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FACTDROP: Russia's Energy Ministry Eyes Incentives for New LNG Projects
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3/22/2013

Russia's Energy Ministry Eyes Incentives for New LNG Projects


Πηγή: Downstream Today
By Russia & CIS Energy Newswire
March 19 2013

Russia's Energy Ministry is considering the possibility of introducing additional incentives, including discounts on duties, for new projects to produce liquefied natural gas (LNG), Energy Minister Alexander Novak told reporters.

"It will be possible to consider some incentives," Novak said.

He said the Yamal LNG project already enjoys a discount on the natural resource extraction tax (NRET), but stressed that such tax breaks will not be targeted and will be worked out for all new LNG projects.

Production of LNG must be encouraged because Russia faces the challenge of winning a place on the global LNG market, the minister said. "We have too small a share of this market. However, there is a niche for new supplies on the LNG market and we must occupy this niche," Novak said.

"There is a window of opportunity until 2018-2020. After this period, analysts estimate, supply will already exceed demand," Novak said, recalling that Australia, for example, plans to increase production of LNG by 40 million tonnes after this period.

The most realistic new LNG projects in Russia, Novak said, are Novatek's (RTS: NVTK) Yamal LNG, Gazprom's project to build an LNG plant in Vladivostok, and Rosneft's proposal to build an LNG plant on Sakhalin Island.

"We see this as one of the Russian LNG projects. Rosneft (RTS: ROSN) has a resource base in this region. Rosneft and its partner ExxonMobil must now work out everything in more detail and prepare more detailed proposals," Novak said.

Novatek in talks to sell stake in Yamal LNG

Novatek, Russia's biggest independent gas producer, is holding negotiations with South Korean, Japanese and Chinese companies on the sale of part of its stake in the Yamal LNG projects, Novak said.

"Novatek is prepared to reduce its stake in the project from 80% to 51%. It is offering a stake in the project to Korean, Japanese and Chinese companies. Competition for this stake will be very great," the minister said.

Novatek has already agreed with a number of Japanese companies - Tokyo Gas, Tokyo Electric, Marubeni and Mitsui - to form working groups that will "work out in greater detail the possibility of their joining the project," Novak said. "For we are not only offering gas supplies from this project, but also minority participation," he added.

Yamal LNG is expected to produce 16.5 million tonnes of LNG. The plant will be launched in three phases of 5.5 million tonnes per year each, at the end of 2016, 2017 and 2018 respectively.

Novak said the project will remain on schedule on the condition that a decision is made in the first half of the year on liberalizing exports of LNG. "We are working on this, in order to work out the issue of liberalization, provide additional possibilities for financing the project. I think that if we make this decision by the middle of the year, everything will be quite alright in terms of the timetable," the minister said.

He said Gazprom (RTS: GAZP) has not yet presented its proposals on the possibility of foreign companies participating in the Vladivostok LNG project. The company plans to hold a separate meeting with Japanese companies to discuss this topic.

These issues were discussed during a visit to these Asia-Pacific countries by a Russian delegation that included the management of Novatek and Gazprom Export, Novak said.

The $20 billion Yamal LNG project calls for the development of the South Tambei field on the Yamal Peninsula. Novatek has an 80% stake in Yamal LNG and France's Total owns the other 20%. Novatek said earlier that it plans to retain a controlling stake in the project, and did not rule out that a consortium of new partners, primarily such that could ensure the marketing of the product, might join the project.

Vladivostok LNG could produce 10 mln tonnes in 2020

Gazprom's project to build an LNG plant in Vladivostok could reach the stated production target of 10 million tonnes in 2020, Novak said. The first phase of 5 million tonnes per year is expected to be launched in 2018 and a second phase for another 5 million tonnes could start up in 2020, he said.

Therefore, with the launch of Yamal LNG, new LNG production capacity in Russia could reach 26.5 million tonnes by 2020. The CIS is expected to account for about 15% of total gas exports by 2020.

Gazprom's management board in February approved the rationalization for investment in the Vladivostok LNG project, which calls for building an LNG plant on the Lomonosov Peninsula in Perevoznaya Bay with three production lines of 5 million tonnes each. The resource base for the plant will be the Sakhalin, as well as Yakutia and Irkutsk gas producing regions. The target market will be the Asia-Pacific region.

Ministry proposes pipeline gas for Europe, LNG for Asia-Pacific

The Energy Ministry believes that Russian gas exports to Europe should be dominated by pipeline gas, while LNG should predominate in exports to the Asia-Pacific region, Novak said.

He said such an approach would make it possible to avoid having Russian gas compete on global markets, including if exports of Russian LNG are liberalized.

"For example, while Gazprom dominates in Europe and there is the possibility of increasing supplies of purely pipeline gas, there is no point in going there with LNG. There is the eastern market, where we don't have a pipeline, there we must compete. So in addition to Gazprom we should give other companies the opportunity to participate in this market," Novak said.

He said other proposals for tackling the problem of Russian LNG competing against itself on global market include the creation of non-commercial partnerships. There is also the possibility of issuing licenses for production of LNG that would specify export markets, the minister said.

"There can be various ways of coordination, there could a non-commercial partnership with oil and gas companies. It could be simply by way of permitting exports of LNG only with the issue of corresponding licenses to specific projects, and the licenses could specify the conditions of shipments. There is the option of going through a government commission," Novak said.

"There should be a strong mechanism here for coordinating the activities of all participants in the process, so that we don't have a situation where, to the detriment of the domestic market, we allow everyone to build LNG plants and everyone starts to chaotically ship to Europe or Asia," Novak said.

He said that his ministry would within a month complete an updated report on mechanisms for liberalizing LNG exports and tackling the problem of regulating this market. The proposals will consider granting certain projects the opportunity to export LNG.

"We're not talking about cancelling Gazprom's monopoly on gas exports. Gazprom remains the gas exporter by law, we are talking about the possible access of certain projects to LNG markets," Novak said.

The final decision on liberalizing LNG exports will be made by the Russian president.

The minister stressed that the global challenge in Russia's entry into the LNG market should not be fighting competition among Russian LNG suppliers, but competition with other global suppliers of LNG.

"Russia still only has 10% of the market, how can we compete internally here. Competition must be not among our projects, but with the projects of other countries that also plan to increase LNG exports, including Australia and Qatar," Novak said.

He remarked that not only is global demand for LNG growing, but so is the number of countries that are starting to use liquefied gas.

"In the last few years eleven countries have been added that have begun to build regasification terminals, and in the next few years there will be even more. The market will grow not only by volume of consumption, but also by number of countries. New countries are emerging - Argentina, Thailand. We need to occupy this niche and compete not against ourselves but for new markets," Novak said.

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