Vladimir Shlyomin

T

he Russian company Gazprom, the world’s largest exporter of natural gas, still makes shipments to Europe only. But, as Alexei Miller, the chairman of the board of directors at Gazprom JSC says, in the nearest future the company intends to enter markets of Southeast Asia and North America. For this purpose it plans to develop the liquefied gas production. “Until now the U.S. and Japan have been inaccessible for us”, explains Miller. “An opportunity of transporting liquefied gas by water opens up the way to markets of these countries as well as to China and Korea”, he adds.

It is well known that Russian liquefied natural gas is transported mainly via the pipeline system, which runs across borders of several countries. That is why the dependence of transit shipments on economic and political risks is so obvious. Shipments of liquefied gas by waterways are relieved of these risks. Besides, there is an opportunity to avoid ‘the technical limit’, i.e. the throughput capacity of available pipelines. Transporting by waterways is effective enough. Delivery centers produce 600 cubic meters of free gas from one cubic meter of liquefied gas. It is not too difficult to imagine what the potential of this technology means for Gazprom that produces about 90% of Russian gas.
In the opinion of Alexei Miller, the process of the world market globalization has already started. In 2003 the volume of liquefied natural gas produced in the world amounted to 126.4 million tons, two thirds of which (83.6 million tons) were purchased by Asian countries and, above all, by Japan and South Korea. The U.S. and Europe bought the rest (10.8 million tons and 32 million tons respectively). Experts predict that next year the market segment of liquefied natural gas will grow by one third and will practically double in 2010, reaching 224 million tons.
According to calculations by Mohammed Taleb, an official with Algeria’s company Sonatrach, one of the leaders in this market sector, investments in production, liquefaction and transportation of gas average $190 a ton of end product. But already by 2008 this figure will go down to $150 and that will make liquefied gas quite a competitive commodity.
It goes without saying that deciding to diversify its business and transportation routes Gazprom takes this trend into account. As Alexei Miller stated, the company "will set up subsidiaries, which will handle production and sales of liquefied gas".
At present, Gazprom is negotiating with potential partners. "We are considering proposals by companies able to ensure guaranteed sales of our gas in North America", said Alexander Ryazanov, the deputy chairman of the management board of Gazprom. Ryazanov noted that he meant negotiations with Conoco Philips, Exxon Mobil and Shell. In his opinion, it is necessary to reach agreements on shipments already this year because, otherwise, the market can be won by other producers. In his words, the most complex points in negotiations come to the following. American companies would like to participate not only in liquefying and distributing gas but also in producing at least half of the volume. And they do not want to let a Russian partner get profit from selling gas in the U.S.
The importance of the American market was clearly proved by Rudolf Ter-Sarkisov, the director of the All-Russian Scientific Research Institute of Gas. According to his data, the U.S. gets over 100 billion cubic meters of natural gas by pipelines from Canada. And in spite of this the share of liquefied gas is quickly going up: from 2% in 2002 to 8.8% at present. But in order to ensure a niche for Russia and Gazprom in this market, it is necessary to have long-term contracts. "The production of liquefied natural gas is expensive", reminds Ter-Sarkisov. "That is why when making investments in it, it is desirable to have a contract for at least 20 to 25 years. Only this way it will become economically favorable and acceptable to Gazprom", he says.
By now, the most realistic proposals have been received from Conoco Philips, which offered to build a gas-liquefying plant near the city of Murmansk that will have the annual production volume of 21 million tons and will cost between $12B and $13B. At the same time Gazprom is considering a possibility of dividing the project into three phases – production, plant construction, transportation and marketing – with using different partners to implement each of them. In Ryazanov’s words, the experience of Norway’s Norsk Hydro and Statoil is of particular interest as far as the on-shelf gas production is concerned. The use of their technologies may reduce the cost of the project by $1B.
At present, the search for a potential raw material base is now concentrated on two locations: the Shtockman field on the shelf of the Barents Sea with reserves amounting to 2.5 trillion cubic meters of gas and the field on the Yamal Peninsula. The first option seems to be more attractive, since the Barents Sea practically does not freeze, although it is in the Arctic zone. It is assumed that about 90% of gas will be shipped from there mainly to the U.S. and, probably, from 10% to 15% will go to countries of Europe. According to the preliminary feasibility study prepared by Conoco Philips, investments in the Shtockman are estimated at $10B to $15B. The first developing stage provides for the annual production of 30 billion cubic meters of gas with 25 to 26 billion cubic meters being liquefied and the remainder going to the domestic market. A plant of liquefied natural gas will have three lines with the capacity of 7 million tons each.
Gazprom regards as promising one more business direction: the production of synthetic liquid fuel. The company owns large reserves of gas, transportation of which by pipelines is unreasonable from the economic point of view. Precisely this part of reserves is expected to be used as raw material for obtaining ecologically clean petrol. Other oil-and-gas giants (Chevron, Shell, etc.) are also planning to start implementation of similar production projects.
"This fuel is not cheap but from the ecological point of view it has enormous advantages", director of the All-Russian Scientific Research Institute of Gas Rudolf Ter-Sarkisov points out. "It does not contain sulfur oxide, discharges of solid particles are reduced by dozens of percentage points and the content of nitrogenous compounds is also very low". According to the data of the Institute, Malaysia and the South African Republic have already been producing 10 million tons of such a fuel.