Russian Gas Keeps Flowing to Europe: Russia’s LNG Ambitions and Flows in a Shifting Geopolitical Landscape

As a result of a new draft legislation, EU member states may prevent Russia from accessing their LNG facilities, hindering its flow throughout Europe and Asia. Putin shows confidence and optimism, describing the situation for Russian LNG exports as stable. However, numerous challenges appear on the horizon that could hinder the Kremlin’s aspirations of becoming the main LNG exporter by 2035: lack of infrastructures to reach the Asian market, competing countries, and possible shifts in global gas demand. What will Russia’s strategy be, faced with these transformations in the international energy market?

Elisa Zamolo

This blog post was produced as a student contribution to the FLOWISION university course Resource Flows in Northern Eurasia: Arctic, Climate, Fossil, Renewable, Knowledge & Communications at the end of 2023. We publish the two best student works in this blog.

A graph that shows the main liguefied natural gas exporters (in billion cubic meters): 1. Australia 108.1, Qatar 106.8, 3. United States 95.0, 4. Russia 39.6, 5. Malaysia 33.5, 6. Nigeria 23.3, 7. Algeria 16.1, 8. Indonesia 14.6
Image 1: The biggest liquefied natural gas exporters in 2021. Source: Statista. July 16, 2022,

Russia holds a pivotal position in the energy landscape, ranking as the world’s second-largest natural gas producer after the United States and boasting the largest gas reserves globally (IEA 2023a). The significance of natural gas relies on its potential role in the energy transition, serving as a transitional fuel towards cleaner energy sources (León 2022), which is why it is still in high demand. The global energy market is currently witnessing a boost in liquefied natural gas (LNG) trade, owing to its potential to enhance the security of supply. In fact, it offers a level of flexibility to consumers and producers that traditional pipeline gas cannot match — an aspect that has gained particular prominence in the wake of the energy crisis following the invasion of Ukraine. The crisis led gas-importing countries around the world to secure supplies, boosting near-term prospects for additional investment, especially for LNG export projects scheduled to start operating in the second half of the decade (IEA 2023b).

Russia was the world’s 4th largest importer of LNG in 2021, constituting 8% of global supply. Seeing the opportunities in this sector, it set the ambitious target of capturing a 20% share of the global LNG market by 2035. The country currently has two large-scale LNG export terminals operating at full capacity, Yamal LNG on the Yamal peninsula and Sakhalin-2 in the Far East, and two small export terminals in western Russia, Cryogas-Vysotsk and the KS Portovaya plant.

Where is Russian LNG flowing?

A map that shows the transportation sceme for the LNG products from Yamal Peninsula to Gas Buyers' markets in Europe and Asia
Image 2. Source: Natural Gas World. Project Spotlight: Arc 7 LNG Carriers (LNG Condensed). Jan 13, 2021.

Given its potential to strengthen energy security, LNG has become a base source of supply for Europe, with its share in total demand in the European Union rising from an average of 12% over the 2010s to close to 35% in 2022 (IEA, 2023b). Despite sanctions on Russian oil and petroleum, the EU remains a destination for 50% of Russia’s LNG exports (Levi 2024), mainly departing from the Yamal LNG terminal with Belgium, Spain, and France among Russia’s top five global clients for LNG. The European Commission assured in August 2023 that LNG constitutes a very small share of the EU energy mix, stressing that it is divesting away from Russian gas as quickly as possible.

However, not only Russian LNG exports to Europe were the highest ever in November 2023,  but more than 20% of Russian LNG reaching the EU in 2023 was reshipped to other parts of the world – including China, Japan, and Bangladesh. This is made possible through trans-shipments between Russian icebreakers running from the Yamal peninsula to north-western Europe and LNG tankers that then transport LNG to other ports in the world. This process is crucial for the efficient use of the Arctic fleet during the months when access to Asian markets through the Bering Strait becomes impossible due to icy conditions. Even if the EU does not use it all for domestic consumption, it still plays a key role in trading Russian Arctic LNG to non-EU countries, boosting the Kremlin’s revenues despite efforts to curb them.

The position of the EU

The existence of long-term contracts – signed before the invasion of Ukraine – has been blamed for the continuation of Russian LNG imports in the EU: in case of a breach of the contracts, European companies would be forced to compensate Russia. The Belgian company Fluxys, for example, has a 20-year contract with Yamal to transfer natural gas between tankers at the Zeebrugge terminal, which will end in 2039.  However, EU officials have expressed unease with the flow of Russian LNG into the bloc, with Energy Commissioner Kadri Simson stating the need to reduce and eventually eliminate Russian LNG imports. The European Parliament as well urged the EU to completely abandon liquefied natural gas from Russia. A draft law approved in December 2023 and expected to enter into force in May 2024 could radically change the situation: if adopted, it would allow member states to ban Russia and Belarus from buying capacity in its gas pipelines and LNG terminals and EU energy companies could have a legal basis to terminate contracts with Russian gas providers without having to pay compensation. However, the Belgian energy minister Tinne Van der Straeten let it be known that the country may not back the law since consultations with neighbouring countries are required first.

An analysis conducted in June 2023 by the think tank Bruegel showed that the impact on the EU of an end to Russian LNG would not be comparable to the shocks caused by the drop in Russian pipeline gas flows in 2022 (McWilliams et. al 2023). The same analysis suggests that the impacts on global markets and Russian revenues will depend on Russia’s ability to redirect cargos. Russian foreign ministry spokeswoman Maria Zakharova stated that a move by the EU in this direction would not damage the Russian economy and would lead to a swift redirection of Russian gas supplies to emerging markets.

Russian Strategy and Challenges

In a live broadcast on 14 December 2023, Putin emphasised the stability in Russian LNG exports and underlined how the country had begun to expand the gas market to the East – for example through the pipeline Power of Siberia – before the current developments. But how to redirect LNG flows towards Asian emerging markets? 

A round-shaped map with the North Pole in the centre, showing where the Northwest Passage, Northeast Passage and Northern Sea Routes go
Image 3: The Arctic marine area. Source: Susie Harder – Arctic Council.

The Northeast Passage (NEP) is an Arctic shipping route connecting the Atlantic Ocean to the Pacific Ocean through the Arctic Ocean. Its significance becomes apparent in scenarios involving a European embargo on Russian imports, as it would serve as the pathway for Russia’s gas to new markets in Asia  (Meza et al. 2023). For this reason, the Russian government pursues making the NEP an international avenue of trade. However, the NEP still lacks the resources and infrastructure, namely ports, ice-breakers, and communication systems, to make the route more operable (ibid.). There are substantial challenges to providing them, considering the remoteness of the area (ibid.). Moreover, the extreme and volatile conditions of the Arctic complicate the picture. Global warming in this respect could be useful, making the NEP easily accessible and making it Russia’s gateway to Asian markets. Unfortunately, it seems that the Arctic sea corridors cannot fully replace the conventional LNG routes, even with the most favorable climate scenario. 

The reason for this is the scarcity of opportunities for Russia to secure additional markets: following the invasion of Ukraine, there has been a boom in LNG infrastructure projects, which effectively saturates the market, limiting the opportunities for Russia to secure additional markets (IEA 2023b). According to the International Energy Agency, the share of Russian gas traded internationally is halved by 2030 in the Stated Policies Scenario (STEPS), while Asia would be the final destination for almost all additional LNG supply in the Middle East. As if that was not enough, there is an expected general decrease in gas demand, especially in emerging markets in Asia (ibid.). In this regard, China, which is the largest country-importer of Russian LNG, is witnessing an economic slowdown that will likely negatively impact its fossil fuel demand. If the economy keeps slowing, LNG imports would decline by more than 20% by 2030, with major implications for global balances (ibid.).

Competitors like the United States are salient in this landscape. Not only it is among the main LNG producers and exporters, but the US holds two crucial competitive advantages in LNG markets: its geographic location allows it to efficiently supply both the European and Asian markets, while flexibility of its LNG contractual arrangements, specifically destination flexibility, allows buyers to divert cargoes to the most profitable LNG market. Moreover, the US is targeting the Arctic LNG 2 project with sanctions, which limit Russia’s access to the necessary technology and capital. The largest addition by 2026 in LNG capacity was expected from Russia (Nakhle 2023), but sanctions are challenging the development of infrastructure in the Arctic area, and despite the Kremlin’s plans to increase LNG production, Russia’s role in the global gas market, including LNG, is expected to decrease.

Conclusion

In conclusion, Russia’s LNG ambitions face a complex geopolitical landscape marked by legislative challenges, shifting global demand, and intense competition. While President Putin expresses confidence in the stability of Russian LNG exports, obstacles loom on multiple fronts. The EU’s potential legislation allowing member states to restrict Russia’s access to LNG facilities poses a significant threat to Russia’s aspirations. Despite being the world’s second-largest natural gas producer, Russia confronts hurdles such as insufficient infrastructure for Asian markets, global market shifts, and competition from other major LNG exporters like the United States. Once Russia realizes that it is facing a dead end, or at least a combination of complex economic and geopolitical challenges on its own, will it change its strategy, focusing for example on the hydrogen industry? It may prove to be a winning innovation and adaptation strategy, but that is another story.

Sources

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Humpert, M. (2023). EU Countries Continue to Import $1bn of Russian Arctic LNG Every Month. Retrieved 9 December 2023 from <https://www.highnorthnews.com/en/eu-countries-continue-import-1bn-russian-arctic-lng-every-month>.

IEA (2023a). Countries & Regions – Russia. Retrieved 10 December 2023 from  <https://www.iea.org/countries/russia>.

IEA (2023b). World Energy Outlook. Retrieved 29 November 2023 from <https://www.iea.org/reports/world-energy-outlook-2023>.

León, G. D., & Scipio-Cimetta, S. D. (2022). The role of natural gas in today’s energy transition. Dyna, 89(221), 92-100.

Levi, I. (2024). January 2024 — Monthly analysis of Russian fossil fuel exports and sanctions. Centre for Research on Energy and Clean Air. Retrieved 18 February 2024 from <https://energyandcleanair.org/january-2024-monthly-analysis-of-russian-fossil-fuel-exports-and-sanctions/>.

McWilliams, B., Sgaravatti, G., Tagliapietra, S., Zachmann, G. (2023). The EU can manage without Russian liquified natural gas, Bruegel Policy Brief, No. 16/2023, Bruegel, Brussels.

Meza, A., Ari, I., Al Sada, M., & Koç, M. (2023). Relevance and potential of the Arctic Sea Routes on the LNG trade. Energy Strategy Reviews, 50, 101174.

Nakhle, C. (2023). A new era for natural gas markets. GIS. Retrieved 15 November 2023 from <https://www.gisreportsonline.com/r/gas-markets/>.

PortNews (2023). Владимир Путин назвал стабильной ситуацию с экспортом российского СПГ [Vladimir Putin described the situation with Russian LNG exports as stable]. Retrieved 15 December 2023 from <https://portnews.ru/news/357503/>.

President of Russia (2023). Подписан закон, направленный на развитие проектов по производству сжиженного природного газа и расширение перечня экспортёров СПГ. [ A law was signed aimed at developing liquefied natural gas projects and expanding the list of LNG exporters]. Retrieved 17 December 2023 from <http://kremlin.ru/acts/news/72648>.

Rossiya-Ukraina (2023). Путин ЖЕСТКО о поставках газа в Европу. [Putin is hard on gas supplies to Europe]. Retrieved 15 December 2023 from <https://www.youtube.com/watch?v=U5qPhdB0V0o>.

Soldatkin, V. (2023). Russia says it won’t ditch plans to boost LNG output due to US sanctions. Reuters. Retrived 9 December 2023 from  <https://www.reuters.com/world/europe/russia-says-it-wont-ditch-plans-boost-lng-output-due-us-sanctions-2023-11-09/>.