Russia could defer LNG expansion targets: press

The Kremlin could decide to stall on its strategic objective of capturing 15-20% of the global LNG market, with a liquefaction capacity of around 140mn tons/yr, as equipment costs have soared due to sanctions on Western imports, Reuters reported June 17.

A decision to prolong the LNG objective would be unsurprising given difficulties at Russian LNG projects, both in terms of locking down overseas investment and sourcing foreign equipment, that have arisen in light of Moscow's invasion of Ukraine in March.

Japan on June 8 became the latest investor market to throw cold water on Moscow's LNG aspirations, by removing loan financing for the Novatek-led Arctic LNG-2 project. The state-owned Japan Bank for International Cooperation confirmed it will withdraw €1.71bn in loans. While the project is still officially on track to make its 2023 launch date, Novatek CEO Leonid Mikhelson has admitted the 19.8mn metric ton/year project could be delayed.

Sanctions create further problems for Russian LNG investments.  Exports of crucial industry equipment into Russia are now prohibited by most countries "unfriendly" to the invasion, aiming to pile pressure on its armed forces and squeeze margins in its highly-lucrative energy sector.

That approach appears to be paying off. The Washington Post reported May 11 that US-led sanctions had forced the Russian military to use computer chips from dishwashers and refrigerators to power military equipment. In the EU, there is a ban on the sale, supply, transfer or export of gas liquefaction equipment. As such, Russian LNG developers are paying domestic suppliers up to twice as much to secure such equipment.

Mikhelson has been quoted previously as saying Russian manufacturers "still have to learn how to make good products." And it will certainly be far harder to deliver on LNG expansion schedules without European liquefaction tech.

With LNG demand expected to soar by 25 to 50% by 2030, according to Morgan Stanley, Russia had recognised an opportunity to significantly increase offtake to Asian customers,, following completion of its Power of Siberia 2 pipeline to China, by delivering additional LNG capacity. Now Russia faces a crippling disadvantage, against its biggest rivals Qatar and Australia.