Russia Prepares To Liberalize LNG Exports

Bottom Line: By January 2014, Russia may liberalize LNG exports currently monopolized by state-run Gazprom, in order to make room for expansion of LNG exports to the Asia-Pacific region.

Analysis: The legislation is still being drafted, but energy officials in the Kremlin tell local media that the bill should be passed this fall and be implemented by 1 January 2014. The catalyst for this is beginning of coordination between a Japanese consortium and Russia's state-run Rosneft at Russians Far East LNG operations.

It was Igor Sechin, CEO of Rosneft (and, not incidentally, Vladimir Putin's energy commission secretary), who approached the Russian Energy Ministry in early June with the proposal to liberalize LNG exports, as the company seeks to gain a foothold in this market that remains monopolized by Gazprom. It will be Rosneft that takes over a major share of this market now. Earlier this month it signed LNG deals with Exxon Mobil Corp., Japan's Sodeco and Vitol (a commodity trading firm). Under the deal, Rosneft will supply Vitol with 2.75 million tons of LNG. This also ties back in to Rosneft's flirtation with Croatia, where it is likely eyeing an key LNG terminal. 

Recommendation: Watch for a flurry of deals in advance of the passage of this legislation, which appears to be a done deal despite the formalities. Russia is seeking to become THE key player in LNG exports, as it faces the loss of some of its European market share, and Rosneft, not Gazprom, will be the kingpin here.