The suspension of Russian gas supplies, combined with recent U.S. sanctions on Gazprombank, has had a significant impact on Europe’s energy sector. Historically, Russia supplied approximately 40% of Europe’s natural gas, making it a critical energy partner. The abrupt halt in these supplies necessitated swift changes in energy-sourcing strategies across the continent. U.S. sanctions on Gazprombank, Russia’s third-largest bank and a key player in energy transactions, have added further complexity to the situation. Former U.S. President Joe Biden's administration, in its final weeks increased sanctions pressure on Russia by targeting Gazprombank. This move sheds light on the “why now” question ahead of anticipated negotiations between President Donald Trump and Russian President Vladimir Putin aimed at resolving the conflict in Ukraine. However, these sanctions are expected to trigger a wave of LNG supply.
European countries have intensified efforts to diversify their energy imports, increasing liquefied natural gas (LNG) purchases from alternative suppliers. These measures require time and substantial investments to fully compensate for the loss of Russian gas. The end of Russian gas transit via Ukraine after Dec. 31 presented a greater challenge to Europe’s gas market than the recent U.S. sanctions. Following the destruction of the Nord Stream pipelines and the cessation of flows through the Yamal-Europe pipeline in 2022, the only remaining route for Russian gas to Europe, apart from Ukraine, is TurkStream. Of TurkStream’s two lines, each with an annual capacity of 15.75 bcm, one supplies gas to Europe, while the other serves Türkiye’s market.
The market has already priced in the impact of the termination of Ukrainian transit, which explains the recent spike in European gas prices. Front-month contracts at the Dutch TTF gas hub have surged to record highs in recent weeks. However, prices may rise further depending on weather conditions and wind power output, which has been below normal in recent months, leading to increased reliance on gas-fired generation. The EU and the U.S. have made every effort to limit Russia’s ability to manipulate the gas market, though LNG was initially excluded from these efforts. In 2021, 83% of the EU’s total LNG consumption was imported, with about 50% of this originating from Russia before the 2022 invasion. As of November 2022, Russian gas imports accounted for less than 25% of the EU’s total gas imports. This decline reflects Russia’s decision to sharply reduce and eventually halt gas flows to the EU after buyers refused to pay in rubles.
Nonetheless, France imported approximately 4.4 bcm of Russian LNG in the first half of 2024, more than doubling from the same period the previous year. Sanctions on Gazprombank have significantly threatened France’s energy security, as the country has traditionally relied heavily on Russian gas. In response, France has swiftly diversified LNG imports to bolster supply security. It has signed agreements with alternative suppliers such as the U.S., Qatar, and Algeria, while increasing LNG terminal capacity. These changes have provided France with greater flexibility and diversity in gas supply. Price volatility in the market is expected to persist until 2026 due to sanctions.
Russia is losing much of its largest and most profitable pipeline gas export market. In 2021, Europe accounted for 66% of Russia’s pipeline exports, and despite initially benefiting from higher prices, Russian government revenues have significantly declined. Gazprom aims to offset this by expanding exports to Asia. As Europe becomes increasingly dependent on LNG imports, it is more exposed to the liquidity and volatility of the global LNG market. EU policies to accelerate the reduction of gas demand could mitigate this dependency. Whether Russia can successfully pivot to Asia will have broader implications for global gas security, particularly affecting the scale of China’s demand for LNG.
Sanctions on Gazprombank and other measures targeting Russia have also had a significant impact on Türkiye’s energy sector and LNG market, comparable to their effect on France. Türkiye, given its high natural gas consumption and geopolitical position, has been directly affected by these sanctions. As of 2022, over 45% of Türkiye’s total natural gas imports came from Russia. However, sanctions have driven Türkiye to reduce this dependency by turning to LNG imports and increasing interest in alternative sources, particularly Algeria, Qatar and the U.S.
Price fluctuations in the gas market pose serious economic consequences for countries like Türkiye, which rely heavily on natural gas imports. Sanctions targeting Gazprombank could disrupt contracts based on Russian gas, leaving Türkiye to face higher costs for LNG from alternative suppliers. This could result in higher energy costs for both industry and households. Nevertheless, Türkiye is striving to establish a more flexible supply structure through diversified LNG sources. It continues to expand its LNG infrastructure to ensure energy security.
By 2025 and beyond, Türkiye aims to increase its import capacity by expanding its five existing LNG terminals. Additionally, regional collaborations for energy security are expected to grow. Agreements with countries such as Azerbaijan and Turkmenistan, along with diversified gas sources via the TANAP pipeline, will reduce Türkiye’s dependence on Russian gas. Sanctions have prompted Türkiye and many European countries to invest more in improving their energy infrastructure. France, for example, has invested in new terminal projects and storage capacity to increase LNG imports. However, the returns on these investments will take time, leading to high short-term costs. This has triggered a broader strategic shift in Europe’s energy market. In 2025, the security of supply, price volatility, and infrastructure development are expected to play key roles in Europe’s LNG market.
The energy policies of Donald Trump’s second administration could disrupt the existing order. Trump has reiterated his unfavorable stance on renewable energy, particularly wind farms while favoring fossil fuels. His campaign highlighted his opposition to wind energy, signaling that his policies will likely directly target wind farms with adverse measures. While this could create challenges for the wind energy sector, it could also mark a golden age for LNG, one of the key fossil fuels.
