The Russian media outlet Vz.ru reported that Russia had, for the first time, surpassed the U.S. as a supplier of liquefied natural gas to Europe, and that this positive news for Russia meant that "our gas has once again proven its superiority." The article stated: "Russian LNG is in more demand in Europe than American LNG, even in times of crisis and a sharp decline in demand and prices."
The article added that this situation had, however, also created rivalry in Europe between two Russian companies: the Russian majority state-owned multinational energy corporation Gazprom, and Russia's largest independent natural gas producer Novatek.
Below is the Vz.ru article, titled "Gazprom Is Facing A Russian Competitor In Europe":
'The Demand For LNG In Europe Will Continue To Grow Until 2040'
"For the first time, Russia has surpassed the U.S. as a supplier of liquefied natural gas to Europe. On the one hand, this is positive news: our gas has once again proven its superiority. On the other hand, this situation has created the rivalry in Europe between two types of Russian gas: pipeline and liquefied. And it's not just the competition between two Russian companies; there are budget losses as well.
"'Usually, half of these supplies come from the U.S. and Russia, but in 2020 you can see that Russian LNG was supplied in slightly higher volumes than American LNG. This is the first time this has happened,' says the head of Shell in Russia, Cederic Kremers. According to his data, out of the approximately 84 million tons of LNG delivered to Europe in 2020, 22 million were supplied by Russia and 20 million by the U.S.
"[Kremers] estimates that the demand for LNG in Europe will continue to grow until 2040, along with a significant decrease in domestic production, whereas the share of pipeline gas will slightly decrease. However, the main drop in pipeline gas will be caused by dwindling supplies from Norway and North America. At the same time, Shell believes that pipeline gas supplies from Russia will remain at about the same level.
"On the one hand, this is positive news for Russia. Russian LNG is in more demand in Europe than American LNG, even in times of crisis and amid a sharp decline in demand and prices. On the other hand, no matter how you spin it, Russian LNG claims a slice of Gazprom's market, and hence of the Russian budget.
"Why did American LNG dwindle in the European market last year? First, the operating costs for liquefying and delivering American gas turned out to be high, so consumers did not want to pay for them, says Igor Yushkov, a senior analyst at the National Energy Security Fund and lecturer at the Russian government's Financial University. At some point, gas prices on the European spot market dropped to $30 per thousand cubic meters. For Americans, it made no sense to liquefy gas and deliver it to Europe, which is why LNG plants in the U.S. even stopped operating for a certain time. At the same time, Russian LNG plants continued to produce and ship LNG, despite the crisis.
"Yushkov adds: 'Novatek's operating costs are practically nil, because they are covered through the export of gas condensate. And overland transport to Europe is cheaper.'
"Second, as soon as the demand in Asia began to recover, Americans immediately rushed there to make some money, as the prices in Asia are higher than in Europe.
"Paradoxically, when authorities allowed the private company Novatek to export LNG, it was assumed that the liquefied gas would go to new Asian markets. Instead, the Russian LNG began to conquer the European market, traditionally served by Gazprom as the sole gas exporter. The latter [Gazprom], along with [the Russian integrated energy company] Rosneft, provides export revenue to the Russian budget. At the same time, Novatek still pays no export duties into the Russian budget; moreover, its LNG projects have received other tax incentives – zero mineral extraction tax, reduced taxes on profits and land, etc. The Russian budget will only benefit from Novatek's LNG exports when these tax benefits expire, which will be in eight to 12 years.
"Yushkov adds: 'As far as both Gazprom and the [Russian] state are concerned, it would be ideal for all Russian LNG to go to Asia – South Korea, Japan, and even China. The Power of Siberia gas pipeline reaches the east of China, where there are no LNG terminals, so there would be no direct competition between the two types of Russian gas.'"
'Europe Is Not The End Consumer'
"In Europe, however, such competition is inevitable. Yushkov again: 'It would be better if Novatek's gas didn't go to Europe at all. One way or another, it still competes with our pipeline gas. And the Russian budget does not receive mineral extraction tax and export duties. Here the interests of Gazprom and the budget coincide.'
"He explains: 'The problem of Novatek is that it does not have enough icebreaking tankers for year-round use of the Northern Sea Route. And the year-round escorting for tankers remains risky. Were LNG to be sent only to the East, then the volume of LNG production at the Yamal facility would have to be reduced, because they would not have time to supply all the LNG. But large volumes can be sent to Europe because of the simpler and faster logistics.'
"However, of the 22 million tons of Russian LNG that were supplied to Europe, only 80% was Novatek's. Considering that last year the company produced some 20 million tons of LNG, about 16 million of these were supplied to Europe by Novatek, and the remaining 7 million by Gazprom. There are currently two large LNG plants operating in Russia: Sakhalin-2, which is controlled by Gazprom and which produced 11.6 million tons of LNG in 2020, and Novatek's Yamal LNG, with a designed capacity of 16.5 million tons, although it operates above that.
"At the same time, Novatek states that for some of its LNG, Europe is not the end consumer, but rather a trans-shipment point for delivery to other countries. Shell's statistics, however, do not take this into account.
"Yushkov says: 'The situation may change once a trans-shipment hub for 20 million tons is built. The supplies will then be redirected to Asia. However, by that time, the fourth stage of Yamal LNG and Arctic LNG-2 projects will already be launched, so in any case all the LNG will not go to Asia. By creating a similar trans-shipment hub in the Murmansk region, Novatek in fact is acknowledging the fact that part of the LNG will still go to Europe in the future. Therefore, in 10 years, when Novatek starts paying taxes, this problem will go away for the budget, but not for Gazprom.'
'Russia Will Be Able To Compete For Leadership In The Global LNG Market With The U.S., Qatar, And Australia'
"The state, however, offered these tax benefits to Novatek for a reason. First, the objective is to create in Russia what is essentially a new industry for the liquefaction of natural gas. Without these incentives, Yamal gas would most likely have remained in the ground. Now, Russia plans to triple LNG production by 2035: from the current 29 million tons to 120-140 million tons of LNG per year, and take up to 15-20% of the world market.
"According to Philip Muradyan, Director for Corporate Ratings at Expert RA, 'Russia is already a significant player in the LNG market. The plans in the energy strategy for growth until 2035 are quite realistic. Novatek alone plans to more than double its production in the next five years through the Arctic LNG-2 and Obsky LNG projects. This is a very ambitious LNG program. Also in the coming years, the Baltic LNG project of Gazprom may be launched. In the future, Russia will be able to compete for leadership in the global LNG market with the United States, Qatar, and Australia.'
"Besides that, Novatek is engaged in the development of Russian technologies in this field. The company soon plans to launch the fourth Yamal LNG stage utilizing its own medium-tonnage LNG technology, the Arctic Cascade. This technology is expected to help reduce the LNG production cost by 30%. The commissioning of the fourth stage is currently underway.
"Its launch was postponed several times. The opening was originally planned for the end of 2019. The delays in implementing new proprietary technologies are understandable. At this stage, Novatek essentially will test its own patented gas liquefaction technology. After that, a fully functional plant utilizing this technology will be built, the 'Obsky LNG,' with a capacity of 5 million tons.
"In addition, Novatek is not just an active user of the Northern Sea Route. It is also helping [Russia's largest shipping company] Sovcomflot to develop a new logistics route, on which Russia is strongly counting.
"In January-February, the first round trip was made from the port of Sabetta, Russia (the site of Yamal LNG) to Jiangsu, China and back to Sabetta along the high-latitude section of the Northern Sea Route. This trip was carried out by the Arc7 ice-class LNG carrier Christophe de Margerie. Novatek's LNG was delivered to China.
"The January trip is unique in that it is the latest ever independent voyage along the eastern part of the Northern Sea Route. Normally navigation there lasts from July to November. And the February voyage of a large-tonnage cargo ship along the eastern route of the Arctic was the first ever. The return passage from Cape Dezhnev to Sabetta under the escort of the icebreaker '50 Let Pobedy' took 11 days and 10 hours. This turned out to be slightly faster than the independent voyage of [LNG carrier] Christophe de Margerie in January 2021."
 Ppstreamonline.com/exploration/novatek-seeks-putin-support-to-wrestle-control-of-key-gas-blocks-from-gazprom/2-1-997795, April 19, 2021.
 Vz.ru/economy/2021/3/15/1089170.html, March 15, 2021. The article was written by Olga Samofalova.
 Upstreamonline.com/exploration/gazprom-beats-novatek-in-race-for-remote-russian-gas-tract/2-1-990308, March 31, 2021.