Russian gas exports are expected to fall in 2023

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Evidence is mounting of the steady disintegration of Russia’s vital natural gas export industry since the country’s invasion of Ukraine.

Russian news reports estimate that Russian pipeline gas exports could fall by as much as 50 percent in volume this year compared to last year. And last year was a particularly bad year.

The problems are not limited to gas that is supplied via pipelines. The European Union is threatening to restrict imports of liquefied natural gas from Russia, the only bright spot for Russian industry last year.

Russia has largely cut itself off from Europe, its main natural gas customer, a customer that paid full price on time. By launching hostilities and then cutting and manipulating supplies, Russia threw away decades of work by establishing itself as energy-hungry Europe’s largest gas supplier and ceding that position to Norway.

On Thursday, Izvestia, a Kremlin-affiliated publication, reported that pipeline exports could fall by 50 percent in 2023, citing a government forecast. That figure is roughly in line with some Western estimates.

Russia has been surprisingly successful in maintaining its share of oil markets despite Western embargoes, although the need to sell at a discount has deeply eroded earnings.

But finding new customers for gas is much more difficult because most fuel is still transported through fixed pipelines. Russia has less capacity to export liquefied natural gas, a fuel that can be transported on ships like oil, than the United States, Qatar and Australia.

Russia’s losses have provided an easy win for the United States petroleum industry, which has greatly increased shipments of liquefied natural gas to terminals across Europe.

According to estimates by Viktor Katona, an analyst at Kpler, a research firm, Russian gas exports to the European Union through pipelines are likely to fall by about two-thirds this year in 2022. And exports in 2022, the first year of the invasion, fell by more than 50 percent from the previous year.

Russia is likely to see some gains in gas sales to China and possibly Turkey – now Moscow’s largest consumers of gas. Russia is exporting gas to China through a pipeline called the Power of Siberia, and it’s angling to build another connection. But right now, China is only a fraction of the market Europe used to be for Russian gas.

The European strategy to reduce dependence on Russian gas and other energy sources has worked surprisingly well. Europe largely offset the losses through increased imports of liquefied natural gas, largely from the United States, and a reduction in demand. The European Union recently reported that gas consumption fell by almost 18 percent from August 2022 through March, compared to the average over those months from 2017 to 2022.

Europe has now survived what was once a difficult winter with little disruption, which has calmed markets. European gas prices, which peaked in the early months of the war, are now down nearly 90 percent from their peak in August last year. Those price drops will translate into lower revenues from the gas that Moscow does manage to sell.

Russian oil revenues are also under pressure, falling 29 percent in the first quarter of 2023 compared to the last three months of 2022, to about $39 billion, as sanctions and price caps began to bite, according to a study that Wednesday is published by the Kyiv School of Economics.

With this success behind us, European leaders are now considering extending their attack to imports of liquefied natural gas from Russia.

Moscow last year significantly increased shipments of liquefied natural gas to Europe, largely from an Arctic facility, while cutting pipeline exports. Russian LNG shipments to Europe hit record levels in February, according to Rystad Energy, a consulting firm.

But Kadri Simson, the EU’s energy commissioner, has urged members of the bloc and European energy companies to stop buying Russian LNG and “not sign any new contracts with Russia,” she told lawmakers last month.

Some analysts are skeptical that the European Union would ban Russian LNG purchases, not least because the big buyers of gas from the facility called Yamal LNG are TotalEnergies, one of the main French companies, and Naturgy, a major Spanish energy company. .

“We think it would be a real headache for the EU to do that,” said James Waddell, head of European gas and global LNG at Energy Aspects, a research firm.

On the other hand, Europe’s leaders, who have largely gone cold turkey on Russian pipeline gas, can calculate that “it would be less harmful to go without Russian LNG”, numbers Massimo Di Odoardo, vice president of gas at Wood Mackenzie, a consulting firm.

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