Russian gas exports are expected to fall in 2023

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 and established itself as energy-hungry Europe’s largest gas supplier, ceding that position to Norway.

On Thursday, Izvestia, a Kremlin-linked publication, reported that pipeline exports could fall by 50 percent by 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 than the United States, Qatar and Australia to export liquefied natural gas, a fuel that can be transported on ships like oil.

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 via pipelines are likely to fall by two-thirds this year. And exports fell by more than 50 percent in 2022, the first year of the invasion.

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 by increasing imports of liquefied natural gas, largely from the United States, and reducing demand. The European Union recently reported that gas consumption was from August through March nearly 18 percent below 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 first months of the war, have fallen by almost 90 percent since their peak in August. 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 from the last three months of 2022 to about $39 billion as sanctions and price caps began to bite, according to a study released Wednesday. has been published by the Kyiv School of Economics.

Now that this success is behind us, European leaders are 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 back 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 said. told lawmakers last month.

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

“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, European leaders, who have largely gone cold turkey on Russian pipeline gas, can calculate that “going without Russian LNG would be less harmful,” said Massimo Di Odoardo, vice president for gas at Wood Mackenzie, a consulting firm.