Page 7 - GLNG Week 16 2022

GLNG COMMENTARY GLNG

Baltic and Black Sea ports, without having to things itself.
invest in extra capacity. But sanctions have made Russia embarked on a localisation drive after
it difficult for Russian companies to hire tank- relations with the West collapsed in 2014, aimed
ers – international tanking companies would be at making its oil and gas industry more sanc-
easy to target with secondary sanctions and close tions-proof by developing local manufacturing.
this option off to Russia – and the situation could But the results have been largely disappointing.
get worse if these sanctions are tightened. Novatek won praise for developing its own liq-
uefaction technology, Arctic Cascade. But after
Gas trialling the technology at Yamal LNG, Novatek
Some 70% of Russia’s gas exports go to Europe CEO Leonid Mikhelson lamented in September
and as almost all of this flows through fixed pipe- last year that “it works, but it is bad.” He blamed
lines, changing the direction of gas flows to new Russian manufacturers for poor workmanship,
markets is a major headache. Russia will find it noting that the company had brought claims
even harder to divert its gas supplies to Asian against almost all the suppliers involved.
markets. The second option for Russia is building
Russia only established a pipeline connec- thousands of kilometres of pipelines to trans-
tion with China in late 2019: the 38 bcm per year port its vast Western Siberian gas reserves to
Power of Siberia, which delivers gas produced at China. Russia has already been working on the
the Chayandinskoye field, and in a few years it construction of such a project for several years.
will handle supplies from the nearby Kovyktin- Power of Siberia 2 would deliver up to 50 bcm
skoye field as well, both of which are located in per year of gas produced on the Yamal Penin-
Eastern Siberia. With Power of Siberia currently sula in the Russian Arctic to China via Mongo-
sending only 10.5 bcm per year of gas to China, lia – a third of what Russia currently exports to
Russia will be able to ramp up supplies by a fur- Europe and the same capacity as the now iced
ther 27.5 bcm per year over the coming few years Nord Stream 2 gas pipeline from Yamal to Ger-
– nowhere near the 155 bcm that Russia sent to many. But while current market conditions are
Europe in 2021. highly favourable, Moscow and Beijing are yet to
Russia also struck a second, 10 bcm per year clinch a gas supply deal to support the pipeline’s
gas deal with China in February, for deliveries construction, and negotiations could take some
from fields off Sakhalin Island that will flow via a time. After all, it took the two sides over a decade
new border crossing in the Far East. The contrac- to agree a contract to underpin the first Power
tual amount is set to be reached in the mid- to of Siberia.
late-2020s. And there are limits to how much gas China
However, apart from Novatek’s 23 bcm Yamal will really want to take from Russia. The largest
LNG plant, there is currently no way for gas from energy consumer in the world, China has long
Russia’s vast fields in Western Siberia that cur- pursued a policy of import diversification. It
rently satisfy European demand to reach Asian avoids relying on any one supplier for too great
markets. And the infrastructure necessary to a share of its energy, and it has several other
achieve this would be colossal in scale. options for extra gas, including Turkmenistan
Russia faces two main options for redirecting and various LNG exporters, including Australia.
its gas exports eastwards, and both present sig- The bottom line is if Europe bans the import
nificant challenges. First, it could accelerate the of all Russian oil and gas the Kremlin has a very
development of LNG exports, building new liq- serious problem indeed. It would have to rely on
uefaction plants in the Arctic and linking them unreliable tankers and trains to start with, as the
to fields that previously served Europe. However, first new pipelines would only come online in the
there are huge question marks about Russia’s next five years, with the larger capacity pipelines
ability to achieve this. like the Power of Siberia 2 taking yet another five
Russia’s largest gas supplier Gazprom has years or more to appear.
been trying to develop a second LNG terminal to In the meantime, that would force Russia to
complement the Sakhalin-2 plant in the Far East shut down many oilfields and lower output by
for years, without success. Novatek has enjoyed several millions of barrels a day, according to
better success. But it will now struggle to imple- International Energy Agency (IEA) estimates,
ment new projects as financing has dried up in and once turned off many of those marginal
the wake of sanctions, and its French partner fields would be extremely difficult to restart.
TotalEnergies has said it will not commit to any Europe is in a similar bind, as it will also take
further investments in Russia. time to redesign energy supplies to cut Russia
Novatek’s second plant, Arctic LNG-2, was out of the loop, but it appears from EU plans that
due online in 2023. But with the exit of several this could be done inside the next two years. The
financiers, its fate is also up in the air. Sanctions race is one as both sides press forward to change
also bar Western companies from supplying the basic make-up of their energy infrastructure
equipment and technology for LNG plants in as fast as possible. And on balance it looks like it
Russia, and Russia largely cannot develop these is Russia who has the disadvantage. ™

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