Russia may ramp up its gas supplies to Asian markets to a level close to its exports to EU in a decade - IEA
The phase-out of Russian gas from the EU market is expected to intensify Russia’s efforts to reconfigure its gas and LNG exports towards Asia, according to Gas Market Report, Q3-2022, published today by the International Energy Agency (IEA). The Agency specialists indicate that in a best-case scenario for Russia it would take at least a decade to ramp up its gas supplies to Asian markets to a level close to its 2021 exports to the European Union (155 bcm).
Russia’s pivot to the east would also necessitate the development of new gas export infrastructure and require significant capital investment, the report says.
China is by far Russia’s largest market in Asia (17 bcm), followed by Japan (9 bcm) and Korea (4 bcm). Russia’s natural gas exports to Asia totalled 32 bcm in 2021, of which 10 bcm were exported via the Power of Siberia pipeline to China and the remainder via LNG from the Sakhalin-II (Gazprom, Shell, Mitsui and Mitsubishi) and YAMAL LNG (NOVATEK, Total and CNPC) plants to various Asian markets.
IEA forecasts that Russia’s gas deliveries to Asian markets could increase by 40 bcm/yr to reach just over 70 bcm/yr by 2025. Under the longterm contract underpinning gas supplies via the Power of Siberia pipeline, Russia’s gas exports to China are set to increase to 15 bcm in 2022 and gradually ramp up to 38 bcm/yr by 2025.
Russia can divert over 10 bcm of LNG passing through the YAMAL LNG plant from Europe to Asian markets. Rerouting all the LNG flows from Europe to Asia would significantly increase shipping costs, especially during the December to June period when navigation on the Northern Sea Route is limited due to ice and weather conditions, says the Agency. Its forecast assumes that Arctic LNG train 1 will be commissioned, which could increase LNG supplies to Asian markets by 9 bcm/yr.
IEA reminds that Gazprom and CNPC signed a 10 bcm/yr long-term contract in February 2022 for gas deliveries via the Far Eastern pipeline route (according to non-official sources, for a duration of 25 years). The expected resource base for the gas deliveries, the Yuzhno-Kirinskoye field, could start production in 2023-2025. Meanwhile, the current sanctions put at risk the development of Arctic trains 2 and 3, which are assumed to be delayed beyond 2025. According to NOVATEK, annual capacity of all the three trains of Arctic LNG 2 is estimated at 6.6 million tonnes each.
As for the planned 50 bcm/yr Power of Siberia, the report refers to Gazprom’s own estimates: the pipeline could be constructed by 2027/28. Notably, no legally binding supply contract has been agreed for this route and negotiations between Gazprom and its counterparts in China may last for several years, possibly delaying its start-up to beyond 2030.
After February 2022, lower flows from Russia to Europe were compensated by higher pipeline deliveries from alternative sources and record volumes of LNG inflow, IEA says. Pipeline supplies from Norway rose by over 8% in the first half of 2022, while gas deliveries from Azerbaijan via the TAP pipeline surged by over 70% y-o-y. LNG imports rose by 60% y-o-y to over 80 bcm in H1 2022 – their highest-ever level for this period of the year with the United States being Europe’s largest LNG supplier.
The report says that OECD Europe’s domestic gas production is expected to increase by 3% in 2022, driven by higher output in Norway and the United Kingdom. Higher storage injection needs are set to provide strong support for imports in H2. Considering available capacities and assuming that Nord Stream flows will remain at 63 mcm/d, Russian piped gas flows are expected to fall by 40% y-o-y in 2022, largely compensated by higher LNG inflows, up by over 45%.
