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Russia Takes Steps to Increase LNG Exports

By Nick Cunningham | Sat, 23 November 2013 00:18 | 0

On November 22, the Russian Parliament voted to loosen the monopoly power that Gazprom has over exporting natural gas. Gazprom – one of the largest producers of natural gas in the world – has had exclusive control over exporting gas, which has largely focused on pipeline exports to Europe. With demand sagging in the west, Russia is shifting east, hoping to cash in on rising gas demand in Asia.  And instead of building pipelines, Russia is now seeking a big expansion of liquefied natural gas capacity.

Should Russia liberalize its gas export rules, which still needs approval from President Vladimir Putin, it is well positioned to serve East Asian customers, particularly Japan, China, and South Korea. Japan, already the world’s largest importer of LNG, desperately needs natural gas to generate power after it shut down all of its 54 nuclear reactors.

Russia already exports LNG from Sakhalin, an island to Russia’s east and Japan’s north. Gazprom wants to build more liquefaction capacity, with plans to invest $13.5 billion to build a terminal at Vladivostok to export LNG to Japan. That project calls for three LNG trains capable of producing 5 million tonnes of LNG per year each, with the first beginning operation in 2018.

The latest move by the parliament, however, will allow for other competitors to enter the LNG export market, ending Gazprom’s monopoly grip. In particular, Russia’s second largest gas company, Novatek, will be able to move forward with its Yamal LNG project. With plans to be completed by 2016, the $15-$20 billion project will start with a single LNG train of 5.5 million tonnes from the Yamal peninsula in the Russian arctic. Two more trains of similar capacity will each be added in 2017 and 2018, respectively.

Related article: Russia Opens LNG Floodgates

What does this mean for LNG globally? Russia hopes by allowing new entrants into the export market it can double its share of global LNG trade from 4.5% currently up to 10% by 2020, with an export capacity of 35 to 40 million tonnes annually.

However, Russia is in a race against several other projects that also hope to come online in the coming years. Australia, in particular, is poised to leap ahead of Qatar as the world’s largest exporter of LNG by 2017 due to the 62 million tonnes per year of LNG capacity currently under construction. And the U.S. hopes to break into the LNG trade by exporting its glut of shale gas. The U.S. is currently building 18 million tonnes per year. More modest capacity additions will come from Malaysia, Papua New Guinea, and Angola.

The flurry of LNG projects under construction is the result of high demand and inelastic supply, which has sent LNG prices in Asia higher in the short-term, while they remain lower elsewhere. Yet, many of these projects are expected to come online around the same time – between 2016-2018. Once they do, demand – along with the gap in prices – will likely ease.

U.S. companies have pushed the Obama administration to green light export facilities quickly so that they do not miss out as other countries move ahead. The Department of Energy has approved four facilities thus far, the latest of which is on the east coast.

About the author

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Nick Cunningham
Company: Oilprice.com

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