To end its reliance on Russian fossil fuels by 2027, ACER suggests that Europe should reduce Russian LNG imports “in gradual steps starting with spot Russian LNG imports”.

The ACER European LNG Market Monitoring Report (MMR), published on Friday, states that the agreed text of the directive on internal markets for renewable and natural gases and hydrogen includes certain regulatory provisions that permit member states to temporarily limit gas supplies, including those from Russia and Belarus.

“While such measures may target to reduce dependence on Russian gas, it is important to note that substantial volumes have already been contracted under long-term LNG agreements before the Russian invasion of Ukraine,” the report reads. 

The report has emphasised the need for caution while considering reductions in Russian LNG imports. This is particularly crucial since the current ship-or-pay transit contract for gas pipeline supply from Russia to Europe via Ukraine will expire by the end of 2024. If the contract is not renewed, it could result in a loss of 13.6 billion cubic metres (bcm) of natural gas supply compared with the flows in 2023.

According to ACER data, Russia produced 42bcm of LNG in 2023. The top 28 destinations for Russian LNG were the EU (18bcm), China (11bcm), Japan (8bcm), and South Korea (2bcm), together accounting for more than 90% of all Russian LNG production.

Due to incomplete data disclosure, the exact amount of Russian LNG re-exported from the EU is uncertain. However, some estimations suggest that in 2023, at least 1bcm or possibly more of Russian LNG could have been re-exported to other markets from Europe, ACER said.

According to ACER’s data, more than 100 long-term LNG agreements have been signed globally since Russia invaded Ukraine, with contracts averaging 15 years. 

“The unprecedented price spikes registered in European gas hubs throughout 2022, together with the historically high price volatility in that period, have seemingly reduced the attractiveness of using European gas hub price references in the indexation terms of new long-term LNG supply contracts,” it said.

The EU is currently the largest market for imported LNG, with an estimated 134bcm of LNG imports in 2023. Meanwhile, the US is the largest exporter of LNG, with an estimated export volume of 119bcm in 2023.

The EU's demand for LNG is anticipated to peak in 2024. This is attributed to the EU's ambitious decarbonisation goals, leading to structural reductions in gas demand.