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Russian options to offset loss of European gas market
20/7/2022
6 min read
Feature
Russia will have to build up its LNG industry and construct thousands of kilometres of pipeline to China to offset the loss of European gas sales in the coming years. And in the circumstances, both options will be formidable undertakings. Tim Crawford reports.
The European Union (EU) is making a concerted effort to phase out Russian gas as quickly as possible in the wake of Moscow’s invasion of Ukraine. While its goal to eliminate the country’s supplies from the European system as soon as 2027 may prove overly ambitious, Brussels seems set to continue on a course that will see Russia gradually cede market share on the continent. Furthermore, Moscow could well accelerate the process by cutting off supply to more buyers in retaliation for Europe’s military support for Ukraine and its sanctions regime.
The next question is how Russia might be able to maintain its status as a natural gas giant, in spite of the loss of its largest market, by diverting its vast exports to friendlier markets, primarily in Asia.
Until recently, Europe accounted for 70% of Russia’s gas exports. The majority of this supply, some 155bn m3/y in 2021, was delivered through pipelines built for westward export. These pipelines simply cannot be diverted to Asia without extensive investments in new infrastructure. In contrast, EU data shows that the bloc received only 16bn m3/y of Russian LNG, primarily from the Novatek-led 23bn m3/y Yamal LNG project, which could switch to fully targeting the Asian market.