OAO Gazprom (GAZP), the world\u2019s largest natural-gas exporter, is struggling to get a foothold in the Asian markets leading global economic growth.<\/p>\n
The Russian company\u2019s plan to supply liquefied natural gas to India from 2016, the year the U.S. is set to start gas exports, is faltering after buyers said they\u2019re looking for cheaper fuel fromNorth America. Last year, decade-long talks to supply pipeline gas to\u00a0China\u00a0foundered over price disagreements.<\/p>\n
\u201cGazprom has a major problem of having a fixed view on what the price of gas should be, irrespective of market conditions,\u201dJonathan Stern, chairman and senior research fellow at the Oxford Institute for Energy Studies, said by e- mail. \u201cIf this continues, it will create increasing problems for Russian gas exports.\u201d<\/p>\n
Keen to protect Russia\u2019s position in world gas markets, President-elect Vladimir Putin ordered export monopoly Gazprom to diversify into\u00a0Asia\u00a0and develop an LNG business. The Moscow- based company cut this year\u2019s target for exports to\u00a0Europe, which accounts for more than half of Gazprom\u2019s gas revenue, as the debt crisis holds back economic growth and imports from the Middle East increase.<\/p>\n
Asia accounts for more than 60 percent of global demand for LNG, gas chilled to a liquid for transport by ship. The region imported 177.7 billion cubic meters of the fuel in 2010, valued at more than $86 billion today, based on data from the U.S. Federal Energy Regulatory Commission. Buyers are turning to North America, where record production from shale deposits has driven down U.S. prices.<\/p>\n
\u201cThe global gas market is integrating and that has implications for prices,\u201d\u00a0Christof Ruehl,\u00a0BP Plc (BP\/)\u2019s chief economist, said at a conference in Moscow last month.<\/p>\n
GAIL India Ltd. (GAIL), the country\u2019s largest gas supplier, became the first Asian buyer of U.S. natural gas in December when it signed a 20-year deal with\u00a0Cheniere Energy Partners LP (CQP), which is planning the first U.S. export terminal. The contract, targeting 3.5 million tons a year starting in 2017, is linked to the day- to-day U.S. benchmark gas prices, which fell to a 10-year low of $2.21 a million British thermal units in January. It will also include a fixed component.<\/p>\n
Prices of LNG in India are at $13.65 a million Btus this year, according to FERC.<\/p>\n
Gazprom had agreed on preliminary long-term LNG supply deals last year with GAIL,\u00a0Petronet LNG Ltd. (PLNG),\u00a0Gujarat State Petroleum Corp. (GSPC), and\u00a0Indian Oil Corp. (IOCL)\u00a0for a total of as much as 10 million metric tons annually, with contracts to be signed within six months. In contrast to Cheniere, the Russian supplier ties long-term prices to oil, a policy some of its European customers are fighting. China has refused to pay Russia a price on a par with the European level.<\/p>\n
\u201cWe have started price negotiations with Gazprom for the LNG we plan to buy from them,\u201d A.K. Balyan, chief executive officer of Petronet, India\u2019s biggest gas importer, said by telephone from New Delhi. \u201cWe will have to see how it compares with the U.S. and other markets.\u201d<\/p>\n
Ventures in Australia and Qatar, the world\u2019s biggest LNG exporter, sell the liquid fuel to Asian buyers at prices linked to the so-called\u00a0Japan\u00a0Crude Cocktail, a 40-year-old index. Transporting gas from the U.S. would be less expensive than Asian LNG, D.K. Sarraf, managing director ofOil & Natural Gas (ONGC)\u00a0Corp.\u2019s overseas unit, ONGC Videsh Ltd., said March 1, as it nears an agreement to buy its first U.S. shale gas asset.<\/p>\n
India is \u201cnot going to be easier,\u201d\u00a0Valery Nesterov, an analyst at Troika Dialog in Moscow, said in a phone interview. \u201cYou have to beware of the situation developing like with China, where we\u2019re in the back row with insignificant volumes.\u201d<\/p>\n
The signing will happen this year, Gazprom Deputy CEO\u00a0Alexander Medvedev\u00a0said in an interview in\u00a0New York\u00a0on Feb. 16. The Indian deal \u201cis in the final stage of preparation\u201d with contract prices indexed to oil, he said.<\/p>\n
Gazprom\u2019s marketing and trading unit wants to gain market share in\u00a0India\u00a0because demand may grow an average 6.5 percent annually, not far off the 7.7 percent forecast in China, according to the\u00a0International Energy Agency.<\/p>\n
Today, India\u2019s largest supplier is Qatar. The country imports about 25 percent of its gas requirements as its own output from offshore deposits is declining. Gazprom has supplied occasional cargoes to India since 2007.<\/p>\n
While Gazprom aims to boost its share in Europe\u2019s gas market to 32 percent by 2030 from 27 percent last year, the European Union has sought to diversify suppliers. With European demand suppressed because of the economy, Gazprom lowered an export target for this year to 154 billion cubic meters from 164 billion expected in November.<\/p>\n
The Indian campaign is part of Gazprom\u2019s drive to gain 14 percent of world LNG trade by 2030, a market that\u2019s set to grow at double the pace of global gas output.<\/p>\n
Gazprom exports LNG from its share of the Sakhalin-2 plant off\u00a0Russia\u2019s Pacific coast, mostly to Japan and Korea, and buys the fuel from other sources for deliveries to India and other Asian markets. Its total LNG trade rose 25 percent to 3 billion cubic meters in 2011, a presentation to investors last month showed. That\u2019s less than\u00a0Hong Kong\u2019s demand alone in 2010, BP\u2019s Statistical Review of World Energy shows.<\/p>\n
The state-controlled gas producer has yet to make a final decision on adding to its liquefaction capacity since agreeing to buy control of the Sakhalin-2 venture from Royal Dutch Shell Plc at the end of 2006.<\/p>\n
Gazprom is looking at expanding the Sakhalin plant north of Japan, building a plant in Vladivostok on the Pacific coast and developing Arctic projects. Until then, the company is boosting global LNG trade by securing fuel from third parties.<\/p>\n
Gazprom shares\u00a0have risen 16 percent this year to close at 198.78 rubles in Moscow today. They fell 11 percent in 2011 as the European debt crisis curbed prospects for demand growth. Net income probably rose 25 percent last year to almost $40 billion, driven by higher fuel prices, the company said in February. Gazprom hasn\u2019t reported fourth-quarter earnings yet.<\/p>\n
Extraction of gas from shale deposits has allowed the U.S. to overtake Russia as the world\u2019s biggest producer. The surge in output pushed U.S. prices to a 10-year low and increased availability of the fuel for export. The trouble for India and other gas buyers may come as U.S. manufacturers lobby to curb exports and keep prices low.<\/p>\n
\u201cCurrently it\u2019s cheaper to buy LNG from the U.S.,\u201d Petronet\u2019s Balyan said. \u201cBut there\u2019s no LNG there yet and we don\u2019t know how much export the government will allow.\u201d<\/p>\n
Petronet said it\u2019s in discussions with suppliers in the U.S., including Cheniere Energy and Freeport LNG Development LP. GAIL India is also negotiating its second supply contract, seeking supplies from a Freeport LNG project scheduled to start in 2016.<\/p>\n","protected":false},"excerpt":{"rendered":"
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