Gazprom, Novatek Go East

13.01.2013 - 21:09

Gazprom has signed a deal to form a joint venture with Novatek to produce liquefied natural gas (LNG) for Asia. The Russian gas monopoly is accelerating a push to decrease its dependence on Europe by forming an alliance with Novatek, Russia‘s leading independent gas producer, to develop a project on the remote Yamal peninsula in Russia‘s Arctic with an eye to the Asian-Pacific region markets.

Gazprom and Novatek didn‘t say what share they would each have in the venture or which fields would provide gas for the new planned LNG plant. Gazprom’s Tambei group of fields on the Yamal peninsula and Novatek‘s deposits on the neighbouring Gydan peninsula are possible sites. The companies plan to approve the main parameters of the project by the end of 2013.

London‘s Centre for Global Energy Studies (CGES) analyst Julian Lee told New Europe on 11 January that “Gazprom’s alliance with Novatek to produce LNG on the Yamal Peninsula is all about developing the resources that the company holds there and trying to secure a stronger position in the Asian LNG market after the recent failure to get the Shtokman project off the ground”. In 2012, Gazprom’s deals with Norway’s Statoil and France’s Total to jointly develop the Shtokman gas/condensate project in the Barents Sea fell through.

Gazprom and Novatek own significant gas resources in Yamal and the Russian gas monopoly sees these, along with the reserves it hold off Sakhalin as the most credible near-term sources of supply for the Asian market, Lee said.

The Yamal project could produce 16.5 million tonnes of LNG a year. “Considering Gazprom‘s resource base, we can speak of a doubling of LNG production on Yamal,” Gazprom CEO Alexei Miller said, referring the LNG project Novatek is already developing on Yamal with Total, which is expected to launch in 2016 with a planned annual capacity of 16.5 million tonnes.

Russian President Vladimir Putin has ordered a new focus on Asia in a revamp of Russia‘s gas export strategy. Gazprom is concerned with the shale revolution in the United States where this gas can be liquefied before being shipped to Europe. US Senator Richard G. Lugar has introduced legislation to place other members of NATO on the same footing as US free trade partners when it comes to receiving LNG exports.

Despite having the world’s largest gas reserves, Russia currently has just one functioning LNG plant operated by Gazprom and Royal Dutch Shell on the island of Sakhalin.

Gazprom, which exports the bulk of its natural gas supplies to Europe via pipelines, said last September it was speeding up plans to boost shipments to the Asian-Pacific region after the European Commission opened an antitrust probe into its practices in Central and Eastern Europe.

Gazprom is also under pressure to reduce the prices of its long-term contracts, which are linked to the rising price of oil, to many of its European customers, due to falling demand.

Other Russian producers, such as Novatek and state-controlled oil firm Rosneft, also provide a growing challenge to Gazprom‘s dominance. Novatek has in recent months signed deals with several domestic consumers and has requested rights to market LNG directly to customers without going through Gazprom. But the final decision rests with the Kremlin.

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