LNG exports are falling at a crazy pace: Russia risks losing its gas Klondike

The heat and repairs have deprived the Russian Federation of an effective weapon against Western energy sanctions

Russia risks losing the leader of the national energy industry. The production and export of liquefied gas, the volumes of which had previously been growing noticeably, are now steadily falling – in the first half of the year alone they decreased by 5-10%. Experts explain the reasons for the collapse by technical and natural factors: repairs of factories and low demand for fuel due to warm weather. True, with such unenviable results, the officials’ dream of increasing LNG production almost fivefold in ten years becomes extremely elusive.

In the first half of the year, exports of liquefied natural gas (LNG) from Russia, according to the Refinitiv Eikon agency, fell by 9.4% to 14.4 million tons. Production over the same time decreased by 4.5% to 16 million tons. In the summer, according to Rosstat, the decline in Russian LNG production reached record levels: in June it fell by 8.7%, and in August by 12%.

Both production and trade unenviable indicators, in principle, have their own logical explanation. Domestic LNG plants underwent scheduled major repairs, which took a lot of time – after all, in 2022, gas production here was carried out almost without stopping, which then made it possible to set one record after another. For further uninterrupted operation, serious diagnostic work is required, for which more time had to be allocated than before.

Lower marketing metrics can also be justified. Moreover, not by economic, but by weather circumstances. An overly warm spring and abnormally hot summer days led to a decrease in demand from foreign buyers. And September 2023 was the hottest in 174 years of climate data collection. “Under such conditions, Russia began to rapidly lose trading partners,” notes Arikapital Management Company investment strategist Sergei Suverov. — In June-July, South Korea almost completely stopped purchasing LNG from our country, and Japanese corporations began to prepare for similar measures. Meanwhile, liquefied gas from Russia, unlike natural gas supplied through pipes, is not subject to sanctions and serves as an important way out of Western sanctions for the domestic energy business.”

The loss of this opportunity for legal export, as the expert warns, could have a negative impact on the entire national raw materials industry. The liquefied gas cluster justifiably wants to become one of the leaders in the Russian energy sector and get accustomed to the international market, from where other types of our energy resources are actively being squeezed out for political reasons. Domestic exporters, indeed, can boast of certain achievements in the foreign LNG sales market. True, so far all these victories are rather local in nature. Thus, just a year after the start of supplies, Russia became the second largest exporter of liquefied fuel to Greece and Belgium, which, by the way, is in third place among importers of our LNG. The first and second places are occupied by China and Spain. In turn, supplies to the Celestial Empire are carried out not only by tankers, but also by road – in a container on a mainline tractor.

Last year, it was a sin for Russian LNG producers to complain. Total exports, according to Refinitiv, increased by 8.6% to 33 million tons. According to the Energy Strategy of the Russian Federation, by 2035, the production of liquefied gas in our country should increase significantly, reaching levels from 80 million (if there are geopolitical problems) to 140 million tons per year (if they are resolved).

The decline in LNG supplies, currently the most promising Russian energy instrument, leads to the most pessimistic forecasts, says BitRiver Communications Director and economist Andrei Loboda. Today, liquefied fuels account for at least a third of global energy consumption. By 2030, global demand for LNG will double. In essence, a new gas Klondike is being opened, which Russia should under no circumstances give to its competitors. The West sees the pace of development of the Russian LNG industry, and this sector may gradually become the main target of sanctions attacks. In September, American officials already promised new restrictions regarding Russian gas assets in the Arctic, on which, as they think, our country’s LNG projects in the future will depend.

“The development of such initiatives will not be cheap for our state—the taxation of the raw materials industry will again have to be changed in order to reduce the impact of Western pressure on the Russian energy industry,” the expert notes. “As for the possible actions of the West, in order to slow down Russian LNG exports, it can take the most radical actions, as was clearly demonstrated by the example of the blown up Nord Stream.”