MOSCOW (Reuters) - The Energy Ministry may make an exception to Gazprom’s (GAZP.MM) monopoly on gas exports for an independent liquefied natural gas project that could help break Russia’s dependence on Europe’s declining market for its pipeline gas.
“In theory there are possible options specifically for LNG,” Energy Minister Alexander Novak told reporters. “What form to use and what system of agreements with Gazprom Export and others - it would need to be developed specifically.”
Gazprom’s monopoly is protected by law. But a chronic refusal to acknowledge the impact of the U.S. shale boom on world gas markets and slipping market have brought a hailstorm of criticism on the state company and prompted questions about its continued lock on exports.
Lined up behind it are Russia’s “independent”, or non-Gazprom gas producers who have substantial reserves which can be monetized only through sale to Gazprom or to domestic consumers.
Chief among them is Novatek (NVTK.MM), whose influential co-owner Gennady Timchenko called for export rights for the No.2 Russian gas producer in a recent interview with the Russian edition of Forbes magazine.
Timchenko built one of the biggest business empires in Russia during Putin’s 12-year rule and the Russian opposition says his success was due to close ties with the leader, something Timchenko and Putin have both denied.
Putin has urged Novatek to push ahead with the project, the most advanced of half a dozen projects to liquefy Russia’s vast gas reserves, but stopped short of agreeing to an exemption from Gazprom’s monopoly.
The Kremlin, concerned about declining markets in Europe, a key source of revenues for Gazprom and therefore for the Russian budget, wants to shift Russia’s gas strategy toward LNG.
Underlining the extent of Russia’s exposure to Europe, where weak economies and rising competition are eating into Gazprom’s share, Gazprom Export chief Alexander Medvedev said the monopoly had supply contracts for 4 trillion cubic metres.
While rival producer Statoil (STL.OL) says it is now selling around half its sales on spot terms as it slowly changes its pricing structure [ID:nO9E8L101S], Gazprom has long insisted it will not sacrifice its long-term contract structure or bow to pressure for spot pricing.
“We will defend our system of long-term contracts with all our energy,” Medvedev said.
Yamal LNG output is earmarked for Asian markets, which are to be the focus of a new gas strategy ordered by Putin to counter declines in Europe.
But the Russian president appears loath to sacrifice Gazprom’s monopoly to get a much-desired LNG project off the ground, and on Monday he told Novatek Chief Executive Leonid Mikhelson to work with Gazprom to sell Yamal LNG’s output.
Putin noted Novatek would need export contracts to secure financing for the project.
Novak did not comment on Putin’s remarks, nor did he specify whether the law would require amendments in order for Novatek to ship LNG independently.
He said the ministry would rule by the end of the year on whether Novatek, which has requested rights to handle its own exports from its Yamal LNG project, can export LNG independently of Gazprom.
Writing by Lidia Kelly; Editing by Mark Potter and David Cowell