Future Of Russian LNG Industry On The Rocks As Sanctions Impact Takes Hold
Russian oil production has remained strong despite sanctions imposed by Western countries in the wake of Russia’s invasion of Ukraine. The country’s gas and liquefied natural gas (LNG) industries, on the other hand, have suffered due to limited pipeline infrastructure and reliance on Western companies. Rystad Energy expects Russian piped gas to China to increase due to new infrastructure, but the outlook for Russian LNG is less rosy. The Kremlin has set an ambitious plan to commission 100 million tonnes of LNG capacity by 2030 but our forecasts show the country will miss that target by as much as 60 million tonnes.
Despite a rough outlook, we expect 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 our forecasts predicting only 36.3 million tonnes 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 tonnes per annum (tpa) by 2035 under a high-case scenario, or 80 million tpa 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 tonnes per annum. In its conservative-case scenario, this increase is expected to reach only 18%, with a target of 39 million tonnes per annum.
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% year-on-year in the first quarter of 2024, 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.''
Source: Rystad Energy
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