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The Biggest Threat To Australia’s LNG Sector

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Russia Outmaneuvers U.S. LNG

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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Are Russia’s Natural Gas Goals Too Ambitious?

This kind of development is often lost amid talk of higher news grabbing global oil markets headlines, particularly as Russia, now a major part of the so-called OPEC+ group, with Saudi Arabia, is essentially calling the shots in global oil markets. However, make no mistake, Moscow’s (albeit Russian President Vladimir Putin’s) ambitions aren’t just focused on oil markets or geopolitical developments in the Middle East and Europe, they are also in natural gas markets, both piped gas into Europe and liquefied natural gas (LNG) production and exports, particularly to the Asia-Pacific region which represents 72 percent of global LNG demand.

Moreover, that figure is set to increase to 75 percent as China continues to ramp up its LNG procurement to help meet Beijing’s mandate that natural gas make up at least 10 percent of the country’s energy mix for power generation to help fight rampant air pollution, particularly in the country’s major urban centers.

Several years ago, Putin said that Russia aimed to be the largest LNG producer in the world, an unlikely possibility at the time and still not likely given that current LNG production leader Qatar will ramp up its liquefaction capacity from a current 77 million tons per annum (mtpa) to an impressive and hard to beat 100 mtpa within the next five or six years.

However, this reality seems to be lost on Russia who is still pushing ahead with LNG development, likely realizing the geopolitical leverage that not only pipped natural gas and crude oil exports bring, but also LNG, both large scale and small-scale projects. Fast forward to yesterday, news broke that Russia’s largest non-state natural gas producer Novatek will start producing LNG on the shore of the Baltic Sea in February.

Small-scale LNG ambitions

Novatek and Russia-based Gazprombank are planning to build an LNG plant and terminal in the Baltic Sea port of Vysotsk with a capacity of 660,000 tons of LNG per annum. The plant’s capacity could be expanded to 800,000 tons in 2021. “There is an ambitious task of launching the operations of the project and loading the first cargo of liquefied natural gas in February 2019,” the contractor, Atomtekhenergo, said in a statement.

Related: OPEC Oil Exports Jump Ahead Of Meeting

The disclosure also comes just a few months after Russian state-owned gas giant Gazprom, best known for its geopolitically charged pipeline gas to Europe, currently around 25 European nations import gas from the company, and Tokyo-based conglomerate Mitsui & Co. inked a memorandum of understanding (MOU) on LNG development. Currently, Japan is the global LNG import leader, importing some 83.83 million tons in 2017, paying around $35.6 billion for imports of the super-cooled fuel last year, a rise of 19.3 percent year-on-year.

Large scale LNG realities

Earlier this week, Yamal LNG, a joint venture-owned integrated LNG project in northern Russia, announced it had offloaded its one-hundredth cargo of LNG, less than a year since the project’s first shipment in December 2017. Yamal’s third LNG train, production facility, became operational in late November, while the nameplate capacity of all three trains is 5.5 mtpa, for a total liquefaction capacity of an impressive 16.5 mtpa. Yamal LNG shareholders are Novatek (50.1 percent), France's Total (20 percent), and China's CNPC (20 percent) and Silk Road Fund (9.9 percent).

Russia currently operates two LNG projects but has numerous other, some massive, projects under review or trying to get partners on board. While its certain that Russia will not be able to muster 100 mtpa of liquefaction capacity in the foreseeable future to challenge Qatar, what is unclear is whether or not Russia will seek to politicize its LNG exports to achieve geopolitical advantage as it has done with oil and mostly pipeline gas into Europe.

By Tim Daiss for Oilprice.com

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  • Mamdouh G Salameh on December 09 2018 said:
    Nobody should underestimate President Putin’s ability to achieve his goals and vision for Russia. Under his leadership, Russia has become the world’s superpower of energy. It is the world’s largest producer and exporter of oil (exporting more than 8.22 million barrels of crude and refined products daily), the world’s largest exporter of natural gas, the world’s largest exporter of nuclear reactors and also the world’s largest exporter of wheat. Moreover, his association with OPEC particularly Saudi Arabia has enabled him to virtually control the global oil market and call the shots. So if Putin is aiming to make Russia the largest producer and exporter of LNG, nobody should doubt his resolve.

    When it comes to the Natural gas and LNG market, Russia is on a win-win ticket. It has consolidated its grip on the European Union’s (EU’s) gas market well into the future by offering reliable and cheap supplies of natural gas. And with the completion of both Nord Stream 2 and the Turk Stream by the end of 2019, its grip on the EU’s natural gas market will be unshakeable.

    Moreover, Russia has been pivoting very successfully towards the world’s fastest energy growing market ‘China’. Three years ago Russia overtook Saudi Arabia to become China’s biggest supplier of crude oil. It will soon establish itself also as the largest natural gas and LNG supplier to China’s thirsty gas market enhanced by the completion of the Spirit of Siberia’s gas pipeline by the end of this year.

    It is true that Russia’s LNG ambitions will face formidable resistance from Qatar currently the world’s largest producer and exporter of LNG particularly that Qatar is already working on expanding its LNG production from 77 million tons per year (mty) currently to 110 mty within the next five or six years. Still, Putin’s Russia will achieve its goal of becoming the world’s LNG producer and exporter.

    Russian gas companies are building LNG terminal around the world from Novatek/Gazprom plan build an LNG plant and terminal in the Baltic Sea port of Vysotsk with a capacity of 660,000 tons of LNG per annum to proposed supplying Japan until recently the world’s largest importer of LNG with Russian LNG to the Yamal LNG supplying LNG to China.

    Russia has been building pipelines to deliver its natural gas to virtually every corner of the world. From Its huge gas pipeline network to the EU to the Power of Siberia gas pipeline which will start operation in 2019 to plans of building a pipeline to India as an extension to Power of Siberia, Russia’s position in the global gas market will be unrivalled well into the future.

    And while it will take a little while before Russia emerges as the world’s largest LNG producer and exporter, nobody should doubt Russia’s ability of achieving its goal.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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