/ world today news/ For the first time, Russia surpassed the USA in the supply of liquefied natural gas to Europe. On the one hand, this is positive news: our gas once again proves its advantage. On the other hand, this situation has given rise to a rivalry in Europe between two types of Russian gas: pipeline and liquefied. And it is not only about the competition between two companies from Russia, but also about losses in the budget.
“Typically half of those supplies come from the US and Russia, but in 2020 you can see Russian LNG being supplied in slightly larger volumes than US LNG. This is happening for the first time,” said Cedric Kremers, head of Shell in Russia. So, according to him, in 2020, about 84 million tons of LNG were delivered to Europe, of which 22 million tons fell to Russia and 20 million tons to the United States.
According to his forecast, until 2040, LNG demand in Europe will continue to grow with a significant decline in domestic production, but the share of pipeline gas will slightly decrease. The main drop in pipelines, however, will be due to a drop in supplies from Norway and North America. While supplies of the gas pipeline from Russia will remain at approximately the same level, Shell believes.
On the one hand, this is positive news for Russia – Russian LNG is more in demand in Europe than American LNG, even during a crisis and a sharp drop in demand and prices. On the other hand, no matter what is said, Russian liquefied natural gas takes a piece of the pie from Gazprom, and hence from the Russian budget.
Why did US LNG in the European market collapse last year? First, the operational costs of liquefaction and delivery of American LNG turned out to be high, and gas buyers did not want to pay for them, says Igor Yushkov, an expert at the Financial University of the Government of the Russian Federation, an expert at the National Energy Security Fund. At some point, gas prices on the European spot market fell to $30 per thousand cubic meters. The Americans had no point in liquefying the gas and importing it to Europe. Consequently, US LNG plants even shut down for a period. While Russian LNG plants continue to produce and deliver, despite the crisis.
“Novatek’s operating costs are considered to be practically zero, as they cover them through the export of gas condensate. And the transport arm to Europe is smaller, “says Yushkov.
Secondly, as soon as the demand in Asia began to recover, the Americans immediately rushed there to gain at least something. Prices in this region are higher than in Europe.
Paradoxically, when the authorities allowed the private company “Novatec” to export LNG, it was assumed that the liquefied gas would go to the new markets – the Asian ones. Instead, Russian LNG has begun to capture the European market, the traditional market for the once sole gas exporter, Gazprom. The latter provides, together with “Rosneft”, income from exports to the budget of the Russian Federation. While Novatek still pays no export duties to the Russian budget, its LNG projects have also received other tax incentives – zero mining tax, reduced taxes on profits, land and more. The Russian budget will feel the benefits of LNG exports from Novatek only when the tax breaks expire. And this will happen in 8-12 years.
“From the point of view of both Gazprom and the state, it is ideal that all Russian LNG goes to Asia – to South Korea, Japan and even China. The Power of Siberia pipeline comes to the east of China, where there are no LNG terminals, so there is no direct competition between the two types of Russian gas,” says Igor Yushkov.
But in Europe, such competition is inevitable.
“It is better that Novatek’s gas does not flow to Europe at all.” One way or another, it still competes with our gas pipeline. And the Russian budget does not receive a tax for the extraction of minerals and export duties. Here, the interests of Gazprom and the budget coincide,” the NFES expert agrees.
“Novatek’s problem is that it does not have enough escort tankers for year-round use of the Northern Sea Route. And year-round tanker escort is still risky. If LNG was sent only to the East, then Yamal LNG production volumes would have to be reduced. Because they wouldn’t have time to deliver all the LNG. Large volumes can be shipped to Europe because of the simpler and faster logistics,” the source explains.
However, of the 22 million tons of Russian LNG delivered to Europe, only 80% belongs to Novatek. Given that last year the company produced about 20 million tons of liquefied natural gas, Novatek delivered about 16 million tons to Europe, and the remaining 7 million tons to Gazprom. There are currently two large liquefied natural gas plants operating in Russia. This is Sakhalin-2, controlled by Gazprom, which produced 11.6 million tons of LNG in 2020. And Novatek’s Yamal LNG, with a design capacity of 16.5 million tons, is operating above it.
At the same time, Novatek assures that for part of its LNG, Europe is not an end user, but a transshipment point for delivery to other countries. However, Shell’s statistics do not take this into account.
“The situation may change when a transshipment hub for 20 million tons is built. Then supplies will be redirected to Asia. It is true that by this time the fourth stage of Yamal LNG and Arctic LNG-2 will already be launched. Therefore, not all LNG will go to Asia after all. By creating such a transshipment center in the Murmansk region, Novatek actually recognizes that part of the liquefied natural gas will continue to go to Europe in the future,” says Igor Yushkov. “Therefore, in ten years, when Novatek starts paying taxes, this problem will disappear for the budget. But not for Gazprom, adds the gas expert.
However, the state granted such tax breaks to Novatek for a reason. First, in order to create in Russia, in fact, a new natural gas liquefaction industry. Without these advantages, Yamal gas would most likely remain in the ground. Now Russia plans to triple the production of “LPG” by 2035: from the current 29 million tons to 120-140 million tons of LPG per year and occupy up to 15-20% of the world market.
“Russia is already an important player in the LNG market. The plans in the energy strategy for growth until 2035 are quite realistic. Only Novatek plans to double its production over the next five years through the Arctic LNG-2 and Obsky LNG projects. This is a very ambitious program for the LNG. Also, in the coming years, the launch of the Baltic LNG project of Gazprom is possible. In the future, Russia will be able to compete for leadership in the global LNG market with the USA, Qatar and Australia,” says Philip Muradyan, Director of Corporate Ratings at Expert RA
In addition, Novatek is engaged in the development of Russian technologies in this area. Soon, the company promises to launch the fourth liquefied natural gas line in Yamal, using its own mid-tonnage liquefied natural gas technology. The technology is said to help reduce LNG production costs by 30%. The commissioning of the quarterly line is underway.
Its launch was delayed several times. The line was initially planned to open at the end of 2019. Delays in the implementation of new proprietary technologies are understandable. Along these lines, Novatek will actually test its own proprietary gas liquefaction technology. After that, with the help of this technology, a full-fledged enterprise – “Obski LNG” with a capacity of 5 million tons will be built.
In addition, Novatek is not only an active user of the Northern Sea Route. He is helping Sovkomflot develop a new logistics route, which Russia is also betting heavily on.
In January-February, the first round trip was made from the port of Sabeta (where Yamal LNG is located) to China’s Jiangsu and back to Sabeta via the Northern Sea Route route. This route was covered by the Arc-7 class LNG carrier Christophe de Margerie.’
The uniqueness of the January passage is, first, that it is the last independent passage along the eastern part of the Northern Sea Route. Navigation here usually lasts from July to November. And the passage of a large cargo ship in February along the eastern route of the Arctic was carried out for the first time in history. Third: the return passage from Cape Dezhnev to Sabeta under the leadership of the icebreaker “50 years of Victory” took 11 days and 10 hours. This turned out to be slightly faster than the transition of “Christophe de Margery” in January 2021.
Translation: V. Sergeev
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