Russia’s gas exports under threat due to US sanctions

Gas exports from Russia are facing serious problems due to US sanctions imposed in February, which prohibit the supply of any gas turbines and components to Russia. The critical dependence of Russian gas megaprojects, including the Power of Siberia and the Turkish Stream, on Western technologies and the inability to quickly replace them may lead to a reduction in gas exports to Russia’s remaining major consumers – China and Turkey. Problems with the maintenance of existing gas pipelines and the implementation of future projects were admitted by market participants in a conversation with the Russian newspaper Kommersant.

The publication notes that until February 2023, American components entered the Russian market, despite diplomatic disagreements and the sanctions war. However, with the new package of sanctions, this flow has stopped. At the same time, the success of the commissioning and operation of Russia's largest export megaprojects - the Power of Siberia and Turkish Stream gas pipelines, which use the technologies of the American company Baker Hughes, hinges on these American components.

In the February package, Washington introduced a ban not only on direct deliveries of turbines, but also on indirect, including re-export. Now if a foreign company subsequently transfers turbines or components for them to Russian citizens or Russian legal entities will fall under secondary sanctions. Ekaterina Makeeva, Partner and Head of the Russian law firm A-PRO which specializes in sanctions locicies, notes that the February sanctions introduce a preventive ban on the supply of such equipment and components, and it will be almost impossible to obtain permission for their supply.

However, one of the sources of the publication is not inclined to dramatize the situation so much. According to him, this is not a full ban, but the new requirements "create some uncertainty in terms of the interpretation of sanctions."

The publication recalls that the problems with supplies began almost immediately after the full-scale invasion of Russia in Ukraine. The world's largest suppliers of gas turbines - the American Baker Hughes and the German Siemens - promptly announced their withdrawal from Russia and the suspension of any cooperation. Baker Hughes, for example, stopped servicing the Yamal LNG projects of Novatek and Gazprom's Sakhalin-2 projects, and also shipped only a part of the gas turbines for Novatek's Arctic LNG-2 project under construction. However, until February, the supply of components continued, the newspaper notes.

Russian companies are now trying to find alternative supplies in China or Iran, but so far with no success. Amid shortages of the wetsren components, Russian companies are even forced to look in the second-hand market, trying to find parts and turbines that have previously been used. Russia has not made any achievements in the production of gas turbines. Active import substitution in this area began after the scandal with Siemens turbines in 2017, which were planned to be used in the Crimea in violation of Western sanctions. Then, Russia had to start developing its own turbines, but the Russian companies Rostec and Silmash have not yet provided a single working unit.

The problem is further complicated by the fact that some Russian power plants use Western turbines. There are similar power units at separate stations - from Yuzhno-Sakhalinsk CHPP-1 "RusHydro" to Surgut GRES-2 "Unipro". These projects may also face problems due to new sanctions from the United States. Lawyers interviewed by the publication note that Russia is unlikely to be able to re-export turbines and components from neighboring countries - China, Armenia, Turkey, Uzbekistan, and others. Experts believe that the United States will more tightly monitor the supply of its technologies through third countries and will begin to impose secondary sanctions.

  USA, Russia