Russian Lawmakers Pave Way for Gazprom's Rivals to Export LNG

Russia's lower house of parliament took a first step on Friday towards allowing rivals of state-controlled Gazprom to export liquefied natural gas (LNG), as the world's top energy producing nation stakes a claim to growing Asian markets.

The bill would open the door for Russia's top independent gas firm Novatek and state oil major Rosneft to break Gazprom's monopoly on gas exports - but only for the supercooled gas that is shipped by tanker.

It passed by an overwhelming majority at the first reading and is expected to clear parliament quickly. Depending on when President Vladimir Putin signs it, the measure may take effect from January.

Prime Minister Dmitry Medvedev, a former Gazprom chairman, told the government last month that the export reform would give "a new chance for the whole energy industry and allow us to gain a footing" in fast-growing Asian markets.

Gazprom, descended from the Soviet gas ministry, has had its export monopoly enshrined in law since 2006. It sells gas mainly by pipeline to Europe and, despite years of talks, has failed to clinch an export deal to China.

It has also been slow to adopt new gas technology, only entering the LNG business in the past decade by buying into the Royal Dutch Shell-led Sakhalin-2 project, on the Pacific island of Sakhalin close to Japan.

Because of Sakhalin-2, Russia now has a share of around 4.5 percent of the global LNG market, which is dominated by Qatar. Russia aims to double its share by 2020 to produce 35 million-40 million tonnes a year by then.

Industry analysts say Gazprom has been reluctant to embrace change because of the risk that its existing business would be cannibalized by LNG, which in contrast to pipeline gas can be delivered to multiple destinations.

"This law is essential for as many players as possible to enter the market in addition to Gazprom," said Alexei Kokin, an energy analyst at Moscow brokerage Uralsib. "It would have been better if it had been passed a year or two ago."

Russia's first new plant, the Novatek-led Yamal LNG, is due to come on stream in 2016 and produce 5 million tonnes - lagging new supplies from Australia and the United States expected to reach the Asian market.

"Major Australian projects should start to hit the market in the second half of 2014, but we continue to see a dearth of new liquefaction projects coming online until 2015," BofA Merrill Lynch said in a note this week.

Both Novatek and Rosneft have already pre-sold LNG from their planned plants to Asian buyers, teaming up with other energy majors like ExxonMobil, Total or China National Petroleum Corp.(CNPC) to share costs and deploy advanced technologies.

"We are not going to compete with Gazprom in Europe," Gennady Timchenko, a co-owner of Novatek, has said of the Yamal LNG project on the Yamal peninsula north of the Arctic Circle.

BUYER IS KING

Russia has ceded its position as the world's top gas producer to the United States, which is undergoing an energy revolution in which wells are 'fracked' to release gas trapped in non-porous rocks such as shale.

With the U.S. gas market now in surplus and prices depressed, the industry has pushed for the right to export to higher-priced foreign markets such as Japan, facing an energy shortage following the Fukushima nuclear disaster of 2011.

Industry experts say U.S. exports of LNG could start in 2015, competing with Qatar, Malaysia and Australia and bearing down on international prices.

The bulk of new projects are targeting Asian markets, where Japan is the world's top LNG importer.

China, which is the world's top energy user and is keen to curb use of dirtier coal, will likely triple the use of natural gas to top 300 billion cubic meters (bcm) by 2020 and nearly a third of that would be imported.

In a sign of intensifying competition, Qatar recently cut its prices, while over $190 billion of LNG export projects under construction may help Australia become the world's top exporter before the end of the decade.