Russia’s Optimistic Outlook in Post-2035 LNG Strategy Faces Long-Term Challenges

Executive Summary:

• The European Union’s 14th sanctions included restrictions on the transshipment of Russian liquified natural gas (LNG) through EU territory to third-party countries. The sanctions related to contracts signed before June 24, 2024 came into effect on March 26.
• Russia’s LNG industry faces significant technological and transportation challenges due to dependence on Western technology, withdrawal of key international partners, and uncertainty surrounding alternative foreign and domestic technologies.
• The intensification of global LNG competition, particularly from the United States and Qatar, coupled with sanctions and lost international partnerships, jeopardizes Russia’s ability to secure future energy markets.

On March 26, the European Union’s restriction on the transshipment of liquified natural gas (LNG) through EU territory entered into force for contracts concluded before June 25, 2024 when the 14th EU sanctions package was adopted (RIA Novosti, March 26; Eur-lex.europa.eu, June 24, 2024). The prohibition applies only to third parties, and members of the European Union can still purchase Russian LNG for their own internal use. The term “transshipment” applies to Russian LNG supplied to third parties via both ship-to-ship transfers and ship-to-shore transfers, as well as re-loading operations conducted within the territory of the European Union. Many Russian experts believe that this will have a limited impact on Russia’s LNG industry and that EU member states will continue to purchase Russian LNG, whose consumption was still growing as of February (RIA Novosti, February 21). Tinne Van der Straeten, the Belgian Minister of Energy until February 2025, stated that Belgium would continue to purchase Russian LNG for its own use while paying closer attention to its origins when completing transshipments through Belgian LNG facilities. Belgium played a significant role in the transshipment of Russian LNG as its port of Zeebrugge hosts one of the European Union’s largest LNG terminals (RIA Novosti, March 26). 

Russian officials have claimed that by planning to implement new anti-Russian LNG-related restrictions, the European Union is doing nothing but hurting its own economy. Artem Studennikov, the director of the first European department of the Russian Foreign Ministry, warned that Russia will continue exporting its LNG but will use “other channels” outside of the European Union. He called the European Union’s decision to implement anti-Russian LNG sanctions an “act of [Europe’s] servility influenced by the pressure of the United States, which has already had a major negative impact on [EU] industrial production, the competitiveness of its enterprises, its export opportunities, and the purchasing power of the European Union’s population” (RIA Novosti, February 13). In December 2024, Russia’s Ambassador to Belgium, Alexander Tokovinin, warned Brussels that refusing to transit Russia’s LNG would have grave consequences for Belgium’s LNG-related industry and the port of Zeebrugge (Angi.ru, December 28, 2024). While Russia’s officials and pro-Kremlin energy experts express confidence in Russia’s ability to cope with current sanctions-related hardships and increase its global share in the LNG industry beyond 2035, other experts are much more pessimistic. Their largely negative longer-term forecast is premised on technological factors and transportation-related issues (see EDM, February 24).

The technological factors Russia’s LNG industry faces encompass three key elements. Despite official claims about the successes of its import-substitution strategy, experts say that Russia has yet to overcome LNG-related dependence on Western countries. Russia’s first LNG-producing facility, Sakhalin-2, was fully developed and constructed by the British oil and gas company Shell. Yamal LNG, belonging to Novatek Corporation, was developed in collaboration with U.S. Air Products. Russian-built projects, such as the Far East LNG terminal, also primarily utilized Western technologies (Interfax.ru, July 13, 2022). Alternative, primarily Chinese technologies, however, might not become a silver bullet. Not only does the People’s Republic of China (PRC) lack the necessary technical expertise in building large-scale LNG projects, but the issue of secondary economic sanctions may also influence the PRC’s thinking (see EDM, January 9, November 13, 2024, January 29, February 24). The lack of technology has already compelled Novatek to temporarily halt projects such as Murmansk LNG and Ob LNG. Moreover, Russian sources claimed that in 2024, despite its clear orientation on meeting Chinese energy needs, the Arctic LNG-2 mega-project could only manage to provide the PRC with 1 million tons (instead of the planned 6 million tons) of LNG (Muksun.fm, September 27, 2024). 

Russia’s own technologies may not deliver anticipated results. In 2018, Novatek came up with the “Arctic Cascade” innovative technology—utilized for liquefaction of natural gas on the fourth line of the Yamal LNG project—which is only capable of small-scale projects (up to 0.9 million tons of LNG annually) and unsuitable for large-scale projects (Novatek.ru, July 13, 2022). In 2023, the company announced the development of a new technology, known as the “Arctic mix,” suitable for LNG projects with an annual output of 6 million tons. Based on available data, however, this technology has yet to be tested in practice (Novatek.ru, June 13, 2023).  

Transportation-related issues are a large factor in the pessimistic forecasts of the state of Russia’s LNG industry. It is an open secret that Russia lacks LNG carriers suitable for all-year-round operations in the Arctic environment. This is acknowledged even by the most optimistic pro-Kremlin energy experts and officials. South Korean LNG-building companies effectively severed ties with Russia after Russia’s full-scale invasion of Ukraine in February 2022. Russia-based LNG carrier-producing companies, such as Zvezda, were dependent on French technologies provided by Gaztransport & Technigaz, which abandoned Russia in 2023 (Kapital-rus.ru, May 25, 2022; Kommersant.ru, January 2, 2023). As a result, leading Russian finance and economics experts, such as the Chief Economist of VEB Andrey Klepach, who is preserving an overall optimistic outlook, have claimed that due to the lack of foreign technologies, many oil- and LNG-related projects in Russia will be delayed beyond 2030 (Interfax.ru, April 16, 2024). For Russia, a beam of hope in regaining access to South Korean technologies and shipbuilding facilities loomed in early 2025, when South Korea essentially lifted sanctions related to one type of medical equipment and, as argued in Russian sources, reportedly expressed its interest in importing Russian LNG (Lenta.ru, February 24; Izvestiya, February 26). This prospect, however, has yet to materialize and is mainly discussed only in Russian media for now. 

The issue of competition and the “tertiary effect” of economic sanctions is another factor that affects Russia’s LNG industry. In 2025 and beyond, the United States and Qatar, two of the world’s three largest LNG producers, plan to launch new LNG projects. According to the International Energy Agency (IEA), this could potentially lead to oversaturation of the global LNG market. Speaking about Russia’s prospects, a study produced by the IEA noted that “the glut of LNG means there are very limited opportunities for Russia to secure additional markets. Russia’s share of internationally traded gas, which stood at 30 percent in 2021, is halved by 2030” (IEA, accessed March 5). This is, in effect, what some Russian experts have referred to as the “tertiary effect” of economic sanctions. Russia is not only losing current markets but also risks being excluded from future deals by its strategic opponents, who are now gaining a foothold in the global LNG industry for the future. 

Even though this “tertiary effect” has a small immediate visual impact, its strategic significance will become apparent in the future (Re-russia.net, April 15, 2024). Igor Yushkov, an energy expert from the Financial University under the Government of the Russian Federation and the Foundation for National Energy Security, using the example of the Arctic LNG-2 project, doubted that Russia would be able to easily find buyers from Asia for its new Leningrad oblast-based LNG projects. He stated that, given that deliveries to Asia would likely circumvent Africa due to multiple security and political uncertainties in the Middle East, the economic sustainability of such a transportation scheme for Russia is dubious. Thus, he assumed that in the case that economic sanctions continue, this could pose serious challenges to Russia’s new LNG projects in, among others, the Northwestern part of the country and Leningrad oblast in particular (Actualcomment.ru, January 15). This means that Russia would face challenges in supplying its LNG to new markets beyond the PRC, potentially losing market share to other players. 

EU sanctions pressure is already causing a visible dismay among Russian legal experts specializing in sanctions. This is specifically caused by clauses embedded in the most recent 16th package, adopted on February 23, that target a larger number of Russian and Russia-affiliated banks and financial institutions suspected of assisting Russia in evading economic sanctions. The European Union has additionally named 74 vessels that comprise Russia’s so-called “shadow fleet,” which assists Russia in circumventing international sanctions, bringing the total number of listed vessels to 153. As stated by a lawyer Gleb Boyko from the “Nektorov, Saveliev & Partners (NSP)” Russia-based international law firm, clauses embedded in the new sanctions package should be viewed as “the most significant measure [introduced so far] that puts a stain on Russia’s ability to export energy resources” (RBC, February 24). EU’s latest sanctions package came shortly after the U.S. adopted similar sanctions on January 10 (United States Department of Treasury, January 10).

If international sanctions remain in place and are adhered to by all signatories, Russia’s ambitious plans for LNG exports may suffer a significant setback. While Russia’s resilience should not be underestimated, growing competition in the global LNG industry might result in Russia being reduced to selling its LNG on the spot market, which is a far cry from what Russia’s optimistic outlook is based on (Nangs.org, January 16).