Europe takes Russian gas by tankers

Despite the geopolitical aggravation, Europe is increasing its purchases of Russian LNG against the backdrop of a decrease in pipeline supplies from Gazprom. In the first nine months of 2022, Russian LNG exports to Europe have increased one and a half times, to 15 billion cubic meters, as gas prices in the region are now the highest in the world. Some analysts believe that the growth in LNG supplies demonstrates the stability of this export channel and indicates the need to develop it, and not build new gas pipelines.

In the first nine months of 2022, the EU increased imports of Russian LNG by 50%, to 15 billion cubic meters, Tim McPhee, a representative of the European Commission, announced on October 14. “We are talking about nine months of the year. In 2021, there were (imported to the EU.— “b”) total almost 53 billion cubic meters of gas (in the form of LNG.— “b”), in 2022 – almost 88 billion cubic meters. As for Russia, then (share of total LNG imports.— “b”) 20% last year is 10 billion cubic meters, and 17% this year is 15 billion cubic meters,” he said, answering a question from journalists about the volume of Russian LNG imports to the EU.

Before the outbreak of hostilities in Ukraine, according to the European Commission, Russian supplies accounted for about 40% of gas consumption in the EU, now – 7.5%. In particular, Gazprom’s supplies have fallen from about 350 million cubic meters per day at the beginning of the year to about 70 million cubic meters per day now.

NOVATEK reported that in the first nine months of 2022, LNG sales on international markets increased by only 0.2%, to 5.99 billion cubic meters, but in the third quarter, the growth was immediately 12.9%, to 1.93 billion cubic meters. NOVATEK accounts for only 60% of the LNG produced by its main project, Yamal LNG, in its financial statements; the rest comes from its project partners, China’s CNPC and France’s Total. Nevertheless, this gas, judging by the data of the European Commission, also mainly comes to the EU. NOVATEK does not disclose how much gas it sells to Asia and how much to Europe. In the nine months of 2022, Gazprom reduced gas exports to non-CIS countries by 40.4%, to 86.9 billion cubic meters.

NOVATEK continues to deliver to the EU in foreign currency, while Gazprom switched to payment in rubles. As NOVATEK CEO Leonid Mikhelson reported on October 13, the situation with settlements has improved. “Somehow it got better with payments for gas in Europe. Literally in Vladivostok, we met (at the beginning of September.— “b”): payments went, but there were delays all the time. Now, probably, winter has become closer, ”he added. In September, Mr. Mikhelson said that NOVATEK is expanding supplies to the Asia-Pacific region market, as work with Europe becomes more complicated. “The buyer pays, but the banks do not transfer, they slow down. The financiers make each payment through some other banks,” he explained.

Independent expert Alexander Sobko notes that this year the LNG market in Europe is premium in relation to the Asia-Pacific region. “Given the shorter transport distance for Russian LNG supplies from the Arctic and Baltic regions, the difference becomes even more significant. Curiously, due to falling demand for LNG in the PRC, it was reported that even volumes of Russian Arctic LNG owned by Chinese companies went to the European market,” he adds.

The analyst clarifies that over the past year, the total volume of LNG production in Russia has also increased: the capacity of NOVATEK’s Cryogas-Vysotsk plant has been increased, and Gazprom’s LNG plant at the Portovaya compressor station has recently been launched.

Sergey Kondratiev from the Institute of Energy and Finance notes that LNG is showing itself as an effective tool for diversifying Russian gas exports, primarily due to the lack of dependence on transit countries and one final buyer. “Now, after the explosions at Nord Stream, this has become especially relevant. I think that the Russian Federation needs to move in this direction without building new interstate pipelines (except, perhaps, for the EAEU countries), both because of high geopolitical risks and because of the decrease in the accuracy of medium- and long-term forecasts in the energy markets,” he thinks.

In October, the head of Gazprom, Alexei Miller, announced his intention to build an alternate for Turkish Stream. At the same time, the European countries, which should potentially receive gas through this new pipeline, have not yet expressed interest in it.

Tatyana Dyatel