Russia's Gazprom Strengthens Ties to Eastern Markets, Builds Up Gas and LNG Production Volumes

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Written by Richard Finlayson, Senior International Editor for Industrial Info resources (Sugar Land, Texas)--Representatives from Gazprom OAO (PINK:OGZPY) (Moscow, Russia) told a press conference last week that liquefied natural gas (LNG) has priority in terms of Russian gas supplies to Japan and eastern China.

Gazprom already delivers LNG to China's state-owned China National Petroleum Corporation (CNPC) and to China Petroleum & Chemical Corporation (NYSE:SNP) (Sinopec). "We will discuss exports of pipeline gas to China only after our plans for LNG exports have been determined," said Alexander Medvedev, Gazprom's deputy chief executive officer.

Medvedev said production in the region could total between 10 million and 25 million tons a year and that everything depended on the results we get from the feasibility study for the third line at Sakhalin-2 and the LNG plant in Vladivostok.

The third line could have a capacity of 5 million tons per year. But in their present form, Sakhalin's reserves are not enough to fully load the line. In order to rectify this, the current production-sharing agreement needs to be adjusted or the project needs to be implemented in the conditions of the existing tax regime.

Gazprom has held negotiations in Japan at which the possibility of constructing a gas pipeline on the island of Honshu and Hokkaido was discussed. The parties agreed that the LNG plant is the priority and that the pipeline construction will be revisited once the LNG project is implemented.

A memorandum has been prepared to be signed by Japan's Economy, Trade and Industry Ministry in St. Petersburg.

The Eastern Gas Program, which is being implemented by Gazprom, is primarily targeted to gas supplies to consumers in Eastern Russia. Natural gas utilization by the residential, industrial and power generation sectors of Russia's eastern regions will trigger their socioeconomic development.

Gazprom is also a reliable exporter to the Asia-Pacific market. Out of 34 LNG cargoes shipped by Gazprom, 30 were delivered to Asia-Pacific countries in 2011. The company can provide extra supplies to partners in the case of an emergency. After the Fukushima disaster, Gazprom supplied Japan with an additional 325,000 tons of LNG.

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