Russia is now producing LNG near the shuttered NS1 pipeline, in direct competition with US gas exports

Tsvetana Paraskova
Oil Price
Tue, 06 Sep 2022 12:00 UTC

Gazprom has launched liquefied natural gas (LNG) production at a facility close to the starting point of the now-shut Nord Stream gas pipeline to Germany, the Russian company's deputy CEO Vitaly Markelov said on Tuesday.

The Portovaya plant close to Nord Stream's compressor station of the same name, where Russia typically starts gas supply via the pipeline, has already produced 30,000 tons of LNG and has two operational lines, Russian news agency Interfax quoted Markelov as telling the Eastern Economic Forum in Vladivostok.

"A tanker will arrive now to ensure LNG supply to customers. Considering the global markets, our LNG will be in demand," Markelov said.

LNG production from the Portovaya plant will go to Kaliningrad, the Russian enclave on the Baltic Sea surrounded by Lithuania and Poland, and to expand Gazprom's LNG portfolio, according to Interfax.

Apart from the Portovaya compressor station and the turbine repairs saga, the area close to the plant and the start of Nord Stream came to notoriety in recent weeks with reports that Russia is flaring natural gas at the plant near the Finnish border while drastically cutting gas flows via the Nord Stream pipeline to Germany.

The plant northwest of St. Petersburg is flaring an estimated around $10 million worth of natural gas per day - gas that would have gone to Germany otherwise, a Rystad Energy analysis shared with BBC News showed last month.

Comment: If Russia is doing that, it's likely for good reason.

The Portovaya plant is near the compressor station of the same name where the Nord Stream route to Germany begins. Since June, Russia has significantly cut flows via Nord Stream, first to 40% of the pipeline's capacity and then to just 20% of Nord Stream capacity after a ten-day regular maintenance period ended on July 22.

Last week, after a three-day halt to the flows, Gazprom said that the Nord Stream gas pipeline to Germany would remain closed indefinitely, and blamed on Monday the Western sanctions for this situation.

Comment: The following Twitter thread details the implications of this development, but first are the highlights:

With Nord Stream 2 also blocked this year by German regulators at the behest of the US, Europe will now have to make up this energy shortfall another way. The most direct way? LNG

And while US LNG will have to travel to Europe from across the Atlantic, Russia can supply all these same countries much more readily from Vyborg, virtually right next door. As a result, Russian-supplied LNG is likely to be significantly cheaper than gas originating from the US.

How is the US likely to react to this "threat"? Most likely by pushing EU govts to sanction *all* Russian gas. However, as Europe enters the cold winter months, these sanctions will almost certainly spark widespread unrest as prices skyrocket, placing enormous strain on the EU.

Addendum — To those (correctly) pointing out that Portovaya's max capacity in LNG is much less than NS1 gas: dollar hegemony didn't collapse after the first oil trade was settled in yuan, nevertheless it was still the start of a significant shift toward a new paradigm!