According to Natural Gas Intelligence article published on January 10, 2023, Russian natural gas exports to foreign markets dropped nearly 46% year/year in 2022, when they were impacted by a steep decline in deliveries to Europe, according to Gazprom PJSC.
Exports, including those to China via the Power of Siberia Pipeline, dropped to 100.9 billion cubic meters (Bcm) last year, or about 3.6 Tcf. That’s compared to 185.1 Bcm, or roughly 6.5 Tcf, in 2021.
Gazprom had a “very, very difficult” year, Gazprom Chairman Alexey Miller reportedly said at a conference late last month. Gazprom produced 412.6 Bcm of natural gas last year, a 20% decline from 2021 volumes, he said.
“Gazprom will not be able to find any substantial new export outlets over the next decade,” said Jonathan Stern, a senior research fellow at the Oxford Institute for Energy Studies. “Nothing will compensate for the loss of 140-150 Bcm of pipeline export volumes to European Union (EU) countries any time soon.”
Europe was Gazprom’s main export outlet until Russia invaded Ukraine last February. The Kremlin continued curbing deliveries to EU nations throughout 2022 in retaliation to Western sanctions against the war. By September, Gazprom cut flows to a trickle and explosions knocked out the Nord Stream (NS) gas system running from Russia to Germany.
Russian gas deliveries into Europe are now limited to a cross-border pipeline via Ukraine and another pipeline through Turkey.
“Although the current approximately 25 Bcm of exports is likely to continue unless the conflict interrupts Ukrainian flows, it is possible this could marginally increase if there is a settlement, but at present that doesn’t look likely,” Stern told NGI.
Russia has managed to compensate for the loss in export volumes with the massive increases in European gas prices and high oil prices. Stern expects prices “to rise further as Putin retaliates against the recently imposed European cap, which could become more significant as the gas, and probably oil supply and demand rebalance.”
Gazprom did not publish its financial results for 2022, leaving the company’s economic situation unclear. Miller noted in Gazprom’s year-end letter that there was “a total change in energy markets” influenced by western sanctions.
Focus On LNG
Russia’s future export plans include increasing LNG shipments in the West from PAO Novatek’s Yamal and Arctic liquefied natural gas projects. It also plans to boost exports in the east from the two Sakhalin projects that the country took over by a decree from President Vladimir Putin in June.
Russian LNG exports increased nearly 10% year/year in 2022 to 32.87 million tons, according to Kpler data.
“Russian LNG exports will continue even to Europe because – United Kingdom aside – they have not been sanctioned and don’t look as if they will be,” Stern said.
But increasing LNG exports from new projects will be difficult.
Novatek’s Arctic Cascade liquefaction technology appears to have failed, Stern said, “so LNG exports will stall post Arctic LNG Train 1 because of sanctions, or until Russia or China develops their own liquefaction technologies which is not impossible but currently not on the horizon.”
Hopes Pinned On China
Russia has an ambitious export strategy focused eastward on China in a shift away from Europe. Gazprom aims to increase exports to China by adding around 100 Bcm of delivery capacity by 2030.
The Power of Siberia 1 (POS) pipeline started deliveries to China in 2019. It supplied about 10 Bcm of gas in 2021. POS 1 is expected to reach its full 38 Bcm capacity by 2025.
The planned 50 Bcm/year POS 2 would take the place of NS 2 to transport gas from the Yamal-Nenets region via Mongolia to China, Russian Energy Minister Alexander Novak said in September. But POS 2 is not expected to come online until 2030 or later.
POS 3 is a 10 Bcm/year pipeline to deliver Russian gas from the Far East Island of Sakhalin across the Sea of Japan to northeast China by 2026.
Russia will need billions of dollars for these projects, and contract prices for Chinese exports are significantly lower compared to prices paid in European markets. “Chinese prices are not likely to substantially increase,” Stern said.
“China will build up slowly over this decade, but POS 2 is not yet agreed and 100 bcm looks highly ambitious prior to 2030, with 50-60 Bcm looking more likely.”
