LNG

Exports of Russian liquefied natural gas cargoes from the Yamal plant in northern Siberia and the Sakhalin plant in Russia’s Far East declined only slightly in the past year as Moscow also adapted its oil export policies under the OPEC+ regime as well as to cope with Western sanctions over Ukraine.

The Japan Organization for Metals and Energy Security, a national agency with a stake in the Russian Arctic LNG II project operated by the Novatek natural gas company of Russia, is likely to put Japanese LNG needs over Western sanctions as Japan did when keeping cargo rights from Sakhalin LNG.

“Strengthening mutually beneficial relationships with resource-rich countries is essential for developing oil and natural gas resources,” said the Japanese agency known as JOGMEC.

“As a governmental organization, JOGMEC conducts various projects to support Japan’s resource diplomacy, collaborating with national oil companies and providing technical support for producing countries,” it added in its latest statement on policy.

While Japan like other nations has condemned Russia's invasion of Ukraine it has continued to keep stakes in the Sakhalin LNG plant in the Russian Far East and other energy projects.

Novatek controls 60 percent of the Arctic LNG II project and its other remaining active partners are from China and Japan.

Consortium

They are China National Petroleum Corp., China National Offshore Oil Corp. and a consortium comprising the Japanese trading company Mitsui & Co. and JOGMEC.

Mitsui has said that while it would comply with any sanctions requirements it would take its final guidance from the Japanese Government.

In the case of Russia’s Sakhalin LNG, Japanese companies Mitsui and Mitsubishi maintained their stakes and offtake with the government saying at the time that if Japan ceded its offtake rights they would likely be taken up by China.

Another energy security issue facing Japanese utilities and LNG importers is that Australia could become an unreliable LNG supplier in the future as labor unions begin to exercise control and more hardline policies at LNG plants, readily backed by key members of the governing left-wing and anti-hydrocarbon Labor party.

This action has resulted in a series of strikes and work stoppages at four facilities in Western Australia, raising security of supply concerns in Asia.

Analysts said that crucially the Japanese have a large offtake portion from the Arctic LNG II project on the Gydan Peninsula that is expected to come on stream in early 2024 and they were unlikely to give this up.

Japanese offtake

The Japanese have basic offtake rights from the Gydan venture to 2 million tonnes per annum and could increase that total.

Arctic LNG II will have three liquefaction Trains, each with 6.6 MTPA of capacity.

One of the Trains is already on site after being towed from a construction yard in the Murmansk Region on a gravity-based structure and deployed in the bay where the plant is located.

The biggest Arctic LNG shareholder, Novatek itself, has been signing multiple additional sales and purchase agreements with Chinese LNG players such as the ENN Group and Zhejiang Energy Gas Group.

The ENN SPA stipulates cargoes from Arctic LNG II will amount to a total of 600,000 tonnes per annum will be delivered over a term of 11 years.

LNG deliveries to ENN will be on a ex-ship (DES) basis whereby Novatek supplies the shipping to ENN’s Zhoushan LNG receiving terminal in eastern China. 

Russian natural gas company Gazprom has signed up the Central Asian republic of Uzbekistan as its newest customer after the cut-off in 2022 of European pipeline gas deliveries by the Nord Stream route to Germany after the Ukraine invasion.

Pressure on European and global natural gas markets has eased since the beginning of 2023 due to favourable weather conditions and policy actions discouraging gas use, though several factors point to possible supply risks in the fourth quarter.

By the end of first quarter of 2023 European hub and Asian spot liquefied natural gas prices had fallen below their summer 2021 levels but they remained well above their historic averages, according to the May gas report from the International Energy Agency.

It noted that the steep decline in natural gas demand reduced the need for storage withdrawals in Europe and the United States over the 2022-2023 winter.

As a result, storage sites closed the heating season with inventory levels standing well above their five-year averages.

“This is expected to reduce injection demand during the summer of 2023, and potentially ease market fundamentals,” stated the Paris-based IEA.

“However, the improved outlook for gas markets in 2023 is no guarantee against future volatility and should not be a distraction from measures to mitigate potential risks,” added the report.

Tight supplies

“Global gas supply is set to remain tight in 2023 and the global balance is subject to an unusually wide range of uncertainties. These include adverse weather factors, such as a dry summer or a cold fourth quarter and lower availability of LNG,” added the report.

The IEA explained that while the share of OECD Europe’s gas demand met by Russian pipeline gas fell to well below 10 percent in the 2022-2023 heating season, LNG effectively became a baseload supply for Europe, meeting over one-third of the region’s gas demand over the winter.

Russian piped gas exports to OECD Europe fell by an estimated 70 percent (or 50 Bcm) year-on-year during the winter.

While deliveries to Turkey declined by close to 30 percent, gas flows to the European Union plummeted by over 80 percent, translating into a drop of 47 Bcm compared to the previous heating season.

In contrast, Russia’s LNG exports to the EU rose by 5 percent compared with the previous winter period.

LNG flows from the United States increased by 30 percent, or almost 10 Bcm year-on-year, to account for over 45 percent of incremental LNG supply into Europe.

“This further reinforced the position of the United States as Europe’s largest supplier, accounting for over 40 percent of the region’s total LNG imports and meeting almost 15 percent of its gas demand,” said the IEA.

“Qatar increased its gas deliveries by 15 percent (or 1.5 Bcm), primarily supported by higher supplies to Belgium, France, Italy and Poland,” added the report.