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UPDATE 1-Russian lawmakers agree to let Gazprom's rivals export LNG

Fri, 22nd Nov 2013 15:23

* Lower house approves LNG export law in final reading

* Law easing Gazprom export monopoly to take effect in 2014

* Next new plant to be launched by 2017

* Novatek, Rosneft are the main beneficiaries

* Russia needs to move quickly to find market - expert

By Katya Golubkova

MOSCOW, Nov 22 (Reuters) - Russia's lower house ofparliament gave its final backing on Friday to amendments thatwould end Gazprom's gas export monopoly by lettingrival companies send super-cooled gas by tanker to thefast-growing Asian market.

Russia wants to double its share of the global trade inliquefied natural gas (LNG) to 10 percent by 2020, benefitingfrom Japan's move away from nuclear power and China's call tocurb the use of coal.

Changes to the law on gas exports, passed at a third andfinal reading, would allow Russia's No.2 gas producer Novatek and state oil giant Rosneft to finishprojects and compete with Gazprom's existing Sakhalin-2 plant.

State-owned Zarubezhneft, which has yet to develop its ownLNG strategy, would also be allowed to export LNG.

But the legislation would bar other new entrants,effectively creating a closed shop.

Gazprom's monopoly on pipeline gas exports will also remainunchanged, as will an effective ban on LNG exports to Europeancountries that already buy Russian conventional gas.

That would protect Gazprom's exports to Europe, where itaccounted for 26 percent of gas sales last year and - despiterecent declines in market share - targets a 30 percent share by2020. Its LNG exports are a tiny fraction of pipeline flows.

"It's a limited liberalisation," said Valery Nesterov,energy analyst at Sberbank CIB, singling out businessman MaximBarsky's proposed Pechora LNG project as the biggest loser.

Passage of the measure, which still requires approval by theupper house and President Vladimir Putin's signature to takeeffect in January, was needed to clinch up-front sales and finance for projects such as Novatek's $20 billion Yamal LNG.

This project, on the gas-rich Yamal peninsula north of theArctic Circle, is scheduled to start production by 2017. A lackof legal clarity has delayed a final investment decision.

The fine print of the amendments allows exports from threetypes of project: those that already held LNG productionlicences before this year; state companies if they produce LNGfrom offshore fields; or production sharing agreements.

In debates this week, some lawmakers proposed allowing statecompanies also to liquefy gas from onshore fields, or to shipLNG for other firms that lacked a licence at the start of theyear to produce it themselves.

These proposals, which would have benefited Rosneft andLukoil, Russia's No.2 oil producer, were dismissed,limiting competition in an industry where Russia already lagsbehind its foreign rivals and lacks expertise.

MOVING FAST

Gazprom has faced criticism for downplaying the challengeposed by shale gas and LNG and focusing on costly investmentsinto undersea pipelines such as Nord or South Stream.

After such delays, Russia now needs to hurry up as Qatar,Australia, the United States and some African nations plan toenter or significantly enlarge their presence on theAsia-Pacific LNG market.

Gazprom only entered the LNG business after controversy overRoyal Dutch Shell's Sakhalin-2 project, on a RussianPacific island, was resolved when it became a shareholder.

The LNG plant, located 100 km from Japan's northern islandof Hokkaido, will produce 10.6 million tonnes of LNG this year,Thomas Zengerly, production director at Sakhalin EnergyInvestment Company, told a conference this week.

The plant has two processing trains and shareholders are nowdiscussing the construction of a third train to add up to 5million tonnes, with talks focusing on gas supplies sources asboth Gazprom and Rosneft plan new facilities in the region.

Rosneft and ExxonMobil have agreed to build a plantwith initial capacity of 5 million tonnes, also on Sakhalin,using a resource base Gazprom once coveted.

Production could start in 2018 - the year Gazprom plans tocommission its own LNG plant near the Pacific port ofVladivostok.

Analysts and industry players question the high cost of newRussian LNG projects - ranging from $13.5 billion forVladivostok to $20 billion for Novatek-led Yamal - and whetherthey will make money if competition bears down on prices.

"Russian LNG in Pacific has a lot of advantages but ... itis very, very late except for Sakhalin-2," Jonathan Stern,senior research fellow at the Oxford Institute for EnergyStudies, told the Moscow conference.

"The Australian projects are further advanced, Africanprojects are further advanced and Russian projects will have tomove very, very quickly now if they are going to find a market."

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