Authorities in Russia are seeking to stimulate development of the country’s remote northern gas reserves by offering domestic operators the opportunity to export liquefied natural gas without having to go through state-owned giant Gazprom.
Government-drafted amendments to the Russian law on gas exports suggest that operators of gas deposits located above the 67th parallel north, including the Arctic region, will be excluded from a requirement to export their LNG via Gazprom, which has a monopoly on handling gas shipments from the country.
The government said greenfield gas projects in the Arctic are too far away from the country’s trunkline network, making LNG the “only economically feasible way to monetise” reserves.
Pipeline construction costs in Russia’s remote and mostly unpopulated Arctic are high, and export options were further restricted by Gazprom’s decision last year to cut pipeline gas supplies to Europe.
The proposed amendments do not apply to Novatek or its Yamal LNG, Arctic LNG 2 and Arctic LNG 1 ventures, which already have a legal exemption that allows them to ship LNG to international markets.
According to an industry executive familiar with Novatek's LNG projects, the submitted amendments will apply to Arctic greenfields that involve Gazprom and other state-controlled companies, and are unlikely to be related to any of Novatek’s LNG projects.
Gas development ventures involving Gazprom and other Russian companies would have unrestricted rights to export LNG, although on condition that the government would own at least 50% direct or indirect interest in them, the amendments said.
Announcing the amendments, Prime Minister Mikhail Mishustin said the government aims to facilitate investments in greenfield projects with the goal of tripling the country’s total LNG production to about 100 million tonnes per annum by 2030.
Russia currently operates just two major LNG export projects, the Gazprom-led Sakhalin 2 and Novatek-led Yamal LNG schemes.
Both companies also participate in the small Vysotsk LNG and Portovaya LNG plants on the Baltic Sea.
Sakhalin 2 squeeze
Russia’s LNG shipments from Sakhalin 2 to Japan and other Asian countries are expected to drop this summer, with major maintenance planned at the company’s plant in the south of Sakhalin Island between 13 June and 23 August.
The maintenance schedule was revealed by a Sakhalin 2 contractor in a recent post seeking personnel to oversee repairs, although operator Sakhalinskaya Energiya has not responded to an Upstream request for confirmation.
Some Sakhalin observers suggested the maintenance may extend beyond the deadline, as international service contractors and suppliers forced out last year by international sanctions will have to be replaced by Russian companies.
A similar but shorter 35-day turnaround at Sakhalin 2 in 2021 resulted in a production loss of 1.1 million tonnes of LNG.
However, Sakhalin 2 was able to reach the output of 11.5 million tonnes of LNG in 2022 despite the forced expropriation of its assets.
About 60% of that volume is delivered to Japan under long-term contracts with the country’s energy utilities. “Amid the global competition for LNG, there is basically no substitute for Sakhalin 2 other than spot LNG,” Masahiko Hosokawa, a business professor at Tokyo-based Meisei University, was quoted as saying by Japanese news agency Nikkei.
In December, Japanese electricity generator JERA and trading houses Mitsui and Itochu signed long-term supply agreements with Oman LNG, and the country’s oil and gas explorer Inpex announced a 20-year deal with US-based Venture Global, according to state news agency ONA.
Japan’s efforts to source LNG supplies in the Middle East and US coincide with rising demand in Europe, where countries will compete for cargoes to fill gas storage sites ahead of the next winter.
European Union Energy Commissioner Kadri Simson told a meeting of lawmakers last week that EU countries and companies should not sign new contracts for Russian LNG as the bloc attempts to end its dependence on Moscow, according to Reuters.
“I encourage all member states and all companies to stop buying Russian LNG, and not to sign any new gas contracts with Russia once the existing contracts have expired,” Simson said, adding that this could also reassure other gas suppliers in the US and Middle East with which Europe is trying to negotiate deals.
