Stanley Reed
Evidence is piling up about the steady disintegration of Russia’s vital natural gas export industry since the country’s invasion of Ukraine.
Russian news reports estimate that Russia’s gas exports by pipeline could fall as much as 50 percent in volume this year from last year. And last year was an especially bad year.
The problems are not limited to gas delivered by pipeline. The European Union is threatening to curtail imports of liquefied natural gas from Russia, which were the solitary bright spot for the Russian industry last year.
Russia has to a great extent cut itself off from Europe — its most important customer for natural gas, one that paid on time and full prices. By launching hostilities and then cutting and manipulating supplies, Russia threw away decades of work establishing itself as the largest gas supplier to energy-hungry Europe, ceding that position to Norway.
On Thursday, Izvestia, a Kremlin-linked publication, reported that pipeline exports might fall 50 percent in 2023, citing a government forecast. That figure roughly correlates with some Western estimates.
The State of the WarA Large-Scale Attack: Russia bombarded towns and cities across Ukraine for the first time since March. A rocket attack on an apartment block in Uman was one of the most deadly incidents for civilians in Ukraine this year.
First Known Contact: Xi Jinping, China’s leader and an ally of President Vladimir Putin of Russia, had an hour-long phone conversation with President Volodymyr Zelensky of Ukraine. The words “Russia” and “war” were not uttered.
Spring Offensive: Ukraine is preparing to launch a counteroffensive against Russian forces in the face of immense risks: Without a decisive victory, Western support for Ukraine could weaken, and Kyiv could come under increasing pressure to enter serious peace talks to end or freeze the conflict.
Russia has fared surprisingly well at holding on to its share in the oil markets despite Western embargoes, although the need to sell at a discount has cut deeply into revenue.
But finding new customers for gas is much more difficult because most of the fuel is still transported through fixed pipelines. Russia has less capacity than the United States, Qatar and Australia to export liquefied natural gas, a fuel that can be transported on ships like oil.
Russia’s losses have provided an easy victory for the petroleum industry in the United States, which has greatly increased shipments of liquefied natural gas to terminals across Europe.
Russian gas exports to the European Union by pipeline are likely to fall by two-thirds this year, according to estimates from Viktor Katona, an analyst at Kpler, a research firm. And exports in 2022, the first year of the invasion, fell more than 50 percent.
Russia is likely to see some gain in gas sales to China and, potentially, to Turkey — now Moscow’s largest customers for gas. Russia exports gas to China using a pipeline called Power of Siberia, and it is angling to build another link. But at this point, China is just a fraction of the market that Europe used to be for Russian gas.
Europe’s strategy for reducing dependence on Russian gas and other energy sources has worked surprisingly well. Europe made up the losses largely by increasing imports of liquefied natural gas, largely from the United States, and slashing demand. The European Union recently reported that gas consumption from August through March was nearly 18 percent below the average over those months from 2017 to 2022.
Europe has now survived what once threatened to be a difficult winter with little disruption, and that has soothed markets. European gas prices, which spiked in the early months of the war, have fallen almost 90 percent from their peak in August. Those price declines will translate into lower revenue on the gas Moscow does manage to sell.
Russian oil revenue is also under pressure, dropping 29 percent in the first quarter of 2023 from the last three months of 2022, to about $39 billion, as sanctions and price caps began to bite, according to a study published Wednesday by the Kyiv School of Economics.
With this success behind them, European leaders are contemplating widening their attack to include imports of liquefied natural gas from Russia.
Moscow substantially increased liquefied natural gas shipments to Europe last year, largely from an Arctic facility, while it slashed pipeline exports. Russian L.N.G. shipments to Europe reached record levels in February, according to Rystad Energy, a consulting firm.
But Kadri Simson, the E.U. energy commissioner, has urged members of the bloc and European energy companies to stop buying Russian L.N.G. and “not to sign any new contracts with Russia,” she told lawmakers last month.
Some analysts are skeptical that the European Union would prohibit Russian L.N.G. purchases, not least because big buyers of gas from the facility called Yamal LNG are TotalEnergies, one of France’s most important companies, and Naturgy, a major Spanish energy company.
“We think it would become a real headache for the E.U. to do that,” said James Waddell, head of European gas and global L.N.G. at Energy Aspects, a research firm.
On the other hand, having largely gone cold turkey on Russian pipeline gas, European leaders may calculate that “going without Russian L.N.G. would be less damaging,” figured Massimo Di Odoardo, vice president for gas at Wood Mackenzie, a consulting firm.
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