LNG
SEABORNE LNG IS SET TO MOVE CENTRE STAGE IN THE EU One of the most profound changes to occur as a result of the ongoing Russia-Ukraine conflict will be the reorientation of natural gas flows globally. The announcement by EU Commission president Ursula von der Leyen that the EU would phase out Russian natural gas imports by 2027 is expected to lead to dramatic reorientation of the continent’s energy import landscape. The European Commission is expected to present a proposal by May 2022, which will provide further details about how the bloc plans to achieve reductions of Russian natural gas imports of around 66% by the end of 2022. The EU is expected to respond to the need to rapidly increase natural gas imports by expanding FSRU capacity over the near term, while accelerating the construction of larger capacity LNG import terminals. However, the sheer scale of Russia’s exports to the European customers suggests that expanding European natural gas import capacity to offset the reduction in Russian gas imports will be hard to achieve within the next year or two. While the majority of Russia’s natural gas exports to EU customers are supplied via gas pipelines (ranging between 170 billion m³ and 200 billion m³), Russia has also supplied around 20% (close to 24 billion m³) of Europe’s LNG imports in recent years from the Yamal project. While the majority of attention has naturally focused on how Europe will meet the shortfall in supply once it reduces Russian imports, it is useful to consider the situation from a Russian perspective. Russia is also likely to have an interest in maintaining cross-border gas flows over the near term, as the country’s gas pipeline networks do not conveniently connect with proposed new gas pipelines being built to serve customers in Asia. There is likely to be a delay while the gas pipeline connections towards the proposed Power of Siberia 2 pipeline are built. The European sanctions are also likely to affect Turkey, which currently hosts a 31.5 billion m³ pipeline, TurkStream. Russia had allocated close to half of that to customers in the Balkans and Hungary. Yamal LNG With the EU able to draw upon supplies of seaborne LNG
Credit: Axel Schmidt, Nord Stream 2 2018
The EU’s determination to phase out Russian gas imports by 2027 and deeper Sino-Russian links will transform the seaborne LNG market
from alternative sources, such as the US and the Middle East, it is likely that Russia’s seaborne exports of LNG from Yamal will be diverted towards East Asian markets. The project has tended to supply its output to customers in the EU. While the Northern Sea Route (NSR) is currently used for occasional shipments, following the first successful transit of an LNG cargo aboard the Vladimir Rusanov in June 2018, there is little realistic prospect that year-round transits along the north coast of Russia will become achievable within the near term. The current summer season for specialist iceclass LNG carriers to traverse the NSR in an eastwards direction runs from the end of May to early November. Seasonal restrictions will restrict the ability to increase export volumes significantly along the NSR.
8 Idling capacity: construction materials for the Nord Stream 2 natural gas pipeline near the landfall at Lubmin, Germany
Sakhalin LNG The Sakhalin LNG project currently supplies the majority of its output to customers in East Asia. At the time of writing, Japan had not yet applied restrictions to Russian imports of LNG, which accounted for almost 10% of Japan’s national gas supply.
China plans to increase gas imports Russia inaugurated the Power of Siberia gas pipeline to China in 2019. The pipeline has a capacity of 38 million m³, compared with annual Chinese import demand of around 220 million m³ of natural gas. The Russian and Chinese governments reached an agreement on 2 February to expand gas shipments. In early March,
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Gazprom announced that it was undertaking preliminary work before construction of a 50 million m³ gas pipelines via Mongolia and China’s Xinjiang, Power of Siberia 2, while the capacity of the original Power of Siberia connection is expected to rise to almost 50 million m³. If several other pipelines that are under
consideration proceed, China’s gas imports from Russia could rise to close to half its annual demand. It is unclear whether China will use the additional import volumes to reduce its reliance upon imported seaborne LNG, much of which is currently supplied by Australia and the US, or to accelerate the closure of its existing coal-fired generation.
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