Rystad: Future of Russian LNG industry on the rocks as sanctions impact takes hold

Despite a rough outlook, Rystad expects Russia’s planned LNG projects will go ahead despite sanctions and challenges in securing vessels and long-term contracts, thanks to government support and incentives around financing and research and development, along with tax breaks. However, due to the challenging environment, Russian LNG production is highly unlikely to reach government targets, with Rystad’s forecasts predicting only 36.3 million t of output by 2026.

The Russian Ministry of Energy in 2021 released a forecast where the country's LNG production was expected to climb to as much as 140 million tpy by 2035 under a high-case scenario, or 80 million tpy under a more conservative outlook. Last year, the ministry disclosed its plan to boost LNG exports by 33% between 2022 and 2026, to 44 million tpy. In its conservative-case scenario, this increase is expected to reach only 18%, with a target of 39 million tpy.

Although European countries have almost entirely cut off Russian piped gas, Europe still depends on Russia for much of its LNG supply. LNG exports to Europe rose by about 5% y/y in 1Q24, and replacing these volumes in the short term is a major challenge for the continent.

“Russian oil exports may have escaped the worst of the impact from Western sanctions. Piped gas exports have suffered greatly, but the LNG industry has been hit the hardest. The Russian government is still optimistic about the country’s output, but without a significant change in fortunes, reaching the targets may be nothing more than a pipe dream,” said Swapnil Babele, Vice President of Upstream Research at Rystad Energy.

In the short term, Rystad expects only LNG projects from independent Russian gas producer Novatek to proceed, with delays of at least five years due to vessel procurement challenges and current market conditions. The company's primary goal is to construct a low-cost LNG platform, which involves developing proprietary LNG technologies and expanding output by deploying these new technologies. The main challenge for Novatek will be developing the logistics and looking for new buyers.

Rystad’s current forecasts show Russia commissioning about 68 million t of liquefaction capacity by 2035, with actual LNG production being around 40 million tpy. Novatek will account for almost 80% of that total through its Yamal LNG, Arctic LNG-2, and Murmansk LNG projects.

Europe became the top destination for Russian LNG exports in 2022, surpassing Asia. Russia’s LNG exports rose 10% in 2022 to about 33 million t, 17 million t of which was sent to European markets – a 22% increase from the previous year. Last year, Russian LNG production dropped to about 31 million t due to planned maintenance at the Sakhalin-2 and Yamal LNG projects in 2H23. In 2024, Rystad Energy expects Russian LNG production to total about 34 million t, thanks in part to the commissioning of Arctic LNG-2 Train 1.

Since 2014, when the first Russian LNG sanctions were imposed, the country prioritised developing its own liquefaction technologies and is trying to meet its demand for LNG equipment with local providers. Of these providers, Atomenergomash, the mechanical engineering division of Rosatom, designs and manufactures cryogenic LNG pumps, heat exchangers, and turbo-expanders. Kazancompressormash constructs compressor units for LNG facilities, and cryo-LNG supplies tank containers for LNG transportation and storage.

In 2018, Novatek obtained a patent for its ‘Arctic cascade’ technology, which was implemented on the fourth train of Yamal LNG. However, the technology was not fully developed, and the project encountered several issues that led to modifications in the patent. In June 2023, the company secured another patent for the ‘Arctic mix’ technique, which was designed for natural gas liquefaction on a large scale using mixed refrigerants. This technology is expected to be the primary method for future projects involving gravity base structures (GBS), with a capacity of more than 6 million tpy per train.

Read the article online at: https://www.lngindustry.com/liquid-natural-gas/29042024/rystad-future-of-russian-lng-industry-on-the-rocks-as-sanctions-impact-takes-hold/