Russian LNG plans need extra gas resources for 34 mil mt/year output boost
Russia’s major LNG development plans require additional gas resources to boost production by a further 34 million mt/year, Deputy Prime Minister Alexander Novak said March 7.
Russia is prioritizing LNG projects, after pipeline gas supplies to key markets in Europe fell dramatically following its invasion of Ukraine in February 2022.
“The strategic objective and future for our gas exports is the development of LNG production, which in the medium term should reach at least 100 million mt/year,” Novak said, according to a government statement.
Russia’s current LNG output is 33 million mt/year. Projects under construction including at Ust-Luga and Arctic LNG 2 will bring this up to 66 million mt/year, Novak said.
The invasion has cast doubts on the speed with which these projects may be developed after Western sanctions hit Russia’s access to Western financing.
Novak identified a lack of specialists working in the field and the need to develop more domestic technology as key challenges for increasing LNG output.
Russia is preparing a roadmap for LNG development. It plans to increase the share of domestic technology used in LNG production to 80% of the industry’s needs, as well as monitor the opportunities and risks of LNG production, taking into account global demand, the statement said.
Novak spoke after a meeting held with officials from the ministries of industry and trade, and energy, as well as scientists and companies developing LNG projects — Gazprom, Novatek, Rosneft and Rosatom.
Russia plans to export and supply the domestic market with its growing LNG supplies.
Russian natural gas and LNG have not been directly sanctioned by the EU, but some European countries have taken sovereign decisions to reduce imports. Furthermore, from April Russia introduced a ruble-based payment mechanism for gas supplies. When some EU countries refused to comply with the new system they were cut off.
Russian gas accounted for some 45% of EU imports before Moscow’s invasion of Ukraine, but has fallen to less than 10% now.
In contrast Russian LNG exports to Europe increased significantly last year, growing from 10.6 million mt in 2021 to 14.1 million mt in 2022. Most of these supplies were delivered to France, Belgium, the Netherlands and Spain.
Supply concerns led to major price volatility for both gas and LNG in 2022.
Currently spot LNG prices continue to be increasingly affordable for delivery into Northern Europe, with prices trending down in recent months along with European hub prices. The DES Northwest Europe Marker for April delivery was assessed by Platts, part of S&P Global Commodity Insights, at $11.96/MMBtu March 6, down from a peak of almost $75/MMBtu last August.
Some analysts expect a degree of price volatility to continue in the short and mid-term as there is limited capacity to replace Russian flows into Europe, and European buyers compete with Asia for LNG volumes. There may also be a further reduction in Russian gas flows to Europe if the war escalates and relations deteriorate further.