The Effects of the Russian-Ukrainian War on Russian Gas Exports to the EU and the Role of Cyprus as an Alternative Gas Provider

Abstract

Putin’s invasion of Ukraine has forced the EU to eradicate its energy dependence on Russia. This is a shift of historic proportions, particularly when it comes to natural gas, given the fact that Russia has been the EU’s primary exporter since the collapse of the
Soviet Union in 1991. By February 2023 almost all EU member states had imposed complete embargoes on the importation of Russian coal, crude oil, and oil products, whereas no consensus has thus far emerged at the EU level on the continuation of Russian
gas exports. Despite the absence of a formal embargo on Russian natural gas, exports have drastically dropped since 2022, yet this does not necessarily entail that the EU will be able to achieve the goal of zero Russian gas exports by 2027, as is declared in its RepowerEU strategy. Through 2022, the EU has managed to cope with the loss of Russian gas exports by massively importing US LNG and, to a secondary extent, Norwegian pipeline gas. These exports though were contracted at a considerable premium and on a short-term basis. Most EU states have not managed to replace Gazprom’s long-term contracts with alternative gas imports that would be available at competitive prices and on a long-term basis. Herein lies an opportunity for the Republic of Cyprus (RoC), since the natural gas reserves discovered its Exclusive Economic Zone have the potential to offer a partial long-term alternative to the EU’s dependency on Russia, but the window for the monetisation of these reserves is rapidly closing. Alternative EastMed exporters have already started
to export to the EU, as well as to the East Med region, as early as 2020, whereas the first Cypriot exports cannot realistically reach any market before 2027. Nicosia’s current plan to build a pipeline to Egypt in order to autonomously monetise the Aphrodite field is unlikely to offer Cyprus an export gateway to EU markets by 2027 and may even result to the stranding of the asset. At the same time a string of smaller discoveries in the RoC’s western offshore blocks that took place between 2019-2022 are still at a very early stage of their potential development process and, if they are not developed jointly, they are also likely to be stranded. If a joint monetisation plan is indeed developed, these fields, namely Glaukos, Cronos and Zeus, are likely to begin exporting their gas by 2030 or, most likely, even later.