Do Black Swans in the Middle East Provide Opportunities for the NSR?


Northern Sea Route
Icebreaker escort in icy water. Photo: Rosatom

Advancements in natural gas liquefaction and transport technologies have significantly expanded the market for natural gas-producing countries. A key advantage of liquefied natural gas (LNG) is random routing. LNG can be generally transported by sea anywhere in the world if there are liquefaction and re-gasification terminals. The main LNG exporters are countries of the Asia-Pacific region, namely China, Taiwan, South Korea, and Japan. The Arctic could benefit from shipping LNG to these countries via the eastern part of the Northern Sea Route (NSR), where year-round navigation is expected to be established in 2024.

The possibility of transporting liquefied natural gas by tanker was first demonstrated in 1958. The experimental vessel Methane Pioneer transported liquefied natural gas from Lake Charles in Louisiana (USA) to Canvey Island in the UK. So far, the LNG supply has not faced any significant constraints. The current situation in the Red Sea has shown that conventional LNG delivery routes may be at risk.

The largest players in the LNG market are Qatar, Australia, the US and Russia. In 2023, Russian plants produced 32.33 million tonnes of LNG, down 2% from a year ago. Total LNG exports fell by the same 2%, although, in December 2023, the figure was the highest for the year and 7% higher compared to the last month of 2022.

According to the chairman and co-owner of Novatek, global gas demand growth can only be met by new LNG projects in three countries - Russia, Qatar and the US. Also, he added that LNG provides 2/3 of gas demand growth, which averages 2% per year.

He stressed that the potential of Qatar's resource base is "already realised to its fullest extent", with European companies signing contracts to supply gas from the country with an expiration date beyond 2050. The US gas is much more expensive, as the share of shale gas in the country's production structure has reached 79%. Advocates of the "green" transition demand that the US government tighten the requirements for issuing permits for the construction of LNG export infrastructure.

Given all circumstances, the Russian resource base becomes the most important one. The Russian authorities plan to increase the country's share in the LNG market to 30% by 2035.  However, about 20 large- and medium-capacity LNG plants should be launched by 2035 to implement these plans. Currently, there are two large-capacity projects in operation: Novatek's Yamal LNG plant (designed capacity of 16.5 million tonnes per year) and Gazprom’s Sakhalin-2 (9.6 million tonnes). Another major project underway in Russia is Novatek's Arctic LNG 2 plant. The project includes the construction of three LNG lines with a total capacity of 19.8 million tonnes per year by 2026.

It should be emphasised that the Arctic is home to the largest onshore gas fields that have not yet been developed. The harsh Arctic climate is an advantage for LNG production. To produce LNG, the gas must be compressed and cooled to a temperature of -160°C, at which point its volume is reduced by about 600 times. Due to cold temperatures in the Arctic, much less energy is required for cooling. Therefore, its production is cheaper than in tropical and subtropical areas, where most of the world's LNG production plants are located. Low production costs make Arctic LNG competitive in the global market.

It is noteworthy that LNG supplies from Russia to Turkey (1.4 times) and Greece (4.5 times) increased significantly in 2023 compared to 2022. In December 2023, Russia ranked second after Algeria in terms of LNG deliveries to Spain. At the same time, all three countries are NATO members. In addition, in 2023, Russia delivered 67,000 tonnes of LNG to Brazil for the first time in five years.

Indeed, sanctions imposed on Russia in response to its actions in Ukraine continue to negatively impact project implementation. There have also been difficulties with equipment supplies. It turned out to be a rather problematic to fully substitute previously imported Western turbines, compressors and some other technologies in a short period of time. During recent Valdai Club session, the Norwegian expert Glenn Diesen pointed out that further development of cooperation with Western countries at the NSR will depend entirely on Russia's actions in Ukraine.

The editorial board of The Arctic Century