EU looks to head off gas squeeze amid Russian LNG ban talk

European demand for liquefied natural gas (LNG) is expected to rise sharply in 2025, as the super-chilled fuel continues to play an important role in the continent's energy mix.

LNG imports into Europe are forecast to increase by 13% this year by the analytics group Independent Commodity Intelligence Services (ICIS). That comes after a decline in 2024, when volumes fell compared to the highs seen in the immediate aftermath of Russia's full-scale invasion of Ukraine in 2022.

The increased demand comes as the EU is emptying its gas storage facilities at the fastest rate since the energy crisis that followed the invasion almost three years ago.

"Europe is more import dependent on LNG now than before, because of the drop in Russian gas imports," Ed Cox, a global LNG markets analyst with ICIS, told DW. "So that means Europe is more connected to fundamentals in a global market than ever before."

However, he believes that despite some fears around a potential scramble for gas and a risk of surging prices, the situation is "overblown" and that Europe will be able to meet its needs. "Europe will get enough LNG in, but it might mean that European prices have to go higher to compete with Asia," he said.

Europe snaps it all up

Much of the focus has been on the EU's storage capacity. Recent cold weather has caused storage levels to drop more than in the previous two winters at the same stage of the year.

It has also been a concern in the UK, with the country's main gas supplier Centrica warning on January 10 that gas supplies were now "concerningly low."

However, EU storage levels were unusually high in recent winters due to fears of supply shortages as a result of the war. Gas prices are also around 90% lower than they were at the peak of the energy crisis in 2022 — although they are almost three times higher than in the years before the invasion.

Cox says prices have been "volatile" and that one of the most interesting developments around LNG in recent weeks has been the regular diversion of supplies of US LNG mid-journey to European markets.

When companies such as Shell, BP, or Chinese operators buy US LNG, they are not obliged to have a pre-determined destination. This means they can sell it to the highest bidder, even when it is already in transit.

"These companies are always looking at opportunities around the world," said Cox. "If they see the European price goes to a premium, if they can find a buyer in Europe at short notice, they'll divert the cargo there. You can literally see the cargo change direction mid-Atlantic."

Amid high demand, European buyers are typically willing to pay a premium above other global markets to divert LNG to their ports. That has led to renewed criticism that richer European nations are diverting supply from countries that need LNG, particularly in South Asia and Latin America.

Cox admits it is also an issue with countries such as Japan and South Korea.

"Wealthy East Asian and European markets are pricing other buyers out," he said, adding that countries such as India, Bangladesh, and Pakistan were always "price sensitive" and are happy to switch to coal and oil-fired power generation when it is cheaper.

"Those countries are looking at prices later in the decade thinking prices will come down when more supply comes online. They may commit to more contracts then," he said.

The question of Russian LNG

The promise of much more LNG coming onstream has been a constant theme in recent years. Cox expects that by 2030, at the latest, global LNG supply will have ramped up significantly to meet all demand. The US and Qatar are among the main drivers.

However, one possible variable, for European buyers at least, is Russian LNG.

While the EU has radically reduced the overall amount of Russian gas it imports since the war began in 2022, the vast majority of that reduction has been related to pipeline gas.

LNG volumes from Russia have increased dramatically, reaching an all-time high in 2024. Figures from the Centre for Research on Energy and Clean Air (Crea) showed EU imports of Russian LNG hit €7.32 billion ($7.54 billion) in 2024, a 14% year-on-year increase.

The EU is by far the world's biggest buyer of Russian LNG, comfortably ahead of China, Japan, and South Korea. Its rising stake in Russia's market has led to renewed criticism from activists who say it is long past time for the EU to either reduce the volumes it imports or stop importing altogether.

Isaac Levi, an analyst with CREA, thinks the EU needs to take "more of a front seat approach" on the issue and "actively implement" measures that stop the EU from being able to buy Russian LNG. "Otherwise, we risk seeing increasing quantities," he told DW.

While the EU never formally leveled any sanction on Russian gas, there have been reports in recent days that Brussels is considering introducing measures against LNG in its next round of sanctions. A ban on Russian LNG could force European buyers to find new suppliers quicker than expected.

In December 2024, the EU's new energy commissioner, Dan Jorgensen, said it was his goal to eliminate all Russian energy from the EU, including LNG, by 2027. Experts think that despite some possible supply constraints, this is an eminently achievable goal.

"It should be offset by US LNG and Qatar LNG," said Cox. "If it's out in 2027, there will be the LNG to replace it."

Levi thinks many European nations will remain attracted by the slightly cheaper rates for Russian LNG, but believes the whole EU can end its dependency in the near future. "What it really comes down to is political will."

Edited by: Uwe Hessler