Gazprom: monetization of Arctic gas threatens the reliability of Russia’s gas supply

Liquefied natural gas (LNG) projects, which are subject to extensive state support measures, compete with Gazprom’s gas in the European market, which creates risks for budget revenues, said Vladimir Markov, head of Gazprom’s department. Speaking about the need to accelerate the development of fields in the Russian Arctic in anticipation of the global energy transition, Mr. Markov said that the intensive monetization of gas reserves in this region through the development of LNG exports poses a threat to the reliability of gas supplies to Russian consumers.

Vladimir Markov, in an address to the Ministry of Energy, spoke out against the point of view that it is necessary to accelerate the development of deposits in the Russian Arctic on the eve of the global energy transition, which will allegedly reduce demand for hydrocarbons after 2050. “Intensive monetization of gas reserves in the region under consideration through the development of LNG exports in the long term also poses a threat to the reliability of gas supplies to Russian consumers, including in terms of ensuring peak balance,” he insists.

The head of the department recalled Gazprom’s position that existing natural gas liquefaction projects, which are subject to extensive state support measures, compete with Gazprom’s gas in the European market, which creates risks for budget revenues. “When developing and applying these incentive measures for new LNG projects in the geographic/climatic zones of Yamal and the Gydan Peninsula, it must be taken into account that in the absence of a state mechanism for controlling and eliminating competition that violates the economic interests of the Russian Federation in the world markets for natural gas transported through pipelines and LNG there is a significant risk that, due to seasonal navigation restrictions and higher costs of supplying LNG via the Northern Sea Route to Asia, the bulk of LNG from new plants in the Russian Arctic will continue to be supplied to European countries importing Gazprom’s pipeline gas,”— a source familiar with the situation quoted the content of the appeal to Interfax.

“From the beginning of LNG exports from the Russian Arctic to the present, more than 50% of LNG produced has been supplied to this group of countries. Thus, the use of such incentive measures will create conditions for further growth of competition in the traditional pipeline gas markets of Gazprom PJSC from LNG with an artificially low cost, which will inevitably lead to a decrease in the revenue part of the Russian budget due to a decrease in tax and customs revenues from supplies of Russian gas. pipeline gas,” said Vladimir Markov.

On January 15, Deputy Prime Minister Alexander Novak announced that Russia could supply more gas to Europe. However, supplies must be made on the basis of long-term contracts, as production growth has a long investment cycle, he said. The Deputy Prime Minister said that Russia has huge resources, but any production is an investment project that takes time for this project to pay off, to attract investments, so there must be a clear marketing policy.

Last week, NOVATEK signed two more firm contracts for the supply of LNG for 1.6 million tons per year to China from the Arctic LNG-2 project under construction. In particular, the company will supply ENN LNG 0.6 million tons of LNG per year for 11 years, Zhejiang Energy Gas Group – 1 million tons of LNG per year for 15 years. Thus, NOVATEK is completing the formation of long-term contracts for Arctic LNG-2, and can sell the remaining volumes on the spot market.

For more details on the contracts, see Kommersant’s publication NOVATEK to increase LNG sales to China.

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