Page 7 - FSUOGM Week 32 2019

FSUOGM COMMENTARY FSUOGM New pipeline projects
Addressing the threat
In the longer term, Gazprom is looking to main- tain its market share at above 35% between now and 2035. It could in theory ramp up supply even further, by fast-tracking development of new gas elds on the Yamal Peninsula and utilising more of its spare export capacity via Ukraine. Russia pumped only 86.8bcm of gas via Ukraine’s gas transmission system (GTS), which has a nom- inal capacity of 142 bcm per year. But as Russia has consistently stated it wants to reduce rather than expand shipments via Ukraine – this being a key aim behind the 55 bcm per year Nord Stream 2 project – it is likely to choose other options for expanding its future market share.
With its other export routes at near full capac- ity, Russia would need to construct new pipelines beyond Nord Stream 2 and TurkStream in order to expand shipments signi cantly. But the EU is likely to oppose these projects on the basis that increased piped Russian gas puts supply security at risk. However, Brussels is less likely to object to increased Russian LNG supplies, and here is where Gazprom’s independent rival Novatek comes in.
Novatek is at the forefront of Russian plans to expand annual LNG production vefold to 120- 140mn tonnes per year by 2035. e company commissioned its rst 16.5mn tpy LNG export terminal in the Arctic in late 2017, and is cur- rently working on two more projects. Its CEO Leonid Mikhelson recently disclosed plans to have 70mn tpy of LNG capacity up and running by 2030.
Russia has already positioned itself as a major LNG supplier to Europe, second only to Qatar,
with shipments totalling 8mn tonnes in the rst half of the year, according to Wood MacKenzie. “Russia is likely to review its traditional,
pipeline-based export model, and turn to LNG instead, at least for supplies to Europe,” Filip- penko explained.
But by favouring increased LNG supplies, Russia risks undermining its tax base, as Gaz- prom has already warned. Whereas Russian piped supplies are currently subject to export duties and mineral extraction tax (MET), the government provides lucrative tax breaks to Arctic LNG projects to support their develop- ment. Yamal LNG, for instance, will not pay any export tax, MET or pro t tax during its rst 12 years of operation and also enjoys a 13.5% reduced rate of pro t tax.
“Opting for additional LNG rather than new pipeline projects will mean less direct tax revenues for the government and a potential revision of Russia’s traditional export approach,” Filippenko explained. “And more work needs to be done encouraging co-operation between the country’s leading oil and gas companies to support this.”
While Russia is likely to bank on LNG sup- plies as means of defending its market share in the long term, its short-term strategy has been to bolster spot sales, favoured by buyers because of their exible pricing. Volumes sold at Gaz- prom’s electronic sales platform (ESP) accounted for only 4.8% of its total European exports since the platform’s launch last October and June 30 this year. But this share is set to grow, as Gaz- prom shi s from its traditional use of long-term, oil-indexed contracts. ™
may not be the answer.
Storage tank at the Yamal LNG project operated by Novatek.
Week 32 14•August•2019 w w w . N E W S B A S E . c o m P7