Russian gas flows favoring Asia over NWE as LNG finds takers in Europe

Russian gas supply to Asia has continued to grow with expectations that it would increase further as Europe diversifies its energy mix away from Russian pipeline supply, however, Russia-Europe LNG exports have climbed to record highs this year so far, S&P Global Commodity Insights data showed.

Russia pipeline flows to China via the Power of Siberia line have risen steadily over recent years and are projected to reach 30 Bcm in 2024 before hitting the design capacity of 38 Bcm in 2025, Gazprom previously said.

It had exported 22.7 Bcm in 2023 and 15.4 Bcm in 2022.

“The Power of Siberia-1 project that took FID in 2014 sent 22.7 Bcm to China in 2023, and 30 Bcm is expected to be delivered in 2024; the contracted plateau of 38 Bcm/y is expected to be achieved rather quickly in 2025,” said Anna Galtsova, a research director at Commodity Insights.

“In addition, Russia and China signed a contract in February 2022 to deliver an additional 10 Bcm/y to China via its Sakhalin-Khabarovsk-Vladivostok (SKV) pipeline,” Galtsova said.

The uptick in flows to the East coincided with a drastic decline in exports to Europe, having fallen from a pre-crisis total of around 116.5 Bcm in 2021 to 57.2 Bcm in 2022, following the halting of imports via the Mallnow and Griefswald IPs.

Indeed, with Russian pipeline gas now only entering Europe via the Strandza 2 and Velke Kapusany IPs, Commodity Insights data showed total flows at 25.3 Bcm in 2023 with these reaching 23.6 Bcm over 2024 thus far.

Although high gas inventories and milder temperatures across both Europe and Asia have depressed gas and LNG demand into winter, so far, demand prospects from Asia are expected to grow in the coming years.

Commodity Insights data forecast that LNG demand in Asia will grow around 24% from 282.81 million mt in 2024 to 350.97 million mt in 2028. This will be primarily driven by growth in China, the data showed.

“Looking ahead to the 2030s, we expect LNG supply competition to intensify as LNG demand peaks in several large LNG importing markets, including China and Europe,” Sara Pourghorbani, director, and Anna Galtsova, senior director, at Commodity Insights, said in a Russian LNG report.

“In China, growth in LNG imports could be curtailed by additional volumes from the 50-Bcm/y Power of Siberia-2 pipeline, which sources gas from West Siberia. However, by the late 2030s, with decline in some of the existing projects, a new window of opportunity will open for larger LNG projects.”

Although demand is expected to strengthen in Asia, sources remain relatively bearish for LNG demand for the fourth quarter given improving pipeline volumes coupled with healthy supply of nuclear and other alternatives.

“Chinese pipe-gas supply [from Russia] is increasing from December, the pipeline volumes from Siberia will get bigger capacity in December,” an LNG trader said. “Buyers in Asia are super comfortable, the weather this winter will be mild and boring until December and buyers won’t be in the market till December given the healthy pipe flows.”

Gas flows from Russia via the Power of Siberia pipeline were competitive with China’s LNG imports in the country’s northeast and Bohai Bay region, however, as Russian piped supply travels further south into Jiangsu and the Shanghai market, transmission fees are set to erode its edge versus LNG, Commodity Insights analysts said.

Russian LNG favors Europe

Although pipeline volumes of Russian material are set to grow further to Asia, currently Russia’s LNG molecules have continued to find buyers in Europe.

Russian LNG exports in 2024 so far stood at 19.05 million mt, or 314 cargoes, according to Commodity Insights data as of Oct. 23.

Of the total, nearly 68% went to Europe and nearly 27% to Asia.

This compared to the 17.53 million mt exported in 2023 with 69% to Europe and 30% to Asia in 2023, and 17.96 million mt exported in 2022 with 68% delivered to Europe and 31% sent to Asia, over the same period, the data showed.

Notably, Russian LNG exports this year to Europe were the highest recorded over the Jan. 1 to Oct. 23 period. At the same time, Russian LNG delivered to Asia in 2024 was at the lowest levels recorded since 2020, over the same period.

On the imports side, Russian LNG has accounted for 17% of European LNG imports this year so far, versus the 12% total in 2023 and 12% in 2022, over the same period, Commodity Insights data showed.

This compared to the nearly 6% market share Russian LNG has for Asian imports in 2024, versus the 6% in 2023 and 7% in 2022, over the same period.

“Finally, with sales of “new” Russian LNG in Europe unlikely due to sanctions, shipping LNG to more distant destinations — typically to a handful of smaller buyers in Asia — will not only increase operational costs but will also likely require price discounts similar to those seen in recent Russian oil sales,” Pourghorbani and Galtsova said in the report.

“LNG prices in Asia, currently ranging from $11 to $14/MMBtu are high enough to allow Russian projects to offer significant discounts, given that their short-run marginal costs are in the range of $2–$4.50/MMBtu — depending on transportation costs.”

They added that the next wave of LNG supply is expected to put pressure on global LNG prices, particularly toward the end of the decade, further lowering margins on Russian LNG exports. Even in the late 2030s, it may prove challenging for Russian LNG developers to offer discounts to buyers to secure sales, given their much higher development and transportation costs.”
Source: Platts