AlwaysFree: Russian Gas Project’s Downtime Is A Risk To Global Supply

• Prolonged maintenance at a major LNG facility may pressure the energy sector at a sensitive time.

According to Bloomberg article published on May 2, 2023, for the global gas industry’s next potential flashpoint, keep an eye on a key export facility in Russia’s far east this summer.

The Sakhalin-2 liquefied natural gas project will conduct its annual maintenance without any foreign contractors for the first time after companies cut ties with Russia following Vladimir Putin’s invasion of Ukraine. The work will start in July and last roughly 40 days.

LNG traders are anxious that Russia may not be able to finish the job within that time frame. A prolonged outage could cut key gas supply at a time when the world will be refilling stockpiles for winter, risking higher prices. 

Export plants are complicated beasts, made up of mazes of pipes, heat exchangers, tanks and pump equipment. Completing maintenance on schedule is challenging even for the most weathered engineers, and Russia only recently began developing its homegrown industry.

This is the latest hurdle for a gas industry grappling with the fallout from the invasion of Ukraine. Amid tight global supply, nations are still eager to import LNG from Russia and only a handful of governments have actually banned shipments.

The Sakhalin facility is a significant source for Japan, providing about 8% of the country’s total LNG supply last quarter.

Shell Plc, a former partner of the Sakhalin project, had provided its technical prowess to assist with maintenance but withdrew last year in condemnation of the invasion. Novatek PJSC, a private Russian LNG exporter, took over and has been developing its own liquefaction technology.

Sakhalin exports jumped nearly 10% last year, according to ship-tracking data compiled by Bloomberg. While Japan is still the largest buyer, more of those deliveries are going to China.

The bottom line: A drop in Sakhalin deliveries threatens to boost global competition for LNG between Asia and Europe, which has become far more dependent on the super-chilled fuel since pipeline flows from Russia essentially stopped.

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