Russian LNG settles down in Europe

Liquefied natural gas (LNG) is still the only type of fuel whose supplies from Russia to Europe increased in 2022. NOVATEK increased LNG deliveries to Europe from the Yamal LNG plant by about 13.5%, and the so far insignificant volumes from the Gazprom Port LNG plant also contributed to the total volume of deliveries. The reduction in the supply of Russian pipeline gas to the EU has led to the fact that the share of LNG in Russian gas exports, previously insignificant, according to analysts, has grown to 25%.

Despite the reduction of Gazprom’s pipeline supplies to Europe, the export of liquefied natural gas to the EU, on the contrary, grew throughout 2022. Thus, the NOVATEK Yamal LNG plant increased supplies to the EU by about 13.5%, to 14.65 million tons, Kommersant calculated based on data from the Kpler analytical system. About 0.7 million tons more came to the continent from NOVATEK’s Cryogas-Vysotsk project. Also, insignificant volumes so far left the Port LNG project launched by Gazprom in September – about 0.35 million tons, which were mainly delivered to Greece (the last cargo from this LNG plant was sent to Turkey).

As for the Asian direction, where spot prices throughout the year were lower than in Europe, the supplies from the Gazprom Sakhalin-2 project in the Far East, according to Kommersant’s calculations, increased by about 2%, to 10.64 million tons, NOVATEK reduced supplies to Asia from Yamal LNG by 7%, to about 5.1-5.3 million tons.

NOVATEK did not respond to Kommersant’s request, Gazprom declined to comment.

Despite the ban on coal imports and the oil embargo, EU countries have not introduced general restrictions on the purchase of Russian pipeline gas and LNG, although individual countries have announced that they will stop such purchases. After Gazprom cut supplies through gas pipelines, Europe had to buy more LNG at ultra-high prices from plants around the world, including the Russian Federation, in order to have time to fill underground storage facilities by winter.

According to Maria Belova from Vygon Consulting, at the end of 2022, Europe, including Turkey, imported about 125 million tons of LNG, Russia accounted for about 13% of this volume. “Undoubtedly, Russian LNG has played a significant role in the European gas market in 2022. The deficit balance was reduced only thanks to a decrease in gas consumption, and the absence of 20 billion cubic meters of LNG supplies from Russia could play a critical role during the season of gas injection into UGSFs, ”says Sergey Kapitonov, an expert at the Skoltech Center for Energy Transition and ESG. Against the backdrop of a decline in Russian exports of pipeline gas to Europe, the share of LNG in total Russian supplies has grown significantly, exceeding 25% of total gas and LNG supplies (instead of 7% a year earlier), independent expert Alexander Sobko notes.

At the end of the year, Russia ranked third in LNG supplies to Europe, behind the United States and Qatar. The UK and the Baltic countries have stopped buying Russian LNG, but demand has increased from Spain, which increased purchases by 45% yoy, according to data from the Spanish energy company Enagas.

Europe’s preparations for winter 2023-24 may prove even more challenging, with significant new LNG volumes on the market not until 2025 at the earliest. Therefore, it will still be quite difficult for the continent to replace Russian LNG. In the absence of any restrictive measures in 2023, we should expect high LNG supplies from Russia to the European market to continue, Sergey Kapitonov believes. Since now pipeline gas supplies from Russia to the EU are at the level of 20-25 billion cubic meters per year, in 2023 Europe will have to replace about 40 billion cubic meters of Russian gas supplies. “Against the backdrop of increased competition for LNG volumes, Europe is likely to retain the status of the most attractive market for LNG suppliers in 2023, including Russia,” the analyst expects.

However, Alexander Sobko believes that in 2023 the attractiveness of the Asian direction may grow, although for supplies from Yamal and especially the Baltic, lower transportation costs make the European direction more profitable even if gas prices are equal with Asia. The analyst expects that as demand recovers in China, CNPC will stop reselling its volumes from Yamal LNG to Europe. He also believes that the supply of Yamal gas under the Gazprom contract with Gail to India will increase, as the company regains control over these volumes, which was temporarily lost after the nationalization of the European trading division of Gazprom in 2022 by the German authorities.

Tatyana Dyatel