Where should Russian gas go?

An article by Alexey Belogoryev, Research and Development Director of the Institute for Energy and Finance, on the topic "Where should Russian gas go?" was published in the magazine "Oil and Gas vertical" (№6-7 (522). 2024).

The overall demand for Russian gas in the 2020-2030s will grow, which will support the mining sector and the oil and gas service. By 2030, gas production in the baseline scenario may increase by 15% to the level of 2023, although it will remain about 30 billion cubic meters per year lower than at the peak of 2021. With higher LNG exports, production growth rates will also be higher.

An important area of support for domestic gas demand is the development of gas-consuming engineering production: from power plant turbines to internal combustion engines powered by natural gas. At the same time, domestic gas demand in the 2030s and 2040s will be under increasing pressure from the low-carbon agenda and measures for the energy efficiency improvement of the Russian economy, and most likely will move to long-term stagnation with the prospect of a decrease in the 2040s.

The share of exports in total gas production in 2021 was about 32%, by 2023 it fell to 22%, by 2030 in the baseline scenario it could grow to 26%. With the implementation of the Forces of Siberia-2 in the 2030s or the construction of large-capacity LNG plants by Rosneft, this share may again reach a third of total production.

In general, Russian gas exports in physical terms may return to the level of 2021 no earlier than 2030, subject to a large-scale expansion of large-tonnage LNG exports (not taken into account in the baseline scenario). However, in value terms, total exports with comparable volumes will remain significantly lower due to the conjuncture of the global LNG market, regional pricing features and, as a rule, higher cost of supplies to alternative markets. This calls into question the expediency of increasing gas production and exports as an end in itself for the development of the gas industry. In this regard, it is hardly advisable to assess the further development of the gas industry (including within the framework of finalizing the Energy Strategy and the General Scheme for the development of the gas industry) on the basis of growth or decrease in its gross indicators. The new conditions require a transition to indicators reflecting the economic efficiency of the industry and its economic impact on the state (not only fiscal, but also multiplicative).

Given the restrictions on access to traditional export markets, the future prospects for Russian companies are likely to be the creation of demand in new markets by exporting not just gas as raw materials, but complex services for the formation of gas power generation as a competitive alternative to more capital-intensive solar and wind power plants. Gradually, gas exports may be replaced by exports of gas and energy supply services to urban and industrial agglomerations.

The obvious direction of replacing the falling volumes of pipeline exports will be the already mentioned export diversification through the development of production and supply of higher-grade products: blue hydrogen, ammonia, carbamide, methanol, etc. However, the role of the gas industry in this case is limited to the supply of raw materials, and the development of production itself, building logistics and searching for sales markets belong to other sectors of the economy, which increases the coordinating and guiding role of public policy.