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  Gazprom against Igor Sechin, and LNG for Lithuania (1)

Vadim Volovoj, Doctor in Political Sciences
2013 06 17

For quite a long time Gazprom demonstrated indifference to the shale or liquefied natural gas (LNG), but today situation has changed, and Lithuania should be concerned about the internal and international aspect behind these changes.     

According to the recent information, Gazprom‘s monopoly on exports of liquefied natural gas could be abolished. This initiative is supported by the „independent“ gas producer Novatek with close Vladimir Putin‘s ally Gennady Timchenko and Igor Sechin, leader of one of the largest oil companies in the world. His relations with Dmitry Medvedev‘s Government which should give a judgement are not very smooth. On the other hand,  the final decision will surely be made by Vladimir Putin.  During the interview to the magazine Komersant, Nikolay Tokarev, the President of Transneft (Igor Sechin and this company are in bad terms as well) said that there were no disagreements when Rosneft’s leader was Deputy Prime Minister, but as soon as he moved to the business he’s been involved in several conflicts with the Government.  

After Rosneft decided to take over the liquefied natural gas (LNG) business Gazprom has faced new challenges.  In the Far East it started implementing the Sachalin-2 Project, and is planning to complete the construction of a new LNG facility (directed first of all to Japan) in Vladivostok  by 2018-2020. Igor Sechin is also planning to build a larger LNG facility in Khabarovsk region; the first phase of 5 million tonnes/year should be launched in 2019. WhereasNovatek and the French Total  are planning the construction of the same LNG plant in Yamal (with an annual capacity of 16,5 million tonnes). By the way, some time ago Gazprom and Novatek did consider the possibility of joint actions in Yamal, but negotiations came to a stop.  

There is a high likelihood that Gazprom‘s monopoly (at least in the field of LNG exports) will be abolished since Russia’s Ministry of Energy is about to approve this proposal. The Ministry proposed to establish a special state institution to coordinate applications on LNG exports.

Thus, Gazprom cannot continue to ignore LNG and this is a worrying factor. It is related to the competition inside Russia rather than to the international market. It should be noted that Gazpromis not a pioneer in the LNG market. LNG opens new opportunities for Gazprom in Europe, besides, it gives an opportunity to circumvent the EU’s Third Energy Package, and this situation becomes interesting for Lithuania.

On 23 May the CEO of Gazprom Alexey Miller informed that company plans to begin implementation of a new LNG project. According to the media, he had in mind the construction of LNG facility on the shores of the Baltic Sea, most probably in Primorsk with a scheduled annual capacity of 7 million tonnes (8-10 billion cubic metres of conventional gas). Gas to this plant will be supplied via Russia’s Single Gas Supply System (SGSS).

Gazprom had plans to construct LNG terminal in Primorsk in 2004 but later abandoned this idea in favour of Stockman gas field. The return to the past could first of all mean that Gazprom has plans to compete with the Novatek/Total Project and Qatar  in the EU LNG market. According to experts the potential purchasers of Russian LNG are Great Britain, Spain and Portugal, i.e. the countries which cannot be reached by the North Stream pipeline and will not be reached by the South Stream. Secondly, LNG is an excellent way of circumventing the EU’s Third Energy Package and here it is necessary to highlight several interesting moments.

Firstly, the main consumer of LNG is Asia (Japan). In view of this, Qatar re-orients its export to this region and is less interested in smaller consumers (e.g. Lithuania). In view of this Europe might face deficit of LNG. Great Britain could probably compensate it at the expense of U.S. shale gas or other LNG exporters. If Russian companies will be „the other“ (and this is highly probable),  which company – Novatek or Gazprom – will be chosen? Novatek  project capacity is higher, thus it has more chances. Where will Gazprom deliver its LNG? It is worth noting that LNG will be necessary for Lithuania and other Baltic States.  

In other words, if Lithuanian refuses to buy gas via the pipe under „expensive“ formula and long-term contract, it could buy cheaper LNG from Gazprom. Gas will not be very cheap but it could compete with Qatar’s product. Gazprom could sell the remaining LNG to Poland  or deliver gas to ships. MeanwhileNovatek could sell LNG to more remote consumers.

Thus, all the concerned parties should be satisfied: Novatek and Gazprom could have their own markets and circumvent the EU’s Third Energy Package. Lithuania would have a possibility to buy cheaper gas. Of course, the country will have to decide on whether it is worth paying more to Qatar to become independent from Russia. But if Lithuania is happy with the cheaper gas from the Russian pipelines, there is no reason to refuse its liquefied option in the liberalised gas market from the same seller.

The above considerations are partially speculative and are related to the mid-term perspective. But it is obvious that due to internal and external reasons Gazprom takes more active steps toward LNG business.

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