OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme
OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme
Russian and its potential impact
on the global LNG market
James Henderson
Natural Gas Programme, OIES
NOVEMBER 2014
OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme
Russia’s LNG strategy under review

Russia and Gazprom have had a long term objective to become a key LNG
player

Important to access new markets and to increase flexibility to complement
pipeline sales

Geo-political significance for Russia and for Gazprom as a global gas
major

Gazprom’s position challenged by ending of LNG export monopoly

However, sanctions and lower oil prices have led to a review of overall
strategy among the key Russian gas companies

All Russian projects now in some doubt – pipeline exports now becoming
the key focus again, especially into China
2
Shtokman
- 15mmtpa in
Phase 1?
Yamal LNG – 16.5mmt
CNPC - 3mmtpa
Gas Natural – 2.5mmtpa
Gazprom – 3mmtpa
Sakhalin 1 – 5mmt
SODECO – 1mmtpa
Marubeni – 1.25mmtpa
Vitol – 2.75mmtpa
Pechora LNG
– 2.6mmtpa ?
Sakhalin 2 – 10mmt
Various Asian buyers
Potential for 5mmt
expansion
Chayanda
Leningrad LNG
– 10mmtpa ?
Altai
Pipeline
South
Stream
63bcma
to Europe
S-K-V
OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme
Russia’s gas export expansion options
Kovykta
30bcma
to China?
38bcma
to China
Gazprom
Novatek
20-30bcma
to China?
Vladivostok LNG
– 10-15mmt
Rosneft

Russia is considering a significant number of options to expand gas exports

Diversification to Asia catalysed LNG options, but the example of Shtokman shows
how difficult it can be to justify economics

Pipeline options now being widely discussed, reinforcing Gazprom’s export
monopoly position despite challenges from Rosneft and Novatek
3
OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme
Power of Siberia provides foundation for eastern
strategy: LNG options now uncertain
Source: Gazprom




China export deal via Power of Siberia intended as a foundation for LNG strategy
Vladivostok LNG may now be postponed in favour of Altai pipeline
Sakhalin plans under question – Sakhalin 2 expansion / Sakhalin 1 LNG plant / market
for Sakhalin 3 has?
Gas from Sakhalin could now be sold to China via SKV pipeline
4
The LNG export scenario
Alternative pipeline export strategy
140
120
120
100
100
East Siberia Pipe
80
bcma
OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme
Two scenarios for Russian gas exports in Asia
Sakhalin 1
Yamal LNG
60
Vladivostok LNG
40
Sakhalin Expansion
Sakhalin Current
20
80
60
40
20
0
2010
0
2010
2015
2020
2025
2030
2015
2020
2025
Sakhalin 2
Power of Siberia
Altai Pipe
SKV to China
Sakhalin 2 Expansion
Yamal LNG
2030

Pipeline sales important because they generate export tax revenues

Potential to increase export sales, but more focussed on one market so higher risk

Sanctions could reduce Russian LNG exports to just current Sakhalin 2 project

Novatek still highly motivated to complete Yamal LNG, but could be further delayed

Rosneft may now view its gas strategy, including Sakhalin 1 LNG, as lower priority
given financial constraints
5

Profile of Russian gas sales to China
30 year contract, with peak flow of
38bcma
40
35
30
Ramp up period of five years,
starting in 2019
25
bcm

20
bcm
15
80% ToP
10

5
Miller quoted as saying that total
value of contract is $400bn
0
Comparable gas prices in Shanghai

Range of prices is $10-11/mcf,
implying $12-13 on east coast
20.00
18.00
16.00
14.00

Equivalent to rough estimate of US
LNG export price and emerging
Chinese domestic price
US$/mmbtu
OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme
Gazprom’s pipeline deals can help to set a benchmark
price in China
12.00
10.00
8.00
6.00
4.00
2.00
0.00

Altai pipeline sales can also reach
Shanghai at competitive levels
6
Comparative breakeven cost of Russian
and US LNG to Europe
Pechora LNG
12.0
10.0
US$/mmbtu
OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme
Western LNG projects remain more notional than actual
8.0
6.0
4.0
2.0
Baltic LNG
0.0
Leningrad
Gas Input




Liquefaction
US LNG
Transport
Re-gas
Rosneft, Novatek and Gazprom could go head-to-head in the western LNG
market
Gazprom has rekindled the idea of the Baltic LNG project – a 10mmt scheme
is due online by 2018, with potential to supply bunker market in Europe
Rosneft has partnered with Alltech at Pechora LNG (2.6mmt) although
project has not received export approval yet
Gas from Yamal LNG scheduled to arrive in Europe by 2018
7
OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme
Conclusions

Russia has long harboured ambition to become a major player in the LNG
market in Asia and the Atlantic Basin

However, current and possible future sanctions plus financial constraints
are now undermining these plans

Gazprom’s export strategy is turning back to a pipeline focus, but this can
also affect LNG markets, especially in Asia

Gazprom could be exporting 100bcma to Asia by 2030, although this will
depend upon Chinese appetite for gas from a single source

Russia’s LNG plans in the West will depend upon the development of new
markets

A key driver in the future of the Russian gas export strategy will be
government decisions on providing support from the National Wealth
Fund
8