End of Gazprom’s Russian gas export monopoly approaches

25/06/2013 00:34

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Russian President Vladimir Putin signalled the gradual end of state-controlled Gazprom's monopoly on exports of natural gas, opening the way for rivals Novatek and Rosneft to compete for huge new Asian markets.

Putin made the announcement minutes after Novatek signed a deal on Friday to supply at least 3 million tonnes of liquefied natural gas (LNG) annually to China. China National Petroleum Corp (CNPC) also agreed to buy a 20% stake in Novatek's $20 billion Yamal-LNG project in northwest Siberia. The move would be a blow to Gazprom, which now has a monopoly on exports of both pipeline gas and LNG under a 2006 law, and which is itself planning a major expansion in sales to Asia because its European markets have been stagnating. Gazprom announced a plan to build a new LNG facility on the Baltic Sea. The right to export gas is important to Novatek's plans to set up the LNG plant in Yamal together with France's Total and CNPC. Novatek currently has 80% of the project and Total 20%. The Russian company has said it would retain at least 51% in Yamal LNG after new partners join it. Under current arrangements for the project, Gazprom had to be involved as an exporting agent and its role was not clear. Novatek has been postponing investment decision for the project as it has not been able to secure exporting rights. Russia, the world's second largest gas producer after the United States, exports the bulk of its gas via a pipeline network to Europe where demand is weak due to a slowing economy. Novatek and the country's top oil producer Rosneft are both lobbying for LNG export rights, with the latter agreeing with ExxonMobil to build an LNG plant on Russian Far East estimated at $15 billion. Rosneft agreed to sell 1 million tonnes of LNG to Japan's Sodeco and 1.25 million tonnes to Marubeni, respectively, from 2019. Swiss oil trader Vitol has also signed a preliminary agreement to buy LNG from Rosneft. "The strong demand for LNG in Japan and other Asia Pacific region countries, which has been observed in recent years, provides wide opportunities for Rosneft's new LNG project in the Russian Far East," Rosneft said in a statement. Gazprom faces increased competition in Europe Gazprom has agreed to cut the price of gas for Italy's Eni by under 7% in a sign the Russian giant is further bending to pressure from its customers in Europe to renegotiate contracts. Earlier this month, Medvedev said that Gazprom would cut pipeline gas prices for European buyers this year in response to competition. In a statement Eni said the two companies had also agreed to wrap up talks this year on the price and volumes of gas supplies in 2014 and beyond. The renegotiation of long-term contracts is widespread in Europe's gas industry as low spot prices on the wholesale market, depressed by flagging economies, make many existing agreements unprofitable. State-controlled Eni, the world's No. 7 oil major for volumes, has reopened 80% of its gas contract portfolio for renegotiation as it seeks to cope with weak demand. In May it struck a deal to buy less gas from Algeria. Source: EMP Weekly Market Review

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