Russia Navigates Challenges to Achieve Optimistic Post-2035 LNG Strategy

Executive Summary:

• Russia’s global liquefied natural gas (LNG) exports to grew in 2024, despite heavy sanctions. Russia plans to continue this trend and capture 20 to 25 percent of the global LNG market by 2035.
• To achieve this goal, Russia has created two strategies: a maritime strategy aimed at increasing global exports and a continental strategy to increase exports across Eurasia, including related services, know-how, and technologies.
• Moscow is adapting to sanctions and competition from the United States, which are currently the primary obstacles determining whether Russia becomes one of the most dominant players in the global LNG market by 2035 and beyond.

Russia’s global liquified natural gas (LNG) exports grew  in 2024 by 4 percent compared with 2023, reaching 33.6 million tons (MT) (Bruegel, March 6). This exceeded the target goal set by Deputy Prime Minister of Russia Alexander Novak, breaking Russia’s all-time record in LNG exports reached in 2022. Russia’s LNG industry is primarily powered by two main projects, the Arctic NOVATEK-owned Yamal LNG project, which produced 21.1 MT of LNG in 2024, and the Far East Gazprom-owned Sakhalin-2 project, which produced 9.9 MT of LNG in 2024 (Neftegaz.ru, January 28). Russia has faced numerous sanctions on its LNG industry from the West. The first restrictions were introduced in 2014 following its illegal annexation of Crimea, and more serious sanctions were later implemented between 2022 and 2024 following Russia’s full-scale invasion of Ukraine (see EDM, January 9, 2024, January 9, 29). Despite growing pressure, Russia still plans to capture between 20 to 25 percent of the global LNG market by 2035 (RBC, October 14, 2024). Russian President Vladimir Putin restated Russia’s optimistic outlook at the end of 2024 when he claimed that hydrocarbons will continue playing a key role in the global economy for decades to come and Russia will be increasing its share in the global LNG industry (RIA Novosti, December 19, 2024).

Russia’s confidence is boosted by the European Union’s position, which, up to date, has remained its key buyer of LNG (Gazeta.ru, December 22, 2024). Despite promises, declarations, as well as some actual measures aimed at reducing the degree of Russian energy exports in Europe’s market share (including LNG), there is speculation that some EU leaders and officials are considering returning to imports of Russian hydrocarbons at the pre-2022 level. While some countries, such as the Baltic States, Poland, and Nordic countries, have vehemently protested against the idea, officials from Germany and Hungary spoke in favor of this initiative (RBC, January 30). This speculation may be substantiated. Based on an investigation from the Deutsche Umwelthilfe ecological organization, Germany plays the key role among EU member states in propping up Russia’s exports to the European Union (Deutsche Umwelthilfe, January 28). Specifically, the investigation states that the key role in importing Russian LNG belongs to the state-owned Securing Energy for Europe GmbH. The amount of Russian LNG shipped to Germany, however, is impossible to estimate given the obscurity of the European Union’s gas-related ecosystem (DW, January 28).

Going forward, Russian and foreign investigators have identified two interdependent strategies, maritime and continental, that could assist Russia in achieving its LNG goal beyond 2035 (Neftegaz.ru, October 14, 2024).

The “maritime strategy” (морская стратегия; morskaya strategiya) rests on three main factors that should enable Russia to produce and export between 110 and 147 MT of LNG per year. First, countries of the so-called Global South, where Russia could become one of the key suppliers, are increasingly consuming LNG (Neftegaz.ru, October 14, 2024).

Second, Russia is making moves to combat technological challenges in both the production of LNG and the delivery of LNG to other parties, which will warrant an increase in the number of LNG carriers. With the former aspect, NOVATEK and Rosneft corporations are said to have made certain advancements that should allow Russia to move forward in the production and development of its LNG capabilities in the climatically harsh conditions of the High North. The situation appears more challenging, however, when it comes to LNG carriers. As of now, the only shipbuilding facility in Russia capable of producing this type of vessels is the Zvezda Shipbuilding Complex in Primorsky krai. Following South Korea’s decision to sever ties with Russia (Neftegaz.ru, October 14, 2024). At the same time, should Russia turn to the People’s Republic of China (PRC) for assistance with the construction of LNG carriers, this might become problematic as well, given that shipbuilding facilities in the PRC are fully booked for years to come.

Third, the “maritime strategy” exploits Russia’s large reserves of natural gas and uses transportation corridors, such as the Northern Sea Route (NSR), and proximity to its advantage. With these assets, Russia has the ability to introduce and exploit several LNG-producing projects. Among those projects are the Arctic LNG-2 (50 MT project annual production capacity); the Baltic LNG project (Ust-Luga) and the Murmansk, Obsky, and Yakutsky LNG terminals. Activating these projects would add an additional 142 MT in annual LNG production (Neftegaz.ru, October 14, 2024).

Russia’s “continental strategy” (континентальная стратегия; kontinentalnaya strategiya) specifies that Russian companies specializing in small-scale LNG could acquire a key role in Eurasian projects (Neftegaz.ru, October 14, 2024). Unlike large-scale LNG projects, these initiatives would allow Russia to produce and export not just a product (LNG) but rather a “product offering” which would include the export of services, know-how, and technologies. Opting for small-scale LNG projects would make Russian corporations emerge as key stakeholders in greenfield LNG markets in Eurasia. The Eurasian market of LNG, however, appears meager (in terms of direct financial gains) vis-à-vis large-scale exports. According to some estimates, success in this market would allow Russia to only secure the export of up to 15 MT of LNG annually after 2035 (Neftegaz.ru, October 14, 2024).

To achieve its strategic goal beyond 2035, Russia would need to combine both its maritime and continental strategies. In this regard, it is essential to assess the factors considered by Russian experts such as Maksim Malkov from Kept consultancy as possible hindrances to Russia’s LNG-related plans and ambitions (RBC, October 14, 2024).

The issue of sanctions plays a large role and seems to be viewed by Russia as a lesser challenge. A combination of two factors—former U.S. President Joe Biden’s policies toward the U.S. domestic LNG industry and the actions and rhetoric of U.S. President Donald Trump’s administration on European security—may have an emboldening effect on Russian energy experts (See EDM, February 18; The White House via web.archive.org, January 26). Crucially for Russia, in the current configuration, the European Union may not opt for a complete embargo on Russian LNG (RBC, January 30). Even if this is the case, Russia might still be able to overcome the ban by using, among others, proxy facilities in the Mediterranean Sea and the Northern Sea Route. If this happens, the profit margin would likely shrink, but the export of LNG to the European Union is unlikely to be severed completely (RBC, June 26, 2024). Russian analysis, however, forecasted that the United States would do its utmost to “eliminate the competitor” and continue sanction pressure against Russia and its LNG industry (Forbes.ru, June 4, 2024).

The issue of competition will in the long run, present a challenge surpassing the issue of sanctions. Gas-endowed Australia and Norway’s long-term positions vis-à-vis Russia seem less competitive, stipulated by a combination of factors related to logistics and policy (Mustread.kept.ru, November 28, 2024). Non-western countries emerging as LNG producers, such as Indonesia, Qatar, Algeria, Egypt, and Nigeria, are rising as strategic competitors. Due to various factors—including the strategic orientation of countries of the India-Pacific region in relation to the PRC, less sizable resource bases, and internal political risks—Russia’s position does not appear hopeless in competing with these actors (Mustread.kept.ru, November 28, 2024). Toughening competition will decrease LNG production and export profitability from Russia, which may become a significant negative factor for Russian LNG-producing corporations. The United States, as forecast by Kept analysts, will become Russia’s key and most serious competitor (RBC, October 14, 2024; Mustread.kept.ru, November 28, 2024). In addition to a large resource base and technological advancements, the United States could incur serious damage on Russia through sanctions and other forms of pressure. After 2030–2035, the global economy could enter into a new investment cycle, which would cause a strengthening of competition between the United States and Russia for not only Europe but also African and Indo-Pacific markets (Mustread.kept.ru, November 28, 2024).

Russia considers the United States its main strategic adversary, standing in Russia’s way of becoming one of the world’s top three LNG exporters (RBC, October 14, 2024). Moscow’s LNG strategy remains ambitious, while its success hinges on navigating the challenges posed by both sanctions and foreign competition. Russia, however, continues to adapt to these challenges with new strategies which, if achieved, will place the country on a path toward becoming one of the most dominant players in the global LNG market by 2035 and beyond.