What will happen to the Russian gas industry, which will lose the ability to export from 80 to 100 billion cubic meters of gas per year

Alexey Gromov, Principal Director on Energy Studies, and Alexey Belogoryev, Deputy Principal Director on Energy Studies at the Institute for Energy and Finance, commented to the Oil and Capital portal on the prospects for Russian gas exports in the next three years.

Alexey Gromov noted that in the perspective of budget planning for the next three years, Russian natural gas exports will decrease due to an objective reduction in supplies to the European direction:

“Until 2025, at least partially compensate for the significant reduction in Russia’s presence in the EU market is possible only by reaching full capacity of the Power of Siberia gas pipeline, this year total supplies to China will increase, perhaps by 60% compared to last year, that is up to 16 billion cubic meters. By 2024, the volume of deliveries in the Chinese direction should reach the design capacity of 38 billion cubic meters of pipeline gas. Thus, in the foreseeable future, Russia can increase supplies to China by another 28 billion. However, in the European direction, Russia will lose noticeably large volumes, approximately 60-80 billion cubic meters. We will not be able to replace these volumes with deliveries to other markets. There is a small chance that export volumes to Turkey will increase slightly, but given the limited capacity of the gas transportation system, the increase in these deliveries is limited,” the expert explained.

According to him, in order to expand Russian gas exports to Turkey, it is necessary to build the appropriate infrastructure:

“In the most favorable scenario, this expansion will take about three years, but rather more. But in Turkey, you can quickly start trading in Russian natural gas and use the Turkish hub as an electronic trading platform. That is, part of the volumes that do not fall under long-term contracts, we can sell on the spot market. And this is of interest to Russia. But such an option for the implementation of the Turkish hub will not have any effect on the volumes of Russian gas exports. It can have a significant impact only when the appropriate infrastructure is built, but this is already beyond the horizon of budget planning,” Gromov said.

Speaking about exports to China, he noted that Russia sells gas to the PRC under a different pricing system, the cost of gas supplies under a long-term contract to China is not directly linked to European gas markets.

Alexey Belgoryev, Deputy Principal Director on Energy Studies at the Institute for Energy and Finance, on the contrary, believes that, in general, the decline in gas exports and its production will have a long-term and shock character for the industry:

“Everything will strongly depend on consumption in the CIS. International statistics on Russian gas exports to the EU and China are available, while the CIS is a black box. As for the 125 billion cubic meters given by Bloomberg, this is a very conservative estimate, because even if everything remains as it is now with a slight increase in Power of Siberia, exports in 2023 will remain at the level of 2022 - 142 billion cubic meters. 125 billion cubic meters next year and in 2024 can only be in the event of a complete halt in gas supplies to the EU and a decrease in exports to Turkey. That is, there should be a shock decline in one of the markets. In 2025, the Power of Siberia should reach its design capacity of 38 billion cubic meters, which will somewhat compensate for the decline in 2022. But in general, the fall in exports and production will be of a long-term and shock nature,” the expert said.

He explained that the reduction in pumping in the EU at current rates will be about 30 billion cubic meters:

“Last year, deliveries of network gas to the EU amounted to approximately 140 billion cubic meters, next year it will be 25-30 billion. Power of Siberia can additionally provide only 23 billion in the next 3 years. As for LNG, there are no new capacities except for the commissioning of Portovaya expected. At the same time, in 2022, there is a decrease in supplies from Yamal LNG and Sakhalin due to problems with demand for our free volumes, so the export of Russian liquefied gas in 2022-23 should be below the design capacity. A significant increase is possible only after 2025, if at least the first phase of the Arctic LNG-2 or the Baltic LNG is put into operation. Until 2024, no breakthrough in the export of liquefied natural gas is expected. Thus, export growth is possible only after 2025 due to the commissioning of new liquefaction capacities, as well as supplies to China via the Far East route,” Belogoryev noted.

In his opinion, the average price of Russian gas exports to Asia will decrease slightly next year.

Touching on the topic of the Turkish hub, he noted that there is the magical perception of the word "hub" in Russia:

“The energy hub in Turkey is being created naturally, it is quite possible that after some time gas trading may begin there. But the big question is what it will give Russia. Consumption in Turkey itself, according to my calculations, by 2030 will be from 55 to 75 billion cubic meters. At the same time, the Turkish government is not going to allow non-residents to reach the end consumer. That is, Russian companies will not be able to compete for the end consumer, in which case we are very limited in our share in the Turkish market, since Turkey is purposefully pursuing a policy of diversifying energy supplies. The country does not intend to increase Russia's share in its energy market. I doubt that Ankara is ready to buy Russian gas above the current level of 27-30 billion cubic meters. They have huge idle capacities for receiving LNG, an increasing flow of Azerbaijani gas, and in the future a good opportunity to buy Iranian raw materials. Israel may also start exporting. That is, Turkey is in a good position, and I do not believe that it is ready to purchase additional volumes of Russian gas, although it probably will not reduce purchases,” Belogoryev explained.

In his opinion, the loss of 100 billion in exports is a direct decrease in production, and mainly the production of Gazprom:

"Gazprom is busy with gasification and after-gasification, as well as the development of the eternal topic of natural gas motor fuel. With gas chemistry, everything is complicated, such projects always run into sales markets. In Europe, export markets have closed for us for many products, in Asia there are enough of their own manufacturers. There is a possibility of increasing demand from metallurgy, but it is also in crisis. Given the economic dynamics, domestic demand is more likely to stagnate, and if there is an increase, it will be very small,” the expert said.

At the same time, he noted that gas production in 2022-23 will be reduced, but then it will gradually recover, primarily due to LNG exports.