Russia Invites ONGC Videsh to Join in LNG Investment Projects on the Yamal Peninsula

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Researched by Industrial Info Resources (Sugar Land, Texas)--Russia's giant oil and gas power company Gazprom OAO (OTC:OGZPY) (Moscow, Russia) has confirmed an invitation to ONGC Videsh Limited (OVL) (New Delhi), the international subsidiary of India's Oil & Natural Gas Corporation Limited (BSE:500312) (ONGC) (New Delhi), to participate in liquefied natural gas (LNG) projects on the Yamal Peninsula.

In March this year, during his visit to India, the Russian Prime Minister stated that Indian companies were welcome to join Gazprom in LNG projects on the Yamal Peninsula, which is in northern Russia inside the Polar Circle. In the local indigenous language, "Yamal" means "the end of the world."

At the time, India was more interested in obtaining oil and gas products from sources closer to home, such as the Terbs and Titov oil fields in the Timan Penchora region, Vankor in east Siberia, and Sakhalin-3 in the Far East. Although the Yamal Peninsula has gas-rich reserves that require high investment, the products are unlikely to be shipped to India because of the distances involved.

OVL already holds a 20% stake in the Sakhalin-1 oil and gas field and was hoping to take a 10% to 20% stake in the Sakhalin-2 oil and gas field. Although this subject and possible investments in the Vankor, Terbs and Titov oil fields were raised during the talks, Russia appeared to be uninterested.

Sakhalin-2 is the site for Russia's first LNG plant, and the country is hoping to establish several other LNG plants in the Yamal Peninsula. LNG from the Sakhalin-2 project is destined for Japan and South Korea, which already have bought the LNG produced there for the next 25 years.

Projects in the Yamal Peninsula have an estimated investment potential of $300 billion across 11 gas and 15 oil-and-gas condensate fields. Russia plans to produce between 310 billion to 360 billion cubic meters of gas from the peninsula each year by 2030.

Russia is keen to attract investment in the reserves, and the Russian government is reportedly considering tax breaks to investors. The government has instructed the Finance, Energy and Economic Development Ministries to prepare draft legislation before the end of this year aimed at introducing tax privileges to companies extracting gas for liquefaction purposes.

The government proposals include a zero mineral tax on gas produced from the Yamal Peninsula for liquefaction, provided the development of the field occurs within a 12-year timeframe from the beginning of LNG production. Tax will not be levied until the accumulated gas production has reached 250 billion cubic meters. Similarly, tax will not be applied to gas condensate until the accumulated volume of LNG produced has reached 20 million tons.

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