UPDATE 1-Novatek, Gazprom plan more LNG capacity for Asia market

Thu Jan 10, 2013 10:54am EST

Related Topics

* Gazprom's gas exporting monopoly still in place

* Government studying offer to allow Novatek to export LNG

* Capacity of LNG projects on Yamal seen over 30 mln T/year (Adds CEO quotes and background)

By Alexei Anishchuk

ST PETERSBURG, Russia, Jan 10 (Reuters) - Russian gas companies Novatek and Gazprom signed a deal on Thursday to build liquefied natural gas production facilities on the Arctic Yamal peninsula as part of a Russian plan to export more gas to Asia.

The new facilities would be near a project already proposed by Novatek to build a 16.5 million tonne LNG facility on Yamal in partnership with Total. The total capacity of both on Yamal would eventually amount to over 30 million tonnes per year.

"At the moment we view this as a doubling of production volumes compared to Novatek's initial plans," Gazprom CEO Alexei Miller told reporters. "With Gazprom's resource base, we could even double output on Yamal."

President Vladimir Putin has ordered a new focus on Asia in a revamp of Russia's gas export strategy, which now depends on Gazprom's pipeline deliveries to Europe, where it faces falling demand and deep regulatory uncertainty.

Putin presided at a ceremony on an icebreaker docked in St. Petersburg, at which Miller and Novatek CEO Leonid Mikhelson signed an agreement to create a joint venture by the end of the year to build LNG facilities.

The vessel was a symbolic venue for the signing, because icebreakers will be needed to clear a path through Russia's Arctic seas to take LNG from the gas-rich peninsula to target customers in Asia.

Russia, the world's largest conventional gas producer, currently has just one functioning LNG plant - a 10 million tonne per year liquefaction facility operated by Gazprom and Royal Dutch Shell on the island of Sakhalin.

ISSUE OF EXPORT MONOPOLY

The Novatek-Total project is controversial because Novatek has requested rights to market LNG directly to customers without going through Gazprom, which has a monopoly on exports of Russian gas.

A Russian energy ministry source said the government was still reviewing the proposals from key ministries and agencies, which supported LNG export rights for Novatek.

The request has broad backing within the government, but a final decision is likely to be taken in the Kremlin, which keeps a tight grip on policy for gas exports, a vital source of revenue.

Gazprom insists it can carry out marketing responsibilities under an agency agreement, but analysts say banks will be reluctant to finance the project if Novatek and Total cannot control export flows of LNG.

The partners were aiming to make a final investment decision on Yamal LNG last year but have yet to do so. A Total executive in Moscow has said the granting of export rights is not a precondition.

Miller and Mikhelson did not comment directly on the conflict over Novatek's request for export rights. In response to a reporter who asked whether the export monopoly could be broken, Miller said, "No".

In regard to the Gazprom-Novatek joint venture, Mikhelson said there would be no obstacle to selling the LNG through Gazprom. (Additional reporting by Vladimir Soldatkin; Writing by Melissa Akin; editing by Jane Baird)

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