Europe may be closer than ever to breaking its energy dependence on Russia, but in the short term it still can’t live without one type of Russian natural gas. While Russian exports of natural gas carried via pipelines to Europe have fallen sharply since Russia’s invasion of Ukraine in late February, imports of Russian LNG, have risen.
Most Russian LNG imports come from privately owned Novatek, the
country’s second-largest natural gas producer after Gazprom.
Novatek operates the Yamal LNG project in the northwestern Arctic. Most of November’s
imports went to France, Spain and Belgium, though some of those cargoes were
then reloaded and shipped to countries outside Europe, including China.
However, Russia’s strategy
to leverage European reliance on its gas has become a double-edged sword, and
Europe is much better suited to adapt, at least in the medium term, to this
grand shift in energy relations. European countries have shown that they can
secure fast-track deployment of additional gas import infrastructure,
effectively ending their historical dependency on Russian supplies.

Supply Forecast
Russia’s natural gas supply was
approximately 2.27Bcmpd in 2021, but this is expected to decline by 7.7% to
2.21Bcmpd in 2022 as supply to Europe declines. State-owned Gazprom
produced 745MMcmpd of natural gas in 2021, being the leading natural gas
company in Russia. The second-largest volume of gas was produced by Novatek at
approximately 148MMcmpd in the same year.

China and India, two of Asia's biggest oil importers, are cutting back on supplies from Middle Eastern countries
and are taking more crude oil from Russia at steep discount. Russia’s liquid hydrocarbons supply
was approximately 10.7Mbpd in 2021.
AME is forecasting this to plummet 10% to
9.5Mbpd in 2022 as Western sanctions take hold and as EU buyers shun Russian
purchases. EU leaders have agreed to embargo Russian crude oil imports that
will take full effect by end-2022, but Hungary and two other landlocked Central
European states secured exemptions for the pipeline imports they rely on.

Sanction Impacts
As western sanctions
take grip Russia has turned to supply Asia. The Power of Siberia 1 pipeline
serves as Russia’s main gas supply artery to China. A second gas pipeline – the
Power of Siberia 2 will stretch from Yamal in Western Siberian to northern
China; it has a target date to be online in 2030.
By tapping into the vast
reserves in Western Siberia, Russia will enhance its ability to divert gas
flows towards Asia instead of Europe. Along with pipeline gas, Russia is
expected to increase LNG exports to China as the first train of Novetek’s
Arctic LNG-2 project prepares to commence operation in 2023 and a final train
targeting start-up in 2025.
If further
sanctions on Russian energy exports come into effect, then the most likely
scenario is a gradual phase-out of Russian oil in Western markets that will
take several months to complete. Russia’s ability to redirect all unwanted
cargoes from the West to Asia is limited, meaning that, Russia will be forced
to cut production further as it lacks storage capacity for extra crude volumes.
The situation will be aggravated by a lack of investments and foreign technologies,
which will lead to lower drilling activity. Russia is, as a result, not
expected to return to pre-conflict production levels even by 2026.
In response to
Russia’s invasion of Ukraine, BP announced it will sell its nearly 20% share in
Russian energy giant Rosneft. Shell is also pulling out of all of its
operations in Russia, as is ExxonMobil and Equinor. TotalEnergies pulled out of
Russia’s Kharyaga oil field.
The conflict has changed Western energy companies’
cost-benefit analysis of doing business in Russia and that it may take many
years for these companies to re-engage there.
Emissions Targets
and Renewables
In 2021, carbon
emissions from energy in Russia reached 1.58Bnt of CO2, surging by
9% from a 2020 low level. Under current policies, Russia’s economy-wide
emissions will not start falling until 2030.
Russia has committed to reduce
carbon emissions by 30% below 1990 levels by 2030 and become carbon neutral by
2060. Its long-term strategy targets an 80% reduction below 1990 levels by
2050, projecting on doubling the level of negative emissions from land use,
land use change and forestry.
Russia plans to continue supporting the expansion
of natural gas and oil capacity and related infrastructure. Russian state controlled Rosneft is reliant on
natural gas and oil production and plans to increase the share of gas in its
portfolio to more than 25% by 2035.
The company has recently published a Carbon
Management Plan that reinforces its low-carbon transition strategy, but the
company is yet to take actions leading to effective emissions reduction.
Expansions and
Ramp Ups
National gas
company Gazprom expanded its share of global supply in 2021, but its output is
likely to fall in 2022 as Europe pushes to end its reliance on the Russian
supplier. Gazprom is looking to expand, with the goal for natural gas to
account for 50% of its total hydrocarbon output by 2030.
Gazprom accounts for
12% of global natural gas output and 68% of domestic natural gas production.
The company produced about 358Bboe between January and June 2022, with natural
gas accounting for 22% of its output.
At present, the
company is actively implementing large-scale natural gas development projects
in the Yamal Peninsula, the Arctic shelf, Eastern Siberia and the Russian Far
East as well as developing several oil exploration and production projects
abroad.
One such project is the giant Bovanenkovo natural gas field which is
expected to reach 115Bcmpd by 2022. The Bovanenkovo–Ukhta pipeline corridor
will deliver natural gas to both domestic consumers and the European export
market.
To monetise its gas abroad, Gazprom is considering intensifying
its recent strategic shift toward gas processing, petrochemicals and
LNG. But these sectors are highly dependent on foreign technology and
equipment, putting them at risk from ever-expanding sanctions and the exit of
Western companies. There is also a danger that buyers, especially those in
Europe, may shun Russian LNG volumes as has already happened at some European
ports.
Russia is prioritising expansion of pipeline gas exports to
China as relations with the West worsen. During the wave of Western
sanctions over annexation of Crimea in 2014, Gazprom signed the 38Bcmpa Power
of Siberia gas supply deal with China National Petroleum Corp. and began
shipping volumes in 2019.
Gazprom later said it could export up to 130Bcmpa via
pipeline to China. So far, however, it has only signed one new deal for an
additional 10Bcmpa of supply through the “far eastern route” in early February
this year.