Russia's Gazprom says will not produce LNG on Yamal

MOSCOW, June 16 (Reuters) - Russian gas export monopoly Gazprom (GAZP.MM) said on Monday it has dropped plans to produce liquefied natural gas (LNG) on the Yamal peninsula, an Arctic region it is planning to develop jointly with Royal Dutch Shell (RDSa.L).

Vasily Podyuk, head of Gazprom's production department, said tough weather conditions would make production of LNG -- which, unlike pipeline gas, can be exported by tanker to much wider markets -- too complicated on the gas-rich peninsula.

"This option has been discussed, but at the moment we have dismissed the project due to complicated ice conditions," Podyuk said during a news briefing.

Shell said this month it had signed a memorandum with Gazprom on co-operation on the development of gas reserves on the Yamal peninsula and elsewhere, including the possible construction of gas liquefaction facilities.

Speaking at the energy forum in St Petersburg this month, Shell Chief Executive Jeroen van der Veer said Shell and Gazprom were discussing the possibility of working together on the construction of an LNG plant on Yamal.

Shell declined to comment on Podyuk's remark.

Gazprom views Yamal as its key source of future gas output as production is falling at mature deposits in West Siberia. The firm has said new deposits on Yamal and in East Siberia and the Russian Far East will account for half of its output by 2020.

Podyuk said Gazprom planned to produce 250-300 billion cubic metres of gas on Yamal after 2020. The firm expects its total gas output to rise to 650-670 bcm by 2020, up from 561 bcm forecast for this year.

Gazprom is operating Russia's two first LNG projects: Sakhalin-2 on the Pacific, which is scheduled to start LNG exports in early 2009, and Shtokman on the Barents Sea, to be launched in 2013.

Shell became Gazprom's partner in Sakhalin-2 in 2007, when Shell -- then the project leader -- agreed to sell control to the gas giant following a protracted dispute with the Russian authorities. (Reporting by Vladimir Soldatkin, writing by Tanya Mosolova)