TTF day-ahead price has averaged Eur85/MWh, according to Platts assessments by S&P Global Commodity Insights.

Gazprom sent some 343 million cu m/d of Russian gas to the EU on April 3, according to the most recent data on its website.

Taking the average TTF day-ahead price since August as a marker, Gazprom's current gas deliveries to the EU would be worth roughly Eur330 million ($365 million) per day.

As much again is thought to be paid to Russia for oil imports, as well as payments for coal.

Speaking to the European Parliament April 6, the EU's foreign affairs chief Josep Borrell highlighted the serious implications of continued Russian energy payments.

Borrell said the EU had pledged Eur1 billion to Ukraine to help defend itself against Russia. "That may sound like a lot, but Eur1 billion is what we pay Putin every day for the energy he supplies to us," Borrell said.

"Since the war began we have given them Eur35 billion compared with the Eur1 billion we have given to arm the Ukrainians," he said.

"This gigantic difference should also point to the need to put into practice what the European Council has ordered us to do: to reduce energy dependence. And, in this, the Commission will undoubtedly exercise its leadership, proposing the necessary actions for it," he said.

Price impact

A senior EC official acknowledged on April 6 that phasing out Russian gas would also have an impact on prices.

"Because of our new geopolitical and strategic objective to not be dependent on Russian fossil fuels, there will obviously be an impact on prices," Tatiana Marquez Uriarte, a member of cabinet for EU Energy Commissioner Kadri Simson, said.

"Phasing out Russian gas is not a measure to achieve affordability of gas prices, that is undeniable," she said on a webinar organized by European gas industry group Eurogas.

French President Emmanuel Macron said in March that "nothing is off the table" when it comes to sanctions against Moscow, which could also mean restrictions on Russian gas imports.