Global oil and gas Leader
14:25 - 14:50
Wednesday, 18 September 2019
S1.5 The Increasing Role of Russia in the Global LNG Market
While the United States government is actively trying to reduce the natural pipeline supply to Europe from Russia by means of potentially sanctioning the North Stream 2 pipeline (with the likely objective of clearing the way for American LNG supplies to Europe), Russia is actively working on completing the announced pipelines. However, there is an additional response to the perceived U.S. desire to squeeze Russia out of the global energy space: a strategy that would see the Russian share in the global LNG market increase.
The current U.S. efforts to undermine Russian gas exports are reminiscent of the Reagan administration’s Cold War attempts to stop the use of licensed American technologies in the construction of a Euro-Siberian pipeline in 1979, ignoring contracts already in place. As shown by history, the sanctions imposed had no practical long-term effect. While Soviet gas exports to Europe were about 55 bcm in 1980, Russian gas exports exceeded 200 bcm in 2018.
In addition to the efforts of Gazprom to build new pipeline export capacity to enhance its status as the world's top gas producer—it currently contributes 12% of the global supply—the Russian government has recently allowed for diversification of gas exports in in the form of LNG.
This move enabled the Russian government to take practical steps towards achieving its stated goals of increasing Russia’s LNG market share to 17-20% from the current 4% in the next 15 years. Russia’s two current projects, Sakhalin 2 and Yamal LNG, will ensure that it plays a meaningful role in the LNG market in coming years.
In addition to increasing market share, Russian policy in the LNG space appears to be aimed at achieving these three critical objectives:
- To help improve regional infrastructure, including in remote Arctic and Far East regions. For example, Novatek reports that the Yamal LNG project required the construction of a port, an international airport and living facilities, in addition to the LNG plant, all in the remote Arctic area of Sabetta located on the Yamal peninsula.
- To stimulate the local economies by generating orders for equipment such as icebreakers, gas turbines and compressors. Most of these orders would be fulfilled by local suppliers.
- To improve international cooperation and increase risk sharing with companies from Europe, China and Saudi Arabia.
If the proposed projects are completed on time and under budget, Russia will be positioned as one of the most significant players in the global LNG market. This will allow Russia to reduce its dependency on pipeline export routes and enable it to embrace its role as one of the leading global natural gas exporters.