Russia’s President Vladimir Putin said on Thursday that the country not only can—but will—become the world’s biggest LNG producer. Although Putin did not specify a time frame for reaching this ambitious goal, should Russia significantly boost LNG production and exports, it could potentially upend the global LNG trade flows and exporters’ market shares within the next decade.
Russia is currently building LNG plant and export capacities in the Arctic—with the help of Asian partners, among others—that will compete in the future with supplies to Asia, the world’s top LNG importing region, from the leading exporting counties Qatar and Australia. Russia could also become a direct competitor of the U.S. in LNG exports at a time in which U.S. LNG liquefaction capacity and exports are also growing.
However, as ambitious as Russia is in expanding its LNG markets, it may have to contend with market realities of capped LNG prices as a wave of new LNG supply is expected to keep prices subdued at least until 2020, according to a Moody’s report from February.
Still, Russia is intent on developing LNG capacities and sees its projects as competitive.
Currently, Russia has just one operating LNG export facility, Sakhalin, whose majority shareholder is Russian gas giant Gazprom. But soon the Yamal LNG project in the Arctic will become operational. It is being developed by Russia’s Novatek, which holds 50.1 percent, France’s major Total SA with 20 percent, China National Petroleum Corporation (CNPC) with another 20-percent interest, and China’s Silk Road Fund with a 9.9-percent stake.
Yamal LNG will be using 16 icebreakers to ship the LNG from the Yamal peninsula, and shipments will be mostly directed to Asia. The summer route will go through the Arctic Ocean and the Bering Strait. In winter—when the direct route east is too iced to navigate—the ice-class LNG carriers will carry the LNG west from the Yamal peninsula to Europe. At a transshipment terminal in Europe, the LNG will be loaded onto conventional LNG carriers that will deliver the cargoes to Asia via the Suez Canal.
Yamal LNG plans to begin selling LNG on the sport market this year, and start deliveries under long-term contracts next year, Leonid Mikhelson, the chief executive of Yamal LNG’s majority shareholder Novatek, said on Thursday.
Novatek is also planning another project, Arctic LNG-2, in the Gydan peninsula, with the first train hopefully completed by 2023.
“The Gydan and Yamal peninsulas have a vast resource base that allows the production of over 70 million tons; it is comparable to LNG production in Qatar”, Mikhelson said.
Japan has shown interest in increasing cooperation in Russia’s Arctic, including in construction of an LNG plant, Russian Energy Minister Alexander Novak told Rossiya-24 TV station in an interview earlier this week.
Russia’s expanding LNG capacity comes at a time in which the U.S. is also boosting LNG liquefaction and exports. There are six U.S. LNG export facilities currently under construction. Liquefaction capacity from all projects currently under construction is expected to expand by 1.4 Bcf/d in 2017, 1.9 Bcf/d in 2018, and 3.8 Bcf/d in 2019. Once all these projects come online, the United States is projected to have the third largest liquefaction capacity in the world at 9.4 Bcf/d, after Australia and Qatar, the EIA has estimated.
All those new projects from all parts of the world could further add to the LNG glut, which has encouraged Asia’s top importers to form a buyers club that shifts the bargaining power away from exporters and towards importers who are seeking more flexibility in their supply terms from producers.
In this context, new LNG supply from Russia—regardless of whether Moscow can or will become the world’s top producer—has the potential to change market shares, export destinations, buyers’ choices, and prices in the LNG market.
By Tsvetana Paraskova for Oilprice.com
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