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Putin orders liberalisation of Russian natural gas market

14 Feb 2013 15:59:19 | esgm

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Russia may break state-controlled incumbent Gazprom's monopoly on gas exports in the LNG sector, the country's president, Vladimir Putin, said on 13 February.

"Russia's share of the global liquefied natural gas export market is only 3.6% at the moment. If we do not follow an active policy we will risk losing this market almost entirely to our competitors," Putin said at a meeting of the state energy security commission.

"We have to put all the right conditions in place for developing this sector. This includes reflecting on possible gradual liberalisation of LNG exports," he concluded. Putin asked the government to work out mechanisms of a gradual liberalisation.

Gazprom's setback

The Russian government's change of heart concerning its energy policy comes as Gazprom the sole gas exporter from Russia reported shrinking sales in Europe, its key market.

Gazprom is a major contributor to the state coffers, but the company's gas exports to Europe in 2012 came to around 138 billion cubic metres (bcm), according to preliminary figures, representing an 8% drop from 2011. Gazprom's total gas exports dropped by 8.7% year on year in 2012 to 186bcm, according to the latest Russian energy ministry statistics.

Gazprom said during its investor day presentation on 12 February that it had paid $2.7bn (€2bn) in refunds to European customers in 2012. The gas major expects to return about $4.7bn to its European customers through price cuts in 2013, in a bid to remain competitive in its key export market.

Gazprom's reduced sales did not go unnoticed at home. "The next matter on the agenda is that of increasing and diversifying Russian gas supplies to the world markets. This is a big issue for Russia. Last year, as you know, shrinking markets and lower gas exports cost the Russian budget billions of dollars," Putin said.

At the same time, Gazprom's rival, Norwegian producer Statoil, sold almost a fifth more gas in 2012 than the previous year.

"In 2012, we had record gas sales to Europe and realised record gas prices," Statoil's chief financial officer, Torgrim Reitan, said on 7 February. The increase came despite a slight drop in European gas demand, Reitan said, because of the 2012 gas-price rise.

Yamal LNG

Putin's announcements spell good news for Russia's largest independent producer, Novatek, which is developing the Yamal LNG project with estimated gas reserves of 1.56 trillion cubic metres.

The project is based around the Tambey fields on the Yamal Peninsula. Novatek has an 80% stake in the project and France-based Total has a 20% stake.

The lifting of Gazprom's export monopoly on LNG would not only be a huge benefit to Novatek's Yamal LNG output venture, but could also open doors regarding swap trades involving supply to European companies.

Novatek recently opened trading offices in Singapore and Switzerland and in August 2012 the company signed a contract to supply German energy company EnBW with 2bcm/year over 10 years.

Novatek had said it would export LNG from the project through an agency agreement with Gazprom, but the company has been lobbying heavily to obtain its own export rights.

Rise of Rosneft

Lifting Gazprom's monopoly has one more powerful supporter, Igor Sechin head of state-controlled oil incumbent Rosneft and former deputy prime minister in Putin's previous government.

Rosneft and ExxonMobil on 13 February agreed to expand their co-operation in Russia to include an additional 600,000sq km (150 million acres) of exploration acreage in the Russian Arctic, the companies announced. The deal also calls for potential participation by Rosneft or its affiliate in the Point Thomson project in Alaska.

This follows an earlier co-operation agreement signed between the two companies in August 2011 on developing licence areas on the Russian Arctic Shelf and Black Sea.

The latest agreement also provides for a joint feasibility study for a potential LNG project in the Russian Far East, including the possible construction of an LNG facility.

The companies will form a joint working group, which is expected to start work in the coming weeks, to study the viability of an LNG project using available natural gas resources.

European prospects

Putin also emphasised the importance of European markets for Russia. "But the forecasts all predict that global demand for gas will grow over the coming 20 years, above all in Asia, but I think demand will grow in Europe too, especially now that some of Europe's main industrially developed countries are renouncing nuclear energy. The liquefied natural gas market is set to become more and more important," he said. Katya Zapletnyuk and Elizabeth Stoner

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