OPINION : "Lessons in Gas and LNG Governance from Europe: When Geopolitics Overrides Economics"

For many countries in Asia, the Russia-Ukraine war is often viewed merely as a geopolitical conflict taking place thousands of kilometers away. However, for the global gas industry, the war that began in February 2022 drastically reshaped global LNG trade. It not only triggered a surge in gas prices but also fundamentally changed how countries manage their energy security.

At the IndoPacific LNG Summit 2026 in Bali, I had the opportunity to attend an insightful presentation by László Fritsch, Deputy CEO of MVM ONENERGY, one of Hungary's largest energy companies. His presentation offered valuable lessons on how Europe developed its gas infrastructure over more than half a century, only to be forced into a major transformation within a few years due to geopolitical developments.

These lessons are particularly relevant for Indonesia as it develops new LNG projects, from Masela, IDD, and Andaman to various domestic LNG terminals.

An Infrastructure Legacy That Became a Burden

For decades, Europe developed its gas industry based on a fundamentally different philosophy from that of Asia. In Europe, gas infrastructure was primarily developed to serve district heating, residential space heating, industrial demand, and extensive household distribution networks.

In contrast, gas development in Asia has largely been driven by power generation, industrial growth, air conditioning, economic expansion, and transportation needs, including the use of CNG in India. These different approaches to infrastructure development have ultimately led to very different consequences.

Since the 1960s, Europe has built an extensive network of pipelines connecting Russia, the former Soviet Union, and North Africa to major consumption centers in Western Europe. Pipelines remained the backbone of Europe's energy supply for more than fifty years. LNG served only as a supplementary source of supply.

Dependence on Russian Gas

Before the war in Ukraine, Europe imported approximately 155 billion cubic meters (BCM) of Russian gas in 2021.

Most of this gas was transported through Nord Stream 1 (with a capacity of 55 BCM per year), TurkStream (15 BCM per year), the Ukrainian pipeline network, and various interconnections across Eastern Europe. The entire system was designed to transport gas from East to West.

For decades, this model was considered the most economically efficient. Few could have imagined that these supply routes would one day be disrupted.

February 2022 Changed Everything

Russia's invasion of Ukraine marked a turning point. Within months, Europe had to replace tens of billions of cubic meters of pipeline gas with LNG. Floating Storage and Regasification Unit (FSRU) terminals were deployed at an unprecedented pace.

One example highlighted in the presentation was Germany's Wilhelmshaven terminal, which began operations on December 17, 2022, less than a year after the war began. This represented one of the fastest energy infrastructure developments in modern history.

LNG, previously considered merely a supplementary source of supply, became a cornerstone of Europe's energy security.

A Complete Reversal of Gas Flows

Before the war, natural gas flowed from Russia toward Western Europe. After the war, gas flows were redirected from LNG terminals along the Atlantic coast, the North Sea, the Mediterranean, and the Baltic Sea toward Central European countries.

In other words, the direction of gas flows shifted from an "East-West Flow" to a "North-South Flow." This was not simply a matter of reversing pipeline flows. Entire operating systems, interconnection capacities, transportation contracts, and tariff mechanisms had to be restructured.

REPowerEU: Breaking Energy Dependence

The European Union subsequently launched a major initiative known as "REPowerEU." Its primary objective was clear: to eliminate dependence on Russian energy.

The MVM presentation outlined several key policies, including restrictions on Russian LNG beginning January 1, 2027, the termination of Russian pipeline gas imports beginning September 30, 2027, and the continued use of TurkStream under a new certification regime known as ex-ante certification.

From a political perspective, these policies are understandable. However, their economic consequences are substantial.

Landlocked Countries Bear the Brunt

Landlocked countries such as Hungary face far greater challenges than coastal nations. They do not have their own LNG import terminals. Every molecule of LNG must pass through several transit countries before reaching its final destination.

This creates multiple additional costs, including regasification charges, transmission fees, entry-exit charges, interconnection fees, balancing charges, and various tariffs imposed by Transmission System Operators (TSOs).

MVM refers to this phenomenon as "pancaking tariffs." The more countries the gas passes through, the more layers of costs must be paid.

The presentation illustrated this through an interesting example. Passing through one transit country could incur three types of charges. Passing through two transit countries could result in six charges. Passing through three transit countries could increase the number to ten different types of charges.

Total transit charges could even reach approximately €3.47 to €4.81/MMBtu, excluding several additional system operator fees. As a result, LNG loses its competitiveness compared with pipeline gas.

Ironically, these additional costs do not originate from the price of LNG itself, but from the complexity of regulations and transmission networks.

The Southern Corridor Is Not Yet a Complete Solution

Europe has also attempted to diversify its gas supply through the Southern Gas Corridor from Azerbaijan. MVM even holds an approximately 5% ownership stake in the Shah Deniz gas field and has established a supply agreement with SOCAR for up to approximately 800 million cubic meters of gas annually.

However, the capacities of the Trans-Anatolian Natural Gas Pipeline (TANAP) and the Trans Adriatic Pipeline (TAP) remain limited. Consequently, the Southern Route has not yet been able to fully replace Russian gas supplies.

Lessons for Indonesia

Indonesia is in a very different position. We do not yet have an extensive national gas pipeline network comparable to Europe's. Some may view this as a weakness. Yet, this is precisely where Indonesia has a significant opportunity. We can develop our national gas infrastructure based on future needs rather than past conditions.

Instead of relying solely on expensive, long-distance pipelines, Indonesia can develop an integrated combination of LNG, small-scale LNG, mini-LNG, CNG, floating storage, satellite LNG facilities, and interconnected regional pipelines.

Japan has extensively developed this type of model. The country has established dozens of LNG receiving terminals, interconnected pipeline networks (looped pipelines), and satellite LNG facilities, creating a system that is far more flexible in responding to supply disruptions.

Masela and Eastern Indonesia

Europe's experience also reinforces the view that projects such as Masela should not be regarded solely as LNG export projects.

Gas from Masela could serve as the backbone for developing an energy distribution network across Eastern Indonesia through a hub-and-spoke concept, connecting major LNG terminals with satellite facilities using small-scale LNG carriers and CNG transportation.

With this approach, Indonesia would not need to repeat the mistakes of countries that have become overly dependent on a single type of infrastructure.

Diversification is not merely about securing different sources of gas. It also concerns how gas is delivered to consumers.

The Broader Lesson

Ultimately, the Russia-Ukraine war has provided an extremely costly lesson for the global energy industry. For decades, Europe developed a gas system that was highly efficient from an economic perspective but insufficiently prepared for geopolitical disruptions.

When the conflict erupted, billions of euros had to be spent on constructing new LNG terminals, redirecting gas flows, strengthening interconnections, and restructuring the entire tariff system.

Indonesia still has the opportunity to learn from this experience without having to endure a similar crisis. As major projects such as Masela, IDD, Andaman, and various new LNG terminals move forward, the decisions made today will determine whether our national gas system will be sufficiently flexible to respond to geopolitical changes in the decades ahead.

Ultimately, energy security is determined not only by the size of a country's gas reserves, but also by the foresight to develop infrastructure capable of adapting to an increasingly uncertain world.

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Yogyakarta, shortly before Duha prayer

Wednesday, July 29, 2026