Filenews 14 October 2022
By Javier Blas
Looking southeast of the Acropolis of Athens, the silhouette of the tanker Pskov barely stood out last week across the street, in the turquoise waters of the Aegean Sea. Inside the naval blue of the hull, almost 300 meters long, there was a hidden treasure: a cargo of liquefied natural gas (LNG).
Europe is hungry for LNG after Russia closed most of its gas sales routes through pipelines to the continent, turning energy into a weapon in its war against Ukraine and its Western allies. Dozens of LNG carriers, such as the Pskov, are now docked in Europe, transporting friendly gas supplies from abroad in order to keep the lights on and the houses warm this winter.
Pskov, however, did not travel to Greece from an ally of the West, such as Qatar. No - ironically, he sailed from Russia itself. And not from any "unknown" Russian port for LNG exports. Instead, it was the maiden shipment from a new terminal that Moscow is using to sell some of the same gas that just a few weeks ago it was sending to Germany. The new facility is located next to the famous Portovaya pumping station of the now defunct Nord Stream 1 pipeline.
The route made by the Russian LNG cargo from the Baltic Sea to the Aegean Sea
Under the radar
Pskov - with its surprise origins - is part of a much wider and extensive trade which receives very little attention, despite its political and economic importance. Almost under the radar, Russia still sells hundreds of millions of dollars in LNG cargoes, mainly to the countries themselves that have imposed sanctions against Moscow.
It is a powerful weapon in its energy arsenal. Although best known for its huge gas exports through pipelines, Russia is also the fourth largest exporter of LNG in the world, after Qatar, Australia and the US and ahead of others such as Malaysia and Nigeria.
LNG sales are not as large as gas exports through pipelines were, but they remain a major source of money. "The Kremlin seems to have scored a geopolitical victory by keeping revenues from global LNG sales intact," argues Anne-Sophie Corbeau, from Columbia University's Centre for Global Energy Policy in New York.
Russia is far from insignificant player in the global LNG market
Western countries have imposed sanctions on Russian oil, but they have not touched Russian gas. Thus, almost 80% of the LNG that the Kremlin has exported so far this year has been directed to European and Asian countries that have imposed some kind of punitive measures against Vladimir Putin. They pay free-market prices for gas and send the money directly to the supporters of the Russian president.
If we leave China aside, Japan, France and Spain account for a large part of these markets. On their current trajectory, Russian LNG sales will hit an annual record high in 2022, according to estimates based on tanker tracking data gathered by Bloomberg. Between January and September, shipments averaged 2.78 million metric tons per month, compared to an average of 2.62 million for the entire year 2021 and an average of 2.56 million in 2019, before the pandemic.
Spain, the sixth largest LNG buyer in the world, has so far imported in 2022 larger quantities from Russia than in any other year. Belgium is also on track to break its own annual record. And France bought about 6% more between January and September than in the whole of 2021.
Russian LNG exports have reached an all-time high since Putin's invasion of Ukraine
"Achilles heel"
Markets show how Russia continues to exploit the Achilles' heel of Europe and northeast Asia: their dependence on gas. In Japan, this geopolitical tool works quietly, with Tokyo so far giving a timid political response against Russia.
While leading U.S. and European energy companies like Exxon Mobil and Shell have left Russia, the Japanese government has advised its domestic energy champions to stay there. Japan also insisted that oil sales from a key Russian energy project be left out of the price cap (cap) on Russian oil to be imposed by the G7.
LNG flows also show how Russia is playing its cat-and-mouse game with its gas buyers in the West, blocking some exports but keeping others open, cashing in on record prices and using them as a political and economic lever. It is part of an economic hybrid warfare that Putin has "studied" and perfected as a former KGB intelligence officer.
Moral, economic and geopolitical response
Should Europe continue to buy Russian LNG? The answer from a moral point of view is obvious: no. And, above all, not from a Russian terminal built to bypass, even partially, the - now - inactive Nord Stream 1 pipeline.
The answer from an economic point of view is less obvious: next year, Europe would need all the LNG it can import to rebuild its gas reserves, before a new heating season begins. As the International Monetary Fund noted earlier this week, "the winter of 2022 will be a challenge for Europe, yet the winter of 2023 will probably be worse."
If the war in Ukraine continues, the continent will continue to need LNG cargoes. The benefit for Europe, namely to avoid the shortage of gas next year, is probably greater than the benefit to Russia from additional revenues. From a purely economic point of view, it may make sense to buy from Russia.
The answer from a geopolitical point of view is as simple as from morality: as long as Europe buys Russian gas, either through pipelines or through LNG carriers such as Pskov, it will be at Putin's mercy. This is a market dominated by the seller - and the seller, who is none other than the Russian president, can decide at his discretion when to close the valve or when to stop the ships.
Source: BloombergOpinion
