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Russia’s leading natural gas and LNG exporters, Gazprom and Novatek, have taken the first tentative steps towards redirecting their sales volumes to the East as Moscow’s standoff with the West over the war in Ukraine continues.
State-run Gazprom has started construction of the over 800 kilometer Belogorsk-Khabarovsk gas pipeline in Russia’s Far East, the first stage of a larger project to connect its eastern pipelines with gas fields in West Siberia, a region which was traditionally used to supply Europe. Belogorsk-Khabarovsk, expected to be completed in 2029, will connect the 48 billion cubic meter per year Power of Siberia and 22 Bcm/yr Sakhalin-Khabarovsk-Vladivostok pipelines, which will ensure flexibility of supplies to China under the 10 Bcm/yr “Far Eastern route” contract signed in February 2022.
Gazprom seeks to start Far Eastern route supplies in 2027, although that will depend on the readiness of the company’s resource base offshore Sakhalin Island. Power of Siberia, launched in 2019, supplied 22.7 Bcm to China last year and should ramp up to its full export capacity of 38 Bcm/yr next year. To increase supplies further, Gazprom still needs to add looping along the Power of Siberia line.
Gazprom Courts China
The Belogorsk-Khabarovsk pipeline is the first stage of the massive Eastern Gas Supply System development, a part of Gazprom’s long-term goal to redirect its vast resources located in West Siberia to growing markets in Asia. The state gas export monopoly is maintaining the construction of its eastern pipelines at the top of its investment priorities despite weaker financial results from lower piped exports, falling global gas prices and higher domestic taxes.
The main thrust of the new export strategy is the planned 2,700 km Power of Siberia 2 that will run from West Siberia to the Mongolian border and will be connected to the existing Power of Siberia pipeline at the Kovyktinskoye field in East Siberia. Gazprom is in final stages of determining the route for the pipeline, even though it has yet to sign a firm gas supply contract with China, which it wants to buy 50 Bcm/yr from the pipeline to be delivered via Mongolia.
China is in no rush to clinch the deal, as it is weighing its long-term gas demand and continues to believe it holds a strong bargaining position due to Moscow’s limited export alternatives. The Power of Siberia 2 deal would raise Gazprom’s pipeline gas export portfolio in China to almost 100 Bcm/yr, but will likely only start by the end of the decade and ramp up by the mid-2030s. The Gas Exporting Countries Forum said in a recent 2050 global gas outlook it expects the pipeline to be operational by 2033.
Gazprom is basing its Asia-focused export strategy on a long-term forecast expecting a tripling of the GDP of the Asia-Pacific region over the next 30 years and a doubling of the region’s gas consumption to over 1.6 trillion cubic meters per year by 2050, Gazprom’s Deputy CEO in charge of strategy, Oleg Aksyutin, wrote in a recent article for the company’s in-house magazine. Gazprom’s wider strategy also prioritizes the development of the domestic Russian gas market and the expansion of its LNG export capacity, according to Aksyutin.
Novatek Moves Northwest
Russia’s privately owned LNG champion, Novatek, has also started construction of a 1,300 km, 41.2 Bcm/yr gas pipeline in northwestern Russia, planned to supply its next large LNG project, the 20.4 million ton per year Murmansk LNG plant.
Back in 2017, Novatek’s long-term strategy called for a 57 million-70 million ton/yr LNG export capacity buildout by 2030 on the Yamal and Gydan peninsulas. But after EU technology sanctions introduced in 2022 complicated the construction of the 19.8 million ton/yr Arctic LNG 2, its second project in the region, and associated ice-class LNG tankers, Novatek was forced to move its next planned project to another location. Last year’s US sanctions targeting the Arctic LNG 2 project company further complicated Novatek’s Arctic plans. The company’s first Arctic project launched in 2017, the 20 million-plus ton/yr Yamal LNG, is not blacklisted by international sanctions.
All of Russia’s LNG projects located in the Arctic face an expected deficit of ice-class tankers needed to ship volumes from the region. The lack of available tankers, as well as the sanction risks for shareholders and buyers, has resulted in the delay of commercial shipments from Arctic LNG 2’s first 6.6 million ton/yr train, initially planned to start shipping in mid-January. In the ice-free port of Murmansk, however, Novatek can use conventional tankers that are cheaper and easier to build amid the international sanctions against Russia’s shipbuilding industry.
Arctic LNG 2 is not expected to receive all the 21 ice-class tankers ordered in Russia and South Korea, prompting some observers to suggest that Novatek might opt to repurpose the third train of Arctic LNG 2 for Murmansk LNG.
The proximity of the Novatek Murmansk construction center is another factor behind Novatek’s strategic shift toward LNG production in northwestern Russia. Novatek is now building the second and third trains of Arctic LNG 2 at its LNG construction center in the Murmansk region.
Another advantage of the new location is that Novatek is seeking to use electricity from the Kola nuclear plant in the Murmansk region, avoiding the need to procure gas turbines for power generation needed in the Arctic, which are difficult to come by due to EU technology sanctions against the Russian LNG industry.
Prospects are also uncertain for the 6 million ton/yr Obsky LNG project on the Yamal Peninsula, where Novatek has targeted a final investment decision for this year.
Russia’s Eastern Gas Pipelines
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