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56 I Eastern Europe bne September 2022
Can Russia replace lost European sales in Asia? In the short-term this is unlikely, but by the early 2030 Russia could be sending an extra 116-126bcm of gas to non-European markets. / bne IntelliNews
COMMENT
Can Russia pivot its European gas sales to Asia?
James Henderson of the Oxford Institute for Energy Studies
Russian gas has been remarkably popular in Europe over the past decade, with its share of demand rising as high as 39% (including sales of both pipeline gas and LNG). However, it has been clear to the Kremlin for some time that this would be unsustainable over the long term due to the impact of the Energy Transition, with the EU lead- ing the world in announcing aggressive decarbonisation objectives, as seen most recently in its “Fit for 55” package.
Although gas demand is expected to remain fairly robust to 2030 in Europe, beyond that time it must go into sharp decline if the region’s net zero target
is to be met. With this in mind, the Kremlin and Gazprom had already been thinking about how to diversify to new markets, with the growing economies
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in Asia the obvious target not just because of their expanding need for energy but also because gas offers a cleaner alternative to the huge amount of coal that is burnt in many countries in the region.
Some historical context is useful in understanding how this strategy has evolved and could evolve further in light of the impact of the war in Ukraine.
A gas export pipeline to China was first conceived in the Soviet era and was discussed on a regular basis through the 1990s by state gas company Gazprom
as well as by private companies such as TNK-BP through the 2000s. However, China didn’t need the gas at that point and so nothing happened. It was not until 2006 that China’s gas import needs started to rise significantly and the
prospects for Russian exports improved. However, it took another 8 years before a major export deal could be signed, and interestingly it happened shortly after sanctions had been imposed on Russia following the annexation of Crimea. Not surprisingly, the Chinese parties negotiated from a position of strength and got a very good deal on the price.
Moving forward to 2022 and the situation in Europe with regards
to Russian gas has deteriorated dramatically for obvious reasons. Although it is unclear how rapidly Europe can fully diversify away from buying gas from Gazprom, and indeed if imports from Russia will ever actually reach zero given the different attitudes to it across the European continent, nevertheless it is obvious that Russian