Russia plans LNG sales to US

Gazprom eyes the US market as it seeks to build a substantial position in the global liquefied natural gas business.

Gazprom, the Russian state-controlled gas monopoly, is eyeing the US market as it seeks to build a substantial position in the global liquefied natural gas business after opening its first LNG plant in February. The company, already the world's biggest exporter of pipeline gas, is now aiming for "participation in the LNG world on a scale commensurate with its resource base", Frederic Barnaud, the president and managing director of the company's LNG trading unit, Gazprom Global LNG, told the Gastech conference in Abu Dhabi. Gazprom sees its nascent LNG business as a strategic opportunity to diversify its export potential by accessing international markets it cannot reach by pipeline. The US is a key target because it is the biggest gas market in the world, Mr Barnaud said on the sidelines of the conference. It is also not an alternative market to Europe, which receives about a quarter of its gas from Russia through Gazprom. The Russian company has been embroiled in a row with the EU over the cut of 20 per cent it imposed on Europe's gas supply for two weeks in January because of a contractual dispute with the transit country, Ukraine. Just as Europe has been making plans to diversify its energy supplies to reduce its reliance on Russian gas, Gazprom has been striving to broaden its customer base by developing new markets. "We want to access shipping routes to complement our pipelines," Mr Barnaud said. Last month, Alexei Miller, the chief executive of Gazprom, said the LNG market provided an option for the company to expand its energy position while moving away from an exclusive reliance on transit pipelines. "In a time of enhanced globalisation processes in the LNG market, we see that there is a need for a new review of strategy in the field of LNG, as transit risks rise considerably," he said, according to BarentsObserver, a Norwegian internet news service. Gazprom has so far exported 12 cargoes of LNG (supercooled gas that can be loaded into tankers) from Sakhalin, an island off the east coast of Siberia, Mr Barnaud told the Abu Dhabi conference. Those shipments from the long-delayed US$22 billion (Dh80.79bn) project that marks Gazprom's debut into the global LGN business were delivered to Asian countries including Japan, South Korea and India. A second production plant planned for Sakhalin could ship LNG to terminals on the US west coast, Mr Barnaud said. Last month Gazprom and Royal Dutch Shell announced a 20-year swap agreement under which Gazprom would sell up to 1 million tonnes a year of LNG to the US market, while Shell would provide the same amount of gas to European markets. "This deal will enable Gazprom to begin shipment of LNG supplies from Sakhalin 2 to the United States and other markets of the Pacific basin, starting from this year," Mr Miller said. Gazprom is also planning to develop LNG exports from its giant Shtokman gasfield in the Barents Sea, off western Siberia. That gas could be shipped to eastern Canada and the US Atlantic seaboard. Last year, Gazprom joined Canadian and French companies in a consortium to build a receiving terminal in the Canadian province of Quebec. While Gazprom has been trying for years to enter the US gas market, it is developing LNG export capability at a difficult time for the industry. Suppliers worldwide have been ramping up global production capacity just as the recession has sent gas demand into a tailspin in most regions. In the US market, Russian imports would now compete with plentiful domestic gas supplies that are fetching their lowest prices in six years. Prices for LNG spot cargoes in the Asia Pacific market have also plunged since last year, creating problems for competing suppliers to the region, including Indonesia and Qatar. The relative proximity of the Sakhalin export facilities to key Asian gas importers, such as Japan and South Korea, would push down transit costs for Asian consumers, giving Russia a competitive edge, analysts said. Qatar, which plans to double its annual LNG export capacity to 77 million tonnes at the end of next year, is responding to the Asia Pacific supply glut by seeking to expand exports to Europe. [e-mail]