Gas cleaning considerations – Newspaper Kommersant No. 40 (7485) of 03/10/2023

The European Commission called on European companies not to renew long-term contracts for the purchase of LNG in Russia after their expiration in order to free up a niche in the European market for “reliable” suppliers. So far, this is a recommendation, while current long-term contracts for Russian LNG expire beyond the 2030 horizon. According to analysts, the Russian Federation will be able to painlessly redirect its LNG to scarce Asian markets, and the very idea of ​​a ban on LNG imports will be difficult to implement in practice.

The European Commission proposes not to renew contracts for the purchase of Russian LNG in order to free up the market for “reliable” suppliers to Europe, European Energy Commissioner Kadri Simson said on March 9. “I call on all member states and companies to stop buying Russian LNG and not to renegotiate new gas contracts with Russia when they come to an end,” she said, speaking to deputies of the industry and energy committee of the European Parliament. Such actions, in her opinion, will ensure that “reliable” partners maintain demand in the EU. The United States is now the largest supplier of LNG to Europe. Continued purchases of liquefied natural gas from Russia Kadri Simson called “reputational risk” for European consumers.

According to the Center for German Studies of the Institute of Europe of the Russian Academy of Sciences, in 2022 Russian LNG supplies to Europe increased by almost 35%, to a historical maximum of 16.7 billion cubic meters.

It specifies that a significant part of this volume through other European states was received by Germany, which ceased to receive pipeline gas from Russia.

The largest LNG exporter in Russia is NOVATEK from the Yamal LNG plant with a capacity of more than 16.5 million tons per year. The only contract that involves the supply of LNG to Europe from this project is an agreement with the Spanish Naturgy with a volume of 2.5 million tons per year, which is valid until 2038 on DES terms (that is, delivery to the recipient’s port). The contract with the French TotalEnergies with a volume of 4 million tons per year and an expiration in 2032 was signed on an FOB basis and, therefore, does not necessarily involve delivery to the European market. Also, TotalEnergies has a contract for 2 million tons per year from the future Arctic LNG-2 project until 2043, also on FOB terms. The Sakhalin-2 project of Gazprom does not have long-term contracts with European companies – the contract with Shell for 1 million tons, expiring in 2028, is de facto no longer being fulfilled.

In 2022, Russia exported 33 million tons of LNG, of which half was sent to Europe, says Maria Belova, research director at Vygon Consulting. In 2022, she notes, Russian LNG provided about 4.5% of European gas needs, ranking third among the largest LNG suppliers. According to the expert, the liquefied gas market is developing in the image and likeness of the oil market, including in terms of sea transportation of liquefied gas, which is becoming more and more flexible every year. Therefore, the issue of redirecting supplies to other markets is a solvable task, she notes. In addition, the expert says, it is much easier to hide the origin of liquefied natural gas than pipeline gas. Therefore, it can be assumed that in the event of an EU ban on LNG imports, again, following the example of the oil market, a gray LNG market may appear, Ms. Belova believes.

Vygon Consulting considers Asia the most obvious consumer of Russian LNG, given the shortage of raw materials from other sources. At the same time, Maria Belova notes, it is important to understand what time interval we are talking about. “Ms. Simson used the expression “as soon as possible”. But in 2023, LNG producers will be able to increase its global output by only 12.5 million tons, which will obviously not be enough to replace Russian volumes in Europe, as well as those that this year will prefer the Asia-Pacific markets instead of the EU, where demand is recovering,” she says. This plan may be more or less feasible in 2025-2026, while much will depend on the dynamics of world demand and the volume of pipeline deliveries of Russian gas, the expert believes.

Olga Mordyushenko