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Gazprom won't lose out in Russian LNG law, will still dominate
October 31, 2013 / 11:37 AM / in 4 years

Gazprom won't lose out in Russian LNG law, will still dominate

* Gazprom in talks for years with Beijing over pipeline gas
    * Rosneft, Novatek secure right to export LNG to Asia
    * China needs are huge, Gazprom seen as top supplier

    By Katya Golubkova and Denis Pinchuk
    MOSCOW, Oct 31 (Reuters) - Gazprom will not lose out on
business after Moscow passes legislation stripping it of a
monopoly on exports of liquefied natural gas because demand from
China will outstrip Russian output of conventional and
unconventional fuel for years. 
    The government approved a draft law on Wednesday to allow
gas producers other than Gazprom to ship LNG abroad to
try to spur new projects and help Russia double its global
market share to 35-40 million tonnes by 2020. 
    The law, seen by many as a rap over the knuckles for Gazprom
which officials have criticised for being slow to boost its
presence in the LNG market, is expected to be signed into law by
president Vladimir Putin this year and come into effect in 2014.
    But even though it loses its monopoly, Gazprom should be
relatively unscathed by the bill. It will still dominate a
pipeline network used for much of Russia's gas exports and, with
Chinese leaders promising to tackle pollution, demand for
cleaner energy supplies such as gas is set to rocket.
    "China's potential for gas consumption is high, meaning that
it's not an LNG-or-pipeline question," said Kyle Davis, partner
at law firm Goltsblat BLP. 
    "And China will need lots of gas. Right now China runs on
coal but all indications are that for environmental and other
reasons China plans to greatly increase gas consumption in the
near future." 
    Gazprom did not respond to a Reuters e-mail seeking comment.
    It has a sole LNG plant on Russia's Pacific Island of
Sakhalin and plans to add at least one more in the far east to
ship super-cooled gas to Asian markets by 2018. 
    Its local competitors Rosneft and Novatek
, teaming up with international majors such as
ExxonMobil, Total or China's CNPC, also plan
LNG plants, with the first one expected to be launched by 2017. 
    But Tatiana Mitrova, head of the oil and gas department at
the Russian Academy of Sciences Energy Research Institute, said
neither Rosneft nor Novatek would be able to access the pipes.
    "Thus pipeline gas is the most interesting for China given
its importance for the country's energy security," she said.
    "This is not a crucial issue for now given increasing
supplies from Central Asia but this route is not the safest,"
she said, referring to shipments through the Central Asian
region, where the political environment is clouded by
uncertainty over leadership succession. 
    China bought 42.5 billion cubic metres (bcm) of gas from
abroad last year. That was up more than 30 percent compared with
2011 and a nearly 10-fold increase from 2007. 
    Natural gas demand rose 13.5 percent in the first nine
months of 2013 for example, 4.3 percentage points faster than
production despite a push into unconventional reserves.
    In its annual International Energy Outlook this year, the
U.S. Energy Information Administration said China's gas
consumption was set to rise by more than 360 percent between
2010 and 2040 to reach almost 500 bcm. 
    And pipeline gas to China from Central Asia comes in at an
average $9 mmBtu, much cheaper that the super-cooled fuel
shipped from mainly Qatar, Australia and Malaysia.
    Beijing's main supplier of pipeline gas is former Soviet
Turkmenistan, once Gazprom's ally, which plans to triple flows
to China to up to 65 bcm by 2020 from 20 bcm shipped last year.
    Gazprom has been in talks for years to build its own export
pipeline to China, both to ship 38 bcm annually and put some of
its East Siberian fields on stream. 
    It agreed on a pricing formula - but not on price - planning
to sign the final deal by the end of the year. 
    An adviser to CNPC, who declined to be named, said: "Both
sides are set to make compromises, though the gap is still
there. But the gap will narrow as more natural gas gets
    Some analysts say Gazprom should invite China to jointly
develop gas fields as Turkmenistan did to speed up production.
    "We believe that Gazprom may over time become a leading
supplier of natural gas to China, delivered both through the
pipeline and in the form of LNG," ratings agency Fitch said last

 (Additional reporting by Chen Aizhu in Beijing, writing by
Katya Golubkova; editing by Elizabeth Piper and Tom Pfeiffer)

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