Alexander Firanchuk: the EU's rejection of Russian gas will not be a disaster for the budget, but would require redirecting supplies
Alexander Firanchuk, Senior Researcher, International Trade Department at the Gaidar Institute, commented to RBC that a complete EU rejection of Russian gas is theoretically feasible, but it would require additional costs from both Europe and Russia. However, the expert does not expect "catastrophic effects" for the Russian export model.
According to Alexander Firanchuk, The EU can substitute imports with alternatives, but this will cause a redistribution of supplies: gas going to Europe will be withdrawn from the markets of other countries, mainly in Asia, while Russian LNG can be routed to those markets where volumes have become available, a model that has already been implemented in the oil market.
Herewith, the expert noted that it is more difficult to divert LNG supplies than oil because of the limited and expensive fleet of gas carriers, especially the icebreaker type required for exports from refineries located in the Arctic zone of Russia.
Alexander Firanchuk emphasized that the effect of a complete termination of gas exports to the EU would be less than the effect of reduction that has already taken place. «Additional bans will be rather residual. While in 2021 the aggregate supply of Russian gas (pipeline and LNG) to the EU amounted to about $42 bn, in 2024 it will be only $16 bn. However, share of LNG has grown from almost zero to about half of these supplies. Taking into account the possibility to divert LNG to other markets, even a complete EU refusal to import Russian gas will cause a loss of no more than $8 bln of export revenues," the expert said.
Alexander Firanchuk said that gas industry replenishes the budget through mineral extraction tax, which depends on the volume of production and export duty, hinging on volume of exports and sales prices. "The main source of budget revenues from LNG exports is a higher corporate income tax of 34%, which will only be reduced to a limited extent if supplies from the EU are diverted. In terms of pipeline exports, the key contribution to the budget is the export duty directly dependent on prices. At current gas prices, the export duty on the Turkish Stream string heading to Europe is approximately Rb 200bn per year. Other factors such as MET, income tax and others are less relevant and much more difficult to estimate," the expert summarized.
Friday, 25.04.2025