The US is once again tightening the screws on Russia’s vital LNG sector

The US Treasury and State Departments once again stepped up pressure on Russia’s critical liquefied natural gas (LNG) sector last week, a day before the commemoration of Ukraine’s August 24, 1991 Declaration of Independence. series of new sanctions against individuals, companies, projects and trading and delivery mechanisms that are vital to Moscow’s LNG operations. This aligns with comments earlier this year by US Assistant Secretary of State for Energy Resources Geoffrey Pyatt that: “We will continue to tighten the screws (on major Russian LNG projects such as Arctic LNG 2) . We will continue to appoint a wide range of entities involved in the development of other key energy projects, future energy projects and associated infrastructure, including the Vostok Oil Project, the Ust Luga LNG Terminal and the Yakutia Gaz Project.”

One of the main reasons for this focus by the US and its allies on effectively destroying Russia’s ship-borne LNG sector is that it now acts as a key source of revenue to fund the war against Ukraine as a result of the decline in gas and gas from pipelines. oil exports to Europe after Russia invaded the country on February 24, 2022. Russia earned nearly $100 billion from natural gas and oil exports in the first 100 days of the war in Ukraine, before US-led sanctions against Russia to begin to take effect, as discussed in my latest book on the new global oil market order. Overall, the revenue from higher post-invasion oil and gas prices far outweighed the costs to Russia of continuing to fight the war. However, as prices began to weaken further as sanctions increasingly hit Russia, its finances and ability to secure a definitive military victory were significantly reduced. The International Energy Agency (IEA) predicts that Russia’s share of internationally traded natural gas will fall to about 15 percent by 2030, from about 30 percent the year before it invaded Ukraine. Its revenue from natural gas sales is projected to fall to less than $40 billion by 2030, from about $100 billion in 2021. The situation has become so desperate for President Vladimir Putin that he has risked arrest in December to visit Mohammed bin Salman of Saudi Arabia. , and Mohamed bin Zayed al Nahyan of the United Arab Emirates, to advocate for greater cuts in OPEC oil production to raise oil prices to increase Russia’s revenues from the sector. With revenues from natural gas and oil still dramatically reduced, Russia has increasingly relied on increased revenues from the LNG sector to finance its petro-war economy. On November 22 last year, Deputy Prime Minister Alexander Novak said that Russia plans to increase its LNG market share to 20% (at least 100 million tons per year) by 2030, from the current 8% (about 33 tons in 2023).

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Another major concern for the US and its key allies is that it does not want Russia to regain the level of political and economic influence it has had over the 27 countries that make up the European Union (EU). At the end of 2021, according to IEA figures, the European Union imported an average of more than 380 million cubic meters (mcm) per day of pipeline gas from Russia, or about 140 billion cubic meters (mcm) for the whole year. Also, about 15 bcm were delivered as LNG. The total of 155 billion cubic meters imported from Russia accounted for around 45% of EU gas imports in 2021 and almost 40% of total gas consumption. Germany – the de facto EU leader – depended on Russian gas for about 30-40 percent of its own commercial and domestic gas needs, depending on the time of year. The country was also at the time the recipient of the highest level of Russian crude imports of any EU country – an average of 555,000 barrels per day (bpd), or 30% of total oil imports at the end of 2021 / the beginning of the year. from 2022 – according to AIE. The US and UK believed that because of this reliance on cheap and abundant Russian gas and oil, Germany and the EU refrained from punishing Russia with serious sanctions for its 2008 invasion of Georgia and its invasion and annexation of Ukraine’s Crimea region. in 2014, as detailed in my latest book on the new world oil market order. The US does not want Russia to be in any position to rebuild such influence over these key member countries of the NATO security alliance or its Asian equivalents.

This ties into the other main reason the US continues to so aggressively target Russia’s LNG business, namely the growing geopolitical importance of the energy source in the Russia-China relationship. Since Russia invaded Ukraine in 2022, LNG has become the most important source of variable energy in an increasingly insecure world. Unlike oil or gas that is transported through pipelines, LNG does not require years and large expenses to build a complex infrastructure before it is ready to be transported anywhere. Once the gas has been converted to LNG, it can be shipped and moved anywhere within days and reliably bought either through short- or long-term contracts or immediately on the spot market. Should another major global conflict break out – as many expect will happen in and around Taiwan in the next three years – the importance of LNG will increase even more, as existing overland oil and gas transport routes from Russia to China are unlikely to remain functional for long. Beijing was aware of the new status of LNG even before Russia invaded Ukraine, having previously signed several long-term contracts for the supply of natural gas with several countries, especially the world’s largest LNG exporter, Qatar, as discussed. in my last book.

Russian President Vladimir Putin must also have understood how important LNG would become in the global energy mix before he ordered the invasion of Georgia in 2008 and the first invasion of Ukraine in 2014. Given the enormous emphasis he placed on Russia to continue with LNG. projects before any of these actions, he might well expect much more significant sanctions on his country’s gas and oil flows at that time by the US and Europe than actually happened. Such was Putin’s determination to press ahead with Russia’s LNG projects in the Arctic that various Russian heavyweights were exposed around the time the US imposed its very limited sanctions in 2014 to fund key parts of them. The Russian Direct Investment Fund, for example, set up a joint investment fund with the State Bank of Japan for International Cooperation, each contributing half of a total of about JPY 100 billion (then USD 890 million). The Russian government itself financed Arctic LNG 1 led by Novatek from the beginning with money from the state budget. He then supported it again when sanctions were introduced by selling bonds in Yamal LNG (the first part of the Arctic LNG programs) and then by providing another RUB 150 billion in protection funding from the National Social Assistance Fund. Russia’s Arctic LNG sector is potentially huge, comprising more than 35,700 billion cubic meters of natural gas and more than 2,300 million metric tons of oil and condensate, most of which are in the Yamal and Gydan peninsulas located on the southern side of the Kara Sea. It could also provide an extremely fast shipping route to China as the Arctic ice continues to melt, which is the reason for Russia’s increasingly rapid construction of the Northern Sea Route (NSR), as it is fully detailed in my latest book on the new global oil market order. Everything related to this Russian plan is also being rigorously targeted now under the US focus on the country’s LNG sector, as evidenced by these latest sanctions from Washington.

By Simon Watkins for Oilprice.com

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