Page 8 - AsianOil Week 16 2022

AsianOil COMMENTARY AsianOil

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

P8 www. NEWSBASE .com Week 16 22•April•2022