The United States would more than treble its liquefaction capacity over the next five years, making it the world’s biggest LNG exporter, claims Bloomberg. As a result of the success of gas supplies to Europe, the United States plans to make investment decisions in 2023 on three projects whose implementation will increase annual LNG exports to nearly 170 million tonnes (compared to Qatar’s 150 million tonnes) by 2027 from the current 80 million, allowing them to bypass Qatar as the world’s leading exporter.
The Russian government prioritised pipeline gas deliveries for many years, and LNG production technologies were deemed supplementary. Therefore, it is now impossible for the Russian Federation to catch up to the export leaders in LNG. According to the policy adopted in 2022, the liquefied natural gas output should expand from 30 million tonnes in 2021 to 80-120 million tonnes by 2035. However, these ambitions need to be improved by the refusal of Western nations to offer the essential technologies for the liquefaction of significant quantities of natural gas. Complications have developed during the construction of special gas carriers in the Russian Federation with the cooperation of Japanese and Korean enterprises. At the same time, restrictions may be placed on the future export of liquefied natural gas from Russia.
Last year, Russia’s liquefied natural gas production climbed by 8%, reaching 46 billion cubic metres. According to a recent announcement by the General Administration of Customs of the People’s Republic of China, LNG supplies from Russia to China climbed by 43.9% in 2022, reaching 6.5 million tonnes. Russia ranked fourth globally in terms of LNG supply to China after Australia (21.85 million tonnes), Qatar (15.7 million), and Malaysia (7.36 million tonnes). According to Bloomberg, the Russian Federation is the world’s sixth-largest producer of this resource.
LNG was the only fuel for which Russian exports to Europe increased in 2022. This trend continued the following year as well. NOVATEK increased the amount of LNG transported to Europe from the Yamal LNG plant by approximately 13.5%. Since September, Gazprom’s new medium-tonnage Port LNG plant has started supplying countries across the Baltic Sea with natural gas liquids, with most of their ships being accepted by Turkey. On January 23, the gas terminal in the Sea of Marmara was visited by the Pskov ship, which offloaded an extra 100 million cubic metres of gas there.
The decline in Russian pipeline gas shipments to the EU has boosted the proportion of LNG in Russian gas exports to 25 per cent. Russia placed third in LNG deliveries to Europe at the end of the year, after the United States and Qatar. Simultaneously, the United Kingdom and the Baltic states ceased purchasing LNG from Russia last year. In December, London and Washington signed an agreement to limit the world’s reliance on Russian energy.
However, as the British Financial Times reported in November, EU members purchased 42% more Russian LNG in the first ten months of 2022 compared to the same period in 2021. The purchase of 17.8 billion cubic metres of gas. m of LNG were destined for France, Belgium, Spain, and the Netherlands.
Russians predicted that gas production would decrease by 12 per cent in 2022 while exports would plummet by 25 per cent, mainly owing to the suspension of the export infrastructure and the destruction of the Nord Stream. According to some calculations, in 2023, Russia will be able to supply Europe with the same quantity of gas via still-operational pipelines (Turkish Stream and across Ukraine) and LNG – between 20 and 25 billion cubic metres.
However, these intentions may also be thwarted by the United States, aggressively advertising its products on the European market, which is only partially supplied by Russian pipeline gas.
In 2022, Europeans aggressively purchased any available gas at any cost. From January to October 2022, American LNG supplies reached 62 billion cubic metres, up from 24.2 billion cubic metres in 2021 (an increase of 2.6 times), according to some estimates. This is a 4.5-fold increase compared to the same period in 2019 when a total of 13.6 billion cubic metres were provided.
In January, the gas price in Europe dropped to its lowest level since December 2021 due to warm weather and renewable energy substantially reducing demand. Winter is predicted to come to the continent, and in this instance, three tankers carrying American LNG are waiting, but not emptying, off the coast of Spain to increase their revenue.
Europeans are making preparations for upcoming winters. A regasification vessel, a tanker, arrived in Germany in Brunsbuttel near Hamburg. This is the third LNG terminal in the country; the first two, in Wilhelmshaven and Lubmin, have already been launched, and gas carriers from the United States are en route. On January 29, the tanker Cool Voyager will bring 100 million cubic metres of gas from the American plant Calcasieu Pass to the German port, according to media reports. After regasification, LNG will be sent to the German section of Nord Stream, which consists of a gas receiving station and land extensions.
For Russia, the LNG may also be subject to Western sanctions at some point, but it is in high demand around the globe, and its transport mechanism is more flexible than pipelines, so there should be no sales issues. It takes three to four years to change critical technology for LNG. However, the question of Russia’s return to the European market will rely on the course of the next two years. If Russia fails the Turkish hub project, there will be no motivation for Europe to engage with Russia. Then Europe can enter into agreements with the United States, opening a new investment cycle and producing additional gas volumes in 2027. After that, the Russian Federation will have no chance of reentering the European market.
Nowadays, the Russian Federation and the United States target separate markets. In the long term, American LNG producers will be one of the primary beneficiaries of Gazprom’s loss of its important European market due to Russian government initiatives.
Russian LNG producers are focusing their new projects primarily on the Asia-Pacific region (APR) markets, which, according to current projections, will become the engine of LNG demand development over the next 10 to 15 years.
The plan for LNG production in the Russian Federation has already been scaled back from 120-140 million tonnes to 80-120 million tonnes, but there are no assurances that even these more modest goals will be realised. Most expectations are placed on Arctic LNG-2, Ob LNG, Yakutsk LNG, the Gazprom project in Ust-Luga, and future NOVATEK projects. However, for all projects other than the first two lines of Arctic LNG-2, the likelihood of realisation in the context of sanctions for the supply of equipment for the production of LNG is a pressing concern. NOVATEK asserts that its “Arctic Cascade” technology is already applied to the implementation of medium-tonnage projects; however, there are currently no assurances. Given the overwhelming likelihood of completion of the Arctic LNG-2 project (with a capacity of nearly 20 million tonnes per year) and the availability of technology to undertake at least medium-sized projects, the lower end of the projection range (80 million tonnes) is a reasonable objective. To reach the upper limit, either a breakthrough in import substitution or an improvement in ties with the West is required.