Russia to Focus on LNG in Effort to Reduce Dependence on European Market

Historically Russia has relied heavily on the European market to send its natural gas exports and earn huge revenues that make up most of the government’s annual earnings. However, fed up with their reliance on Gazprom, Europe has steadily been distancing itself from Russia and searching for alternative suppliers.

This reduction in market share within Europe, coupled with the falling general demand across the continent due to the lasting financial crisis, has forced Russia itself to also begin looking around for new customers.

One method by which it hopes to take advantage of other markets around the world is through LNG exports.

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EurActiv reports that President Vladimir Putin has ordered the government to expand the tax breaks that it offers, to more natural gas fields that supply the proposed liquid natural gas plant (LNG) in the Yamal peninsula.

Putin has asked his country’s energy companies to focus on LNG production to be shipped by sea, strong in the belief that this will help them diverge away from Europe’s falling demand. Certainly China and Japan offer large markets for LNG, and by making the most of the thawing Arctic Sea Ice, Russia could send tankers from the Yamal Peninsula, around the tip of Siberia, and down towards East Asia.

The Yamal LNG project will cost an estimated $20 billion and produce 16.5 million tonnes of liquid gas a year; and whilst it already receives the benefit of some tax breaks, such as no mineral extraction tax or export duties, Putin wants to offer more tax breaks to the fields along the Gydan peninsula which supply the majority of the plants natural gas.

Map showing the existing LNG plant Sakhalin island, and the proposed plant in the Yamal peninsula.

Analysts at Sberbank CIB, said that “the news of the potential extension of the tax incentives is welcome.

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Novatek's Salmanovsky and Geofizichesky fields in Gydan, right across the narrow Ob Bay from Yamal's South Tambey, have resources to be producing up to 30 billion cubic metres of gas and 1.2 million tonnes of condensate as soon as 2020, with output potentially starting in 2017.”

Currently Russia’s only operating LNG plant is controlled by Gazprom and exists on the island of Sakhalin, but the government is working on laws to reduce Gazprom’s monopoly of control on LNG exports and the Yamal LNG project, led by Novatek, will play a big part in this effort.

By. Charles Kennedy of Oilprice.com