Australia-Russia: LNG Partners or Competitors?

Alexey Goncharov, ARD Committee Member, presents at the RAO/CIS Offshore 2013 Conference in St-Petersburg:

 

http://www.spbvedomosti.ru/article.htm?id=10302125@SV_Articles

PHOTO REUTERS

Gas from a large container
to avoid losing markets, Russia should move to liquefied natural gas production
By Galina NAZAROVA

In the structure of world energy balance today 35% is oil, 29% – coal, and 24% – natural gas. At the same time the share of the latter, according to experts, can be significantly increased through the use of liquefied gas.

It is cheaper by Sea


Liquefied natural gas (LNG) is the most dynamic sector of the gas market: the volumes of its sales are growing twice as fast as the pipeline gas. This is due to the fact that the liquefied gas is much easier to transport. Although the cost of transportation substantially affects its price.

“Shtokman Development AG” company estimated that the number of LNG tankers over the past 10 years has increased by 3.8 times. In addition, there is a whole class of technologically advanced tankers that are changing the picture of the efficiency of maritime transport of liquefied gas. Decreases in the cost of such vessels in the near future, will reduce the cost of transporting LNG by 40%. The distance at which the supply of LNG becomes more efficient than pipeline supply now stands at 2,500 – 3,000 km, and it may be reduced to 1,500 – 2,000 km.

The only Russian LNG plant so far works on the island of Sakhalin. It was launched in 2009 as part of the oil and gas project “Sakhalin-2″. Only due to this plant the Russian Federation ranked eighth in the world by volume of LNG in 2012 taking 4.5% of the world market. The project is implemented by “Gazprom” jointly with Shell, Mitsui and Mitsubishi. Operator of the project is the “Sakhalin Energy” company.

Every 2 – 2.5 days one gas carrier of 147 thousand cubic meters is loaded at the plant. The total production is 9.6 million tons of LNG per year. According to official data, about 65% of Sakhalin gas goes to Japan – the world’s largest consumer of LNG. The rest of the gas is sent to South Korea and North America. By the way, according to experts, in 2012, Japan consumed about 90 million tons of liquefied natural gas, South Korea – about 38 million tons.

From Pechora to the Yamal

According to the plans of Russian companies, the main increase of LNG capacity is planned for 2018. Four new projects should start by then. Three of them are: “Pechora LNG” by “Alltech” group of 2.6 million tons per year capacity, the first train of the “Vladivostok LNG” plant by “Gazprom” of 15 million tons per year capacity, as well as a joint project of “Rosneft” and Exxon Mobil in the Far East of 5 million tons capacity. But the project “Yamal LNG” by “Novatek” company appears to be a winner with the launch of it scheduled for late 2016, with a capacity of 5.5 million tons, and it could rise to 10 million tons a year in 2018. This is stated in the analytical report of “Skolkovo” business school.

A special role in the development of the LNG market in Russia is given to Arctic hydrocarbon deposits. It is hoped that the gas produced in the Arctic, will mainly be exported to markets in the Asia-Pacific and Atlantic regions (North America and European countries). There are many advantages in the production of LNG in the Arctic.

First, as the Vice-President of “Shtokman Development AG” Dmitry Seregin explains, LNG production in the Arctic reduces transportation costs. This is due to the relative proximity of markets, in case, of course, the Northern Sea Route is used. Such a possibility has already been proved by “Gazprom”, which at the end of 2012 chartered a gas tanker “Ob’ River” and for the first time in the world accomplished a successful transportation of LNG by the Northern Sea Route from Norway to Japan.

Second, the liquefied natural gas production in cold or temperate climates requires significantly less energy. In addition, the Arctic region is considered stable – it has virtually no political risks. ”All of these factors make it possible to generate more revenue – the so-called geographic rent”, – says Dmitry Seregin.

However, the difficult climate conditions in the Arctic not only make it easier, but also complicate the production process. Moreover, only few Russian experts in LNG are available, Russia has no experience of manufacturing equipment for its production, shipment and transportation.


Partners or Competitors?

Perhaps in the launch of the LNG production we can get help from a country that is today the fourth largest exporter of liquefied natural gas, and in the next few years is set to become an intentional leader – Australia. We should not forget that we are talking about one of our direct competitors. According to a government agency Geoscience Australia, LNG exports in 2011 amounted to 19 million tons, and in 2017 they will reach 63 million tons. Australia is geographically closer to the markets of the Asia-Pacific region, the climatic conditions in this country are much more favourable than in Russia, and the economy is more stable.

Alexey Goncharov, a representative of the NGO Australia Russia Dialogue, said that Russia, in case of a direct confrontation, can lose to Australia the share of the Asian LNG market. Today almost all the world’s leading resource companies hold licenses for oil and gas projects in Australia, except for Russian.

However, Alexey Goncharov suggests considering the option of Australian companies obtaining equity interests in Russian oil projects (Australian own oil resources are minor) in exchange for equity participation of Russian companies in Australian LNG projects, and projects on coal seam and shale gas. In that case the Russian companies will be able to reallocate the import-export flows of gas by transporting LNG from Australia to Asia, and avoiding the Northern Sea Route. The Russia’s leading oil and gas companies treat this idea with caution.