Gazprom opposed liberalization of LNG exports

Gazprom opposed the liberalization of liquefied natural gas (LNG) exports. The state company did not support the proposal to allow the export of LNG without reference to specific fields to those companies that already have export licenses. This was stated during the discussion of the bill in the State Duma Committee on Energy on October 9, the deputy head of the department – the head of the Gazprom department, Kiril Polous.

The top manager noted that the bill allows for maximizing gas exports in the form of LNG to the detriment of supplies to the domestic market and allows companies to act as intermediaries in the sale of gas for export. Thus, the bill “creates the preconditions for uncontrolled export of LNG” and increases the risk of disruption of the reliable supply of gas to Russian consumers, Polous believes.

In the future, according to Gazprom’s assessment, a situation similar to the one that developed in the petroleum products market in 2023 may arise on the Russian gas market (the gray export of petroleum products provoked a sharp increase in wholesale prices and a shortage of motor fuel. – Vedomosti).

During an extended meeting of the committee, Energy Minister Nikolai Shulginov recalled that the Ministry of Energy supports the adoption of the bill. He also said that Russian President Vladimir Putin instructed to include the Novatek Murmansk LNG project in the Energy Strategy of the Russian Federation and to accelerate the adoption of legislation on the liberalization of LNG exports.

Now, according to the gas export law, the owner of the unified gas supply system (i.e. Gazprom) and its 100% subsidiaries have the right to export LNG abroad. State-owned companies operating on the shelf can also export LNG. In addition, private companies and their subsidiaries have this right, which, on January 1, 2013, were issued a license to build an LNG plant in certain subsoil areas, and production in these areas began after January 1, 2013. Under these conditions individual projects of Novatek are included.

The government order dated July 14, 2014 specified specific companies and projects that are allowed to export LNG. It lists Gazprom, Gazprom Export, Rosneft and Novatek’s subsidiaries Yamal LNG, Arctic LNG-1, Arctic LNG-2 and Arctic LNG-3. In November 2020, a subsidiary of Gazprom, Gazprom Gas-Oil Product Holding, was added to the list.

Murmansk LNG is the most obvious beneficiary of the proposed liberalization. In June 2023, the chairman of the board and co-owner of Novatek, Leonid Mikhelson, once again raised this topic and proposed changes to the gas export law that would allow producers to supply LNG abroad without being tied to field licenses. The adoption of such a law, Mikhelson noted, will also make it possible to supply gas abroad from Murmansk LNG with a capacity of 20.4 million tons per year (an investment decision on the project has not yet been made). Novatek plans that two legal entities will be involved in the project: one will produce and transport gas, the other will liquefy and export. Mikhelson also clarified that this initiative has not yet been discussed in the government, but a working group has been created in the State Duma (Vedomosti wrote about this on June 20).

In July, a group of State Duma deputies prepared a bill that would include among LNG exporters companies implementing LNG projects with a capacity of more than 20 tons per hour (approximately 175,000 tons per year), if more than 50% of their shares belong to companies that already have the right to export LNG. It was submitted to the State Duma on July 12.

Chairman of the Energy Committee Pavel Zavalny (United Russia) said during a committee meeting on October 9 that the bill on liberalizing LNG exports should be adopted before November 1, and proposed putting it to a State Duma vote in the first reading on October 17. The MP added that the government submitted three comments that will be included in the committee’s conclusion. Following the meeting, the committee approved putting the bill to a vote.

Polous, listing the arguments against the bill, also noted that, according to Gazprom’s assessment, the documents of the Ministry of Energy already indicate projects that are provided with their own raw material base, which will make it possible to achieve the goal of increasing LNG production to 100 million tons by 2030 without changing legislation. Deputy Energy Minister Pavel Sorokin countered that the implementation of some of these projects is unlikely.

Plans to increase LNG production to 100 million tons per year by 2030 and to 140 million tons by 2035 are included in the Russian Energy Strategy until 2035. Shulginov confirmed in September of this year that the goals have not been revised. According to Rosstat, LNG production in Russia in 2022 increased by 8.1% to 32.5 million tons (according to the Ministry of Energy, by 3.6% to 31.3 million tons). According to the state program “Energy Development”, in 2023 LNG production should increase by 5.4% to 33 million tons, in 2024–2025. – 1.5 times by 2022 to 47.3 million tons.

Senior analyst at BCS World of Investments Ronald Smith notes that the emergence of a shortage in the domestic gas market, which Gazprom warns about, is unlikely, given the decrease in gas exports to Europe by approximately 100 billion cubic meters. m per year. Leading analyst of the National Energy Security Fund Igor Yushkov recalls that Gazprom itself previously announced the possibility of increasing production at existing fields by 150 billion cubic meters. m per year, while Novatek plans to export gas from its own new fields.

Gas production in Russia in 2022, according to the Ministry of Energy, decreased by 11.7% to 673.8 billion cubic meters. m. Gazprom’s production, according to its own data, in 2022 decreased by 20% to 412.6 billion cubic meters. m.

Finam Financial Group analyst Sergei Kaufman adds that gas on the Russian market is predominantly supplied at regulated prices through gas pipelines. In his opinion, it is impossible to repeat the situation that arose on the oil products market on the gas market. “Gazprom’s arguments against the bill are weak. It will be accepted with 100% probability,” states Yushkov.

Kaufman notes that now there is virtually no competition between Russian pipeline gas and Russian LNG on the market, but in the future, the growth of LNG production will limit Gazprom’s ambitions for supplies to China. According to Yushkov, the Murmansk LNG project will directly compete with Gazprom’s supplies. Smith adds that the current version of the gas export law gives Gazprom significant leverage over new LNG projects, which it naturally does not want to lose.

Kaufman believes that the goal of increasing LNG production to 100 million tons by 2030 is realistic if the Arctic LNG-2 project, Murmansk LNG, Novatek Ob LNG, Yakutsk LNG YATEK, and the YATEK project are launched. Gazprom” in the Ust-Luga region (Leningrad region) and LNG production within the framework of the Rosneft Vostok Oil project. But it is difficult to predict the timing of the implementation of all these projects, the analyst admits. Yushkov adds that there are questions regarding the implementation of almost all of these projects. Smith believes that the goal is achievable, but not by 2030, but by 2035, taking into account restrictions on the import of technology [из-за санкций].