Russia's Novak casts doubt on Europe's ability to meet peak winter gas demand

Russia's Deputy Prime Minister Alexander Novak cast doubt Oct. 13 on Europe's ability to meet peak winter gas demand without Russian supplies, saying the situation for the European market this winter was "critical."

Speaking during the Russian Energy Week, Novak asked which suppliers would be able to step in to make up for missing gas volumes in Europe.

Russia had traditionally supplied not only the cheapest gas for the European market, but had also delivered additional gas volumes during winter to help meet peak daily demand, he said.

"Russia was always able to increase supplies over the contracted level and supply more cheaply than on the spot market," Novak said.

"Who is going to supply this winter season? No one knows. Where will they get the missing gas? We can ask the question, but we won't get an answer," he said.

He said while European gas storage sites had been filled to more than 90% capacity, storage facilities were limited in terms of the amount of gas that could be withdrawn on peak demand days.

"Storages are [...] not for peak consumption, it is not possible to take those volumes all of a sudden if the temperature drops," he said.

"The situation is really critical. Let's see what will happen in winter, but probably other conclusions will be drawn by politicians."

Economic competitiveness

Russian gas traditionally accounted for around 45% of European supply, but that share has fallen to less than 10% after supplies were halted via the Yamal-Europe pipeline and Nord Stream, and exports via Ukraine curtailed.

Russia has blamed Western sanctions for the supply cuts, while the EU has said Moscow is weaponizing gas.

Lower Russian gas supplies to Europe have helped keep prices at sustained highs since September 2021.

Platts assessed the Dutch TTF month-ahead price at an all-time high of Eur319.98/MWh on Aug. 26. It was last assessed Oct. 12 at Eur159.95/MWh, according to data from S&P Global Commodity Insights.

The competitiveness of Europe's economy had been supported by cheap gas from Russia, but this is now under threat, Novak said.

European politicians, he said, were making decisions without considering longer-term economic consequences.

By imposing sanctions on Moscow, Europe was "creating problems for itself," Novak said.

Chinese deliveries

Russia is now also moving to develop more gas export capacity to China in a pivot Eastward. "We need to develop new infrastructure to supply markets where we see demand," he said.

As well as China, Novak said there was demand in the Asia-Pacific region, including in India and Pakistan.

He said deliveries of gas via the Power of Siberia pipeline to China were expected to rise to 22 Bcm in 2023 from 15 Bcm this year and would reach the design capacity of 38 Bcm/year in 2027.

On LNG, Novak said it was important to speed up projects and incentivize developments, particularly through using domestic technology and accelerating import substitution.

Russia currently produced around 30 million mt/year LNG from the Yamal LNG and Sakhalin 2 projects, he said.

"Our plan is to reach 64 million mt/year and by 2030 -- or a bit longer -- to reach 100 million mt/year," he said. "Those volumes can be delivered to any place in the world."

Leonid Mikhelson, CEO of Yamal LNG operator Novatek, also said the global LNG market was likely to remain tight until at least 2026.

With a shortage of Russian pipeline gas in Europe, there was an additional pull on LNG that could see a global shortage of 60 million-70 million mt/year.

"If decisive steps are not taken to support LNG projects, then we can expect the market to stabilize only by 2026 and we have to survive until then," Mikhelson said.

"If nothing changes, I don't see getting back to normal prices before 2026."