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Daniel J. Graeber

Daniel J. Graeber

Daniel Graeber is a writer and political analyst based in Michigan. His work on matters related to the geopolitical aspects of the global energy sector,…

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Russia Opens LNG Floodgates

The Russian government has made room in the natural gas market by letting companies other than Gazprom export liquefied natural gas. The shale natural gas revolution in the United States is pushing Russia from its leadership position in terms of output. Gazprom, meanwhile, only has one LNG plant in service. On Monday, engineering company Foster Wheeler said it landed a contract to help with the initial phase of an LNG plant for Russia's Far East. That plant, and Russia's new export concessions, may wind up taking a slice out of the U.S. natural gas pie.

The Russian government decided it would let companies other than Gazprom export liquefied natural gas. On Monday, Foster Wheeler said it was selected by Russia's state-owned energy company Rosneft and U.S. powerhouse Exxon Mobil to take on an initial phase of the engineering and design work for an LNG project planned for the Russian Far East. Igor Sechin, a former deputy prime minister now serving as president of Rosneft, said the contract help set the stage for future LNG success.

"We are taking a determined approach with this project to help monetize the gas resources of Russia," he said.

Related article: When will the Shale Bubble Burst?

Russia passed the law on expanding the gas market last week. Last month, the U.S. Energy Information Administration said it expected the United States would pass Russia as the world's leading natural gas producer thanks in part to shale reserves. The U.S. export market for natural gas, however, is already getting squeezed by Canadian Prime Minister Stephen Harper's push to diversify his own energy sector. Canada depends almost entirely on the United States for energy exports but U.S. laws are more restrictive than Canada's. That means it's easier for Asian economies to get their LNG demands met by Canada than from the United States. Now, Russia appears ripe to capitalize on its LNG potential by pivoting toward markets in the Far East.

Gazprom's sole LNG plant operates from the Far East island of Sakhalin just north of Japan, the largest LNG buyer in the world. Japan's appetite for natural gas expanded in the wake of the Fukushima meltdown in 2011.  Gazprom's plant in the Far East churns out 10 million tons of LNG per year, giving it a 4.5 percent share in the global market for super-cooled natural gas. By expanding the domestic market's playing field, the Russian government aims to double that share by 2020.

Rosneft and Exxon Mobil said their plans for the Far East call for as much as 5 million tons of LNG per year, half of what Gazprom puts out from its plant on Sakhalin. With the British division of CB&I already on its books, Rosneft said it expects to finalize the project's design by next year. The project would complement Gazprom's regional presence by drawing on Sakhalin reserves. With the United States restricted in terms of who it can trade with, Rosneft's boss said Russia was now primed to climb its way back to the top of the natural gas heap.

By. Daniel J. Graeber of Oilprice.com


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