Amid an increasingly complex geopolitical landscape, Russia’s ambitious plans to scale up gas exports, particularly to the East and in the form of liquefied natural gas (LNG), are facing major obstacles, including stalled negotiations on a new pipeline to China and US sanctions targeting the Arctic LNG 2 project.
It will take many more years
Russia's "pivot" to China to make up for some of the gas market share lost in Europe following its military campaign in Ukraine is proving to be a challenging endeavor.
The Power of Siberia 2 pipeline project was conceived more than a decade ago to help Russia “look east,” with Russian gas from the Yamal Peninsula in Western Siberia being transported through Mongolian territory to northeastern China.
Since Moscow launched its military campaign in Ukraine and Russia-Europe trade collapsed, trapping Russian gas, Power of Siberia 2 has taken on a new importance and urgency.
The obstacle for Moscow is that Beijing – an increasingly important economic partner since the outbreak of the conflict in Ukraine – appears in no rush to get involved. Negotiations on this latest project have yet to make much progress, largely due to disagreements over price.
The Power of Siberia 2 pipeline project was conceived more than a decade ago to help Russia “look East.” Photo: Table Media
Currently, Russia's state-owned energy giant Gazprom supplies gas to China via the Power of Siberia pipeline – which runs directly into China across its northern border with Russia, became operational in 2019 and is expected to reach its maximum capacity of 38 billion cubic meters per year by 2024.
Supplies to China in 2023 are expected to reach 23.2 billion cubic meters, exceeding the previously set plan, Gazprom CEO Alexey Miller told Russian President Vladimir Putin last week. The CEO also said that the volume of gas “directed east” in 2025 would remain stable at 38 billion cubic meters.
Despite boasting about increased flows to China, Russia's gas exports have generally declined since the war in Ukraine began, and it will take Moscow years to make up for earlier pipeline volumes to Europe with higher supplies to other markets.
Before the conflict, Russia supplied about a third of Europe’s total gas. Analysts doubt Moscow can increase exports to China to that level for at least another seven years.
Not the worst
As the world's fourth-largest LNG producer after the US, Qatar and Australia, Russia has ambitions to increase its global market share to about a fifth from the current 8% by tripling output to more than 100 million tonnes by 2030-2035.
With the lack of new pipelines allowing “eastward” gas flows, Russia has bet on increasing sales of LNG, which Europe imports in large quantities.
The EU has been Russia's biggest LNG buyer since Western sanctions on Russian oil came into force late last year, according to data from the Center for Research on Energy and Clean Air (CREA).
Imports of Russian gas, unlike oil and petroleum products, are not banned by the EU, at least not yet. But the EU still aims to phase out Russian gas entirely by 2027.
However, recent US sanctions against Russia’s latest LNG project in the Arctic, called Arctic LNG 2, have the potential to disrupt the Kremlin’s LNG strategy and “bury” the Eurasian giant’s ambitions to become a major player in the global LNG market.
That’s not the worst of it. Worse still, the sanctions have also thrown into doubt contracts for ice-resistant LNG tankers—crucial to Russia’s Arctic LNG project.
Novatek's Arctic LNG 2 project is a key link in the Kremlin's LNG strategy. Photo: Novatek
With three processing lines, Arctic LNG 2 has a capacity of 19.8 million tons per year and 1.6 million tons per year of stable gas condensate. That makes the project central to Russia’s plans to boost energy revenues after pipeline gas exports to Europe have plummeted. The Kremlin relies on energy sales, which accounted for 57% of Russia’s total export revenue and 27% of its gross domestic product last year.
“The US sanctions against Arctic LNG 2 have become a specter that threatens Russia’s entire LNG strategy,” Sergei Kapitonov, an analyst at the Moscow-based Skoltech Project’s Center for Energy Transition and ESG, told consultancy Energy Intelligence.
According to Alexey Belogoryev, Director of Research and Development at the Moscow-based Institute of Energy and Finance, US sanctions on LNG 2 in the Arctic have created great uncertainties for the future.
Novatek, Russia's leading LNG exporter developing the project, "will be forced to switch to Russian vessels and liquid cargo vessels flying the flag of other countries but benefiting from Russia through a chain of companies," Belogoryev said.
“The issue of cargo ships is key. The situation will become particularly worse if the EU follows the US in imposing an embargo on Russian LNG. And this is entirely possible after 2026,” the expert added .
Minh Duc (According to BNN Breaking, Oil Price, Euractiv)
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