Szymon Kardaś
Crucially, Russia has lost its position as the main gas supplier to the EU. Its gas exports via pipeline to EU customers fell from almost 146 billion cubic metres (bcm) in 2021 to between 61 and 62 bcm in 2022. Russian gas continues to flow to Europe via pipelines running through Ukraine (based on transit agreements in place until the end of 2024) and through Turkey via the TurkStream pipeline, but in ever smaller quantities. In the first five months of 2023, Russian gas exports via operating pipelines amounted to only 10 bcm, compared to 62 and 42 bcm respectively for the same period in 2021 and 2022. It is highly unlikely that Moscow and Kyiv will extend the agreement for the pipeline running through Ukraine after 2024 – and Russia has repeatedly threatened to cut off supplies even before it expires – meaning the quantities of Russian gas arriving to the EU via pipeline will likely fall even further.
The drastic drop in supplies to Europe forced Gazprom to cut gas production by 20 per cent year-on-year in 2022. And while export revenues were still relatively high in 2022 due to the very high gas prices in Europe (especially in the first half of 2022), the decline in exports to the EU will take a heavy toll on Gazprom’s revenues in 2023.
To make matters worse for Moscow, European countries have found new suppliers, meaning that Gazprom may never regain its status as the EU’s primary gas supplier. After the invasion, EU member states began or intensified efforts to diversify their sources of gas. As of 31 March 2023, agreements related to gas supplies from third countries accounted for more than half of all energy deals concluded by EU countries since the outbreak of the war. According to ECFR’s research, 56 of the 110 energy agreements that they had signed by then related to natural gas.
Some of Russia’s largest European markets made radical changes to their gas policy, which will lead to particularly negative consequences for Russia in the long term. Germany, which imported the most Russian gas before the outbreak of the war, is now not importing Russian gas at all via pipeline. Moreover, the German authorities have decided to build several liquefied natural gas (LNG) terminals and strengthen gas cooperation with Norway, which became Germany’s main gas supplier in 2022. The German company SEFE also signed a 20-year contract with the American company Venture Global LNG in June 2023 to supply gas from the United States to Germany. Russia has also lost its dominant position in the Italian market – its second most important market after Germany. Of all the EU member states, Italy has signed the most gas cooperation agreements with third country partners since Russia’s invasion of Ukraine. Furthermore, Gazprom has lost the Polish market rather irretrievably. Admittedly, Poland decided to abandon Russian gas in 2019, years before Russia’s invasion of Ukraine, but this decision was publicly disputed by some energy analysts. Russia’s invasion of Ukraine cemented the government’s position, and it is now highly unlikely to revise its approach in the foreseeable future.
The loss of the European market is forcing Russia to look for new markets, but finding a quick and equally financially attractive alternative to Europe seems unrealistic at present. Currently Gazprom is not able to redirect gas extracted from west Siberian fields and those on the Yamal peninsula to countries outside of Europe and Turkey. There are no gas interconnections that would allow it to export these volumes to Asian markets such as China. The only existing pipeline through which Gazprom can export gas to China is the pipeline launched in December 2019, Power of Siberia, which is not connected to the gas network in western Russia.
Finding a quick and equally financially attractive alternative to Europe seems unrealistic at present
Gazprom plans to build a new gas export pipeline from Russia through Mongolia to China – Power of Siberia 2 – which would allow for the export of 30 bcm of gas per year from west Siberian fields. However, despite preliminary agreements reached with Mongolia and China on the matter, there are no binding agreements yet, and no contract to supply gas to China via this route. The second existing contract for gas supplies from Russia to China, concluded in February 2022, concerns small volumes (10 bcm per year) of gas extracted from Sakhalin Island. Even if Russia and China do manage to implement new gas projects, European policymakers do not need to panic. If China increased its imports of Russian gas, it may reduce its purchases of LNG from elsewhere, thus providing European customers with a possibility to increase purchases of LNG.
Gazprom’s plans to build a so-called gas alliance with Kazakhstan and Uzbekistan – a proposal which President Vladimir Putin submitted back in November 2022 – are also of little significance. These countries have their own gas reserves, meaning their imports from Russia would likely be limited to small quantities. This is confirmed by a two-year agreement signed in June 2023 between Gazprom and Uzbekistan’s energy ministry to supply just 2.8 bcm of Russian gas to Uzbekistan annually. Even if Gazprom increased supply to between 4 and 10 bcm per year – which some Russian energy experts deem probable – such volumes are incomparable to those it previously supplied to Europe. Moscow is also discussing using Kazakhstan and Uzbekistan as transit countries for Russian gas exports to China, but the prospects for this are hazy. The central Asian countries are connected to Russia by the Central Asia-Center gas pipeline network, but the infrastructure is very old and has mainly been used to transfer gas from the countries of the region to Russia. It is not clear whether it would be technically viable to use the pipeline for reverse shipments from Russia to Kazakhstan and Uzbekistan, and possibly further to China.
Russia does maintain considerable LNG exports to the EU – which increased from 16 bcm in 2021 to 22 bcm in 2022 and have grown in the first half of 2023 – but these are unlikely to rise significantly. Russia currently has two large-scale LNG export terminals operating at full capacity, Yamal LNG on the Yamal peninsula and Sakhalin-2 in the Far East, and small export terminals in western Russia, Cryogas-Vysotsk and the KS Portovaya plant, which was launched in autumn 2022. But the most promising project in the pipeline, the Arctic LNG 2 plant, seems to be delayed. Novatek, Russia’s second-largest gas producer after Gazprom, launched the plant’s first production line in July, but it is not expected to reach full production capacity until next year. Even once the first line is operating at full capacity, the project envisages two more production lines. Western technology sanctions may be the main reason for the delays as Russia currently has no technology of its own to build large-scale LNG plants. Novatek has announced the development of its own Arctic Mix technology, but it is difficult to assess its effectiveness at this stage.
Europe’s response to Moscow’s gas war has so far been successful, causing irreparable damage to Russia’s energy trade. The EU and its member states should continue their efforts to permanently reduce their dependence on Russian gas supplies, cooperating with alternative gas suppliers and reducing overall gas consumption. The European Commission should continue its joint gas purchasing mechanism to help with this. European countries should also maintain, seal, and even tighten energy technology sanctions against Russia, limiting or at least hindering LNG projects in Russia. Finally, they should follow through on the proposals included in the draft conclusions of the recent G7 summit to impose sanctions on eventual gas imports through the Yamal-Europe and Nord Stream 1 pipelines which were taken out of service after Russia’s invasion of Ukraine.
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