16:13 GMT28 January 2020
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    Russia works for foothold on LNG market

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    MOSCOW, (Dr. Sergei Kolchin for RIA Novosti)

    Russian gas monopolist Gazprom intends to join forces with the key players on the market of liquefied natural gas (LNG) for operations on the North American LNG market and open an office in Houston, Texas, according to John Hattenberger, director for LNG at Gazprom Marketing & Trading Ltd, a subsidiary registered in Great Britain.

    He said that this is not a business where Gazprom can operate independently. The company is establishing partner relations with a number of major players in this field.

    Gazprom intends to participate in all stages of this work, from the production of natural gas to its liquefaction and transportation and regasification, Hattenberger said. Gazprom also plans to win 10% of the United States' gas market by 2010 and subsequently to double its share.

    There is no global market for natural gas so far due to high transportation outlays, depending on the distance. Besides, producers and consumers are tightly linked to each other by the policy of agreements and pipelines. As of now, Gazprom depends to a large extent on the existence of pipelines and on the attitudes of transit countries.

    LNG is a positive alternative to pipeline gas and is winning a growing share of the market. In 2004, its share in the volume of global natural gas exports was more than 25%. It is produced by cooling natural gas to 162° C (323.6° F), which decreases its volume by 600 times, making for efficient transportation and storage. Upon delivery to special terminals, LNG is heated and pumped into ordinary gas transportation networks. Today it accounts for about 6% of the global consumption of natural gas. The International Energy Agency has calculated that LNG's share of the market will grow to 16% by 2030.

    Though spending on LNG production remains high, it is quickly approaching natural gas production costs. Compared to natural pipeline gas, the delivery of LNG does not depend on transit countries, which is a great advantage. The recent problems with gas transportation to Europe created by the conflict between Russia and Ukraine in early 2006 are playing into the hands of LNG producers.

    Until recently, Russia relied on stable gas deliveries to Europe, postponing the creation of LNG production facilities and the choice of new routes for the delivery of gas. This has endangered Gazprom's monopoly in Europe and is hindering its expansion in Asia and North America. But judging by Gazprom's recent statements, the situation is gradually changing in its favor.

    The main projects for the creation of LNG production facilities in Russia are connected with the possible deliveries of LNG to the U.S. and East Asia, where Russian natural gas could not be delivered by pipeline in the foreseeable future.

    Gazprom plans to produce LNG for future deliveries to the North American market at the Kharasoveiskoye and Shtokman fields, while independent LNG producer Novatek is working on the Yamal Peninsula. Another liquefaction plant is slated to be built in Ust Luga in the Leningrad Region in cooperation with Petro-Canada. SG-Trans, Russia's biggest transporter of liquefied gas, plans to build a terminal for 0.6 million metric tons of LNG there.

    The development plans of the Shtokman field provide for the delivery of gas to the LNG plant, which should turn out about 20 million metric tons annually. About 90% of it is to be sold in the U.S. and Canada and in northern Europe. The Shtokman deposit has enough gas for 50 years of deliveries to the United States.

    Russia's LNG projects in the Far East are meant to provide fuel to the country's East Asian neighbors, namely Japan, South Korea and China. The pipeline delivery plans there are lagging behind LNG prospects, primarily the Sakhalin projects organized by transnational companies. Two LNG production lines with the annual capacity of 9.6 million metric tons each are being built under the Sakhalin II project.

    Until recently, the development of Russia's raw materials base lagged behind its proclaimed export ambitions. The current price situation on the fuel market is favorable for the growth of investment into the gas sector. But Russia should decide what would suit its national interests better - the construction of new pipelines or conversion to LNG production and the advancement to new markets.

    The former plan stipulates the simultaneous expansion of the national gas transportation grid to areas that lack gas now, as well as the use of the national construction industry capacities. But the latter plan looks promising too because of the advance to new markets and the adjustment to the global trends of technical progress and energy consumption.

    It is apparent that Russia, despite its unique gas resources, will be unable to simultaneously cope with both tasks -- build gas pipelines in all directions and create major LNG production facilities. However, the production of LNG is a highly promising sphere of development in the Russian gas sector that deserves close attention.

    Dr. Sergei Kolchin is chief researcher at the Institute for International Economic and Political Studies (IIEPS) at the Russian Academy of Sciences.

    The opinions expressed in this article are those of the author and may not necessarily represent the opinion of the editorial board.

    The views and opinions expressed in the article do not necessarily reflect those of Sputnik.

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