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Gazprom Tilting Eastward

By Daniel J. Graeber | Sun, 16 September 2012 00:00 | 1

Russian energy company Gazprom signed a recent deal with Japan to develop a liquefied natural gas project for the Far East. Japan, already a world leader in LNG consumption, was forced to take on more natural gas as a result of the March 2011 nuclear disaster. Gazprom, for its part, may be looking to eastern, and possibly North American, markets as its relationship with Europe takes on a more negative tone. With Gazprom already established firmly in the European market by way of its vast pipeline networks, the move may be in the best interest of all parties involved.

Russia and Japan signed a $7 billion deal to develop a LNG plant on the Pacific coast. Gazprom described the project as a vital part of its development plans for the eastern section of its unified gas supply system. For Japan, the deal puts it closer to a premier natural gas supplier in Russia. Last year, the country took on more than 83 million tons of LNG, making it the world leader in terms of imports of the super-cooled gas. With nuclear power becoming more controversial in the wake of last year's meltdown at the Fukushima Daiichi plant, and with few resources of its own, Japan's future may exist in securing a reliable source of natural gas.

"I would like to emphasize that the Japanese market has an advantageous size and is considered a top-priority in the Far East," said Alexei Miller, Gazprom's top executive, in a statement.

Economists expect the global demand for LNG to increase 48 percent to roughly 370 million tons by 2018. Gazprom expects natural gas deliveries to the Asia-Pacific region to trump Europe's in the coming years. Gazprom, the largest natural gas company in the world, meets about 20 percent of the European demand for natural gas each year. About 80 percent of that runs through a transit system in Ukraine, however, and contractual disputes with Kiev have exposed vulnerabilities in that export route. Russian President Vladimir Putin announced recently the second of the Nord Stream gas pipeline through the Baltic Sea is expected online by October. Gazprom's complementary South Stream project could follow suit by the end of the decade. Both pipelines avoid Ukrainian territory.

By next year, the European community will have a better understanding of how natural gas from the Azeri waters of the Caspian Sea is expected to make its way through Turkish territory. A BP-led consortium working in the Shah Deniz 2 project is expected to choose between natural gas pipelines Nabucco West and the Trans-Adriatic Pipeline, part of Europe's so-called Southern Corridor network meant to break Russia's grip on the regional energy sector. The European Commission, meanwhile, announced it launched a 15-month antitrust probe to examine Gazprom's practices in the region.

Putin described Russia's relationship with the European community as "very warm," saying the antitrust probe was "not a trade war." Natural gas sales to Europe generate close to $1 trillion for Gazprom. While recent moves by the European Central Bank could keep the Eurozone afloat for the short-term, Gazprom may be hedging its bets. Spanish oil company Repsol announced it received at least six different offers for shares in its LNG assets in Canada, already looking to Asian markets for possible exports. Among the bidders, sources said, were China's Sinopec and Gazprom.

By. Daniel J. Graeber of Oilprice.com

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  • Aksa on September 19 2012 said:
    Not sure where you get that number of 1 trillion dollar sales in Europe? Is this like a tilldate sales figure?

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