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NotizieRussia’s Pivot to Asia And Its Limits

Russia’s Pivot to Asia And Its Limits


Japanese Mitsui&Co and Japan Oil, Gas and Metals National Corporation agreed to buy a 10% stake in Novatek’s Artic LNG2 project and officially entered the business of Russian LNG with great delight of President Vladimir Putin, who declared that the investment would be around the US $3 billion (Watkins, 2019). This moment is a further step for the development of Russian production and delivery capacity in the natural gas market and it is originally aimed at increasing its presence in Asia, where the LNG boom is still ongoing and it is forecasted to hold. However, the European market’s role is not doomed to irrelevance.

Russian LNG strategy: latest developments 

Russian natural gas market sees the effort of Novatek to be among the most relevant players in Asia. To do so, the company aimed to reach an investment decision on its new project Arctic LNG-2 this year (Paraskova, 2019), which would have followed its already in operation Yamal LNG plant. The deal Russians were looking for final took place during the G20 summit in Osaka, at the presence of Japanese Prime Minister Shinzo Abe and Russian President Putin. Even China’s CNPC and CNOOC purchased a 10% stake each in Arctic LNG-2 in June 2019.

Part of the success of Arctic LNG-2 is due to its economic advantage compared to Yamal LNG plant, an achievement that was possible through the technology of gravity-based structure platforms for gas liquefaction deployed by Saipem (Soldatkin, 2019). The reliance on this method maintained the cost of Arctic LNG-2 at US$ 20-21 billion, whereas the Yamal plant in operation since December 2017 costs US$ 27 billion (Soldatkin, 2019).

In addition, Novatek could further increase the output and export of its plant in the Baltic Sea port of Vysotsk by adding 1.1 million tons to the current design capacity of 660 000 tons, according to Novatek’s finance chief Mark Gyetvay (Duran, 2019).

The European way to Russian LNG 

Despite the number of political controversies that see the EU and Russia on two conflicting sides, the European imports of natural gas still see Russia as the first player and a significant supplier for the region – as it is confirmed by the document “EU imports of energy products – recent developments published by the European Commission” –. Euro-Russian ties on gas supply are likely to be stable through the next years due to the decrease of 43% in European production in the next 12 years so that Russian imports will become even more determinant for our energy demand due to their higher stability despite the pressure coming from the US

The size of Europe’s energy market incentives Russian LNG supply toward the region, which reached record levels in LNG deliveries in February 2019 with 1.41 million tons of delivered gas through 19 cargoes from Novatek-led Yamal LNG project according to Reuters’ quotations from Refinitiv Eikon data.

Since the beginning of the LNG exports in 2017, volumes skyrocketed and made Russia the top supplier to European LNG terminals (LNG World News) for the first time in that month. This change in the natural gas trade was started by lower demand and prices in Asia and it also happened in May 2018 for the same reasons. The European market has still the privilege to be rather not affected by US LNG competition and to offer access to a very developed area without prohibitive transportation costs for Russia.

The LNG demand in Asia: trends and forecasts  

Russia is incentivized to pursue their LNG capacity expansion by the encouraging expectations coming from Asia, where the LNG demand is seen to quadruple to 80 million tons per year by 2030 according to Wood Mackenzie’s studies (December 2018).

However, this trend represents also an incentive for the US, the main LNG supplier in the region, to boost their export capacity that is expected to more than double by the end of 2019, reaching the level of 8.9 billion cubic feet per day according to the Energy Information Administration (December 2018).

Asian countries are finding their way to get the greatest advantage from this LNG fever: Japan, for example, aims to create an LNG trading hub through market flexibility and liquidity that will be achieved by expanding spot trade and pricing (Stern, 2016). This specific trading system, which implies instant delivery of the product – contrary to futures – “reflects the actual supply and demand of LNG” (Stern, 2016). The LNG trading hub will need also open access to facilities, the “enhancement of trade” and the “creation of a proper price discovery mechanism” (Stern, 2016), elements that are considered as a breakthrough in Pacific LNG market.

Chinese LNG demand is also expected to rise in 2019 following Government’s guidelines to promote the use of gas to replace more polluting fuels like coal, and the growth is expected to be 14% by the end of the year according to the National Development and Reform Commission (Aizhu and Gloystein, 2019). However, even if it is the world’s second-largest LNG buyer, China is unlikely to be able to absorb the LNG glut that Asia is living nowadays, with spot prices being dragged down by 60% since mid-2018 (Aizhu and Gloystein, 2019).


This scenario highlights how Asia is filled with an impressive amount of LNG and how even the most developed economies in the region are not able to absorb this ongoing excessive supply. Russia has certainly the needed physical amount of natural gas to supply this market, but it faces a difficult challenge since there are closer suppliers as Australia – the world main LNG exporter (Jaganathan, 2018) – and the difficult geographical landscape contributes to reducing Russian LNG competitiveness to Asian markets. On the other side, these critical points are far less relevant when we consider the LNG flow from Russia to Europe, where it has an undeniable advantage compared to US LNG and there it is always likely that will find markets willing to receive it. Russian pivot to Asia is ongoing, but it is still a long way to go for the following years.

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