GAZPROM BECOME KEY

Gazprom, the world's largest natural gas producer and exporter, is eyeing Asia's growing LNG market and strives to become one of key LNG suppliers in the region, Gazprom deputy chairman of the management board Alexander Medvedev told the World Petroleum Congress in Moscow Tuesday.

In recent years, Russia has stepped up efforts to expand its presence in Asia's energy market and growing demand for LNG in this part of the world has spurred Moscow's hopes for establishing itself as a major player here.

Calling LNG the "most dynamic segment of gas trade," Medvedev focused his speech on the "region that drives and leads global demand of this fuel – Asia."

According to Medvedev, Asia is the world's largest LNG consumer accounting for 75 percent of the global LNG trade and its share in the global energy trade has increased by 20 percent over the last five years. "Last year, Asia imported about 178 million tons of LNG, which is over five times more than Europe did," he said, adding that the fast pace of growth of regional economies requires gas as the most reliable and cleanest energy source.

Speaking about the Asian market's attractiveness, Medvedev mentioned its dynamics, but also put an emphasis on pricing.

"Today, the prices for LNG in Asia are 40-60 percent higher than in Europe under term contracts and up to two times higher than on the spot market. The effect of the Asian premium stimulates gas traders to divert LNG cargoes from Europe to Asia. Since 2010, volumes of short-term and spot LNG imported to Europe have decreased 20-fold. During the same period Asia has managed to increase volumes of LNG delivered under the flexible contracts by 20 percent. Asian dragon will continue flying high!" the executive said.

According to energy analysts' forecasts, Asia is bound to become the world's largest gas consumer in 20 years and China shall record the largest increase in the gas demand in any single country. By the middle of the 2030s, China's gas consumption will skyrocket to more than 500 billion cubic meters per year, Medvedev said, citing the latest IEA forecast. According to the same expert outlook, India's gas consumption is expected to grow up to 170 billion cubic meters per year by 2035. "Some of these huge incremental needs will be satisfied by the imported LNG," the Gazprom official said.

Referring to Russia and Gazprom as "still emerging, but ambitious players on the Asian gas market" Medvedev said that Gazprom's LNG plant on the Sakhalin Island has safely and uninterruptedly produced and delivered to consumers over 50 million tons of LNG since 2009. Today, Sakhalin-produced gas accounts for 10 percent of Japan's LNG imports.

Within the same context, the recent Russia-China gas deal, which has been dubbed by some industry specialists as "contract of the century," has seen Moscow "open for the first time in history the door for East Siberian natural gas to the gas market of the future, the Chinese market." Under the 30-year contract more than 1 trillion cubic meters of gas will be delivered to China via the eastern route.

"This contract will satisfy a fraction of Chinese future gas demand, but this is still huge, about a quarter in current figures and about 10 percent in 2020. However, we believe that besides pipeline gas there will be enough space for Russian LNG exports both in the Chinese market and in Asia in general. Our new project, like Vladivostok LNG and the construction of the third train at Sakhalin-2 plant will serve to meet the demand of the energy-hungry Asia," Medvedev explained.

He added that the investment decision on Vladivostok LNG with the plant capacity of up to 15 million tons per annum was taken already and the plant would be put into operation at the end of 2018. Medvedev also singled out the future plant's excellent geographic position, which gives it a clear competitive advantage.

The official also said that Gazprom and Shell, the partners in Russia's only LNG-producing project to date, Sakhalin-2, had in February signed a road map for the FEED documents, paving the way for the project's expansion.

"Our country is able to provide our partners in the East with reliable and environmentally-friendly for decades or even centuries. Just a small example: [Siberia's] Kovykta and Chayanda gas fields possess discovered resources of 3 trillion cubic meters, which can be compared to total gas reserves of such a mature LNG player in Asia-Pacific as Indonesia. The future production at the two fields will be not only used for pipeline gas supply to China and local consumption in Russia, but also to source our LNG projects," Medvedev said.

He stressed that the Sakhalin Island is no less promising hydrocarbon province with a great potential to increase proven reserves. According to the executive, geographical proximity to consumers' market is an advantage for Russian LNG exports. Today, an average shipping leg for Sakhalin LNG is about 1,000 nautical miles versus more than 5,000 nautical miles for Qatari LNG and 13,000 nautical miles for future U.S. LNG via Suez Canal or more than 9,000 nautical miles via Panama.

The outlook for Russia is good, believes Medvedev, as economic growth in Asia's leading gas-consuming countries continues to fuel demand. "The share of gas in power generation is gradually growing in Japan and inter-fuel competition remains strong. China, which has recently become the top oil importer in the world is now placing an even higher emphasis on the use of natural gas. Gas and oil compete in all the sector of the South Korean energy market. India, with the gas market still in infancy, is consistently gaining momentum and oil vs. gas competition is also emerging here," the official said.

"Nowadays, gas finds more and more previously unused or underestimated market niches like gas for transportation, not only in cars and trucks, but also in maritime transportation as well as a small-scale LNG. Asia is not an exception. We witness the fastest-growing interest for gas as a motor fuel in China, the City Bus Company in Beijing operating the world's largest energy-fueled bus fleet with more than 6,000 vehicles. The demand for LNG-fueled trucks in China outstrips demand on traditional petrol-driven trucks twofold. We also see an enormous potential for LNG as a bunkering fuel for the river and marine vessels in Asia. Traditional and non-traditional spheres of gas applications are heating up the Asian market. Gazprom is ready to satisfy these needs, we are coming to the Asian market with a firm confidence in our professionalism and competitiveness and we have already made the first step on our eastward pathway to become a key supplier in Asia," concluded Medvedev. 

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