Gazprom Will Ship Gas to Asia in Bid to Curb Reliance on Europe

By Anna Shiryaevskaya

Aug. 6 (Bloomberg) -- OAO Gazprom, the world’s biggest natural-gas producer, plans to start piping East Siberian gas to Asia, where an increase in demand over the next 20 years may outpace growth in its traditional European markets.

Gazprom will send surplus gas east from the Yakutia fields, Deputy Chief Executive Officer Alexander Ananenkov said last week at a ceremony in the eastern town of Khabarovsk, as work began on a new pipeline to the Pacific Ocean.

A boom in Asian demand may open export opportunities as Gazprom taps new Siberian fields. The Moscow-based company, which in 2008 sent all its exports west, entered the Asian market this year by shipping liquefied gas from its Sakhalin Island development. It’s seeking to add customers in the region after pricing disputes with Ukraine disrupted shipments to Europe twice since 2006.

“Gazprom is targeting Southeast Asia because it is a logical, or natural, market” for gas from Yakutia, Mikhail Korchemkin, executive director at Pennsylvania-based consultants East European Gas Analysis, said in an e-mailed response to questions on Aug. 2. “It is a big growing market.”

Demand for gas in Asia will rise by an average 3.6 percent a year through 2030 as economic growth boosts the use of fuels, according to the International Energy Agency. While consumption has been eroded this year by the global recession, the region’s gross domestic product is set to expand by an average 4 percent annually over the next 20 years, Exxon Mobil Corp. data show.

EU Gas Use

Demand in Europe will advance at an average annual rate of 1 percent through 2030, according to the Paris-based IEA, which advises 28 industrialized countries on energy policy.

While Gazprom may benefit from increased demand in Asia, the company will need to contend with lower prices in the region.

European gas supply contracts are linked to oil with a time lag of six to nine months, meaning the 2010 price will reflect crude’s 60 percent jump this year. By contrast, Asian prices probably won’t be pegged to oil costs, Korchemkin said.

China, Asia Pacific’s fastest-growing gas market, caps prices for the fuel. The country has kept tariffs lower than international market rates to promote the use of gas over coal, according to a June report from the IEA.

Europe will continue to pay the highest prices, making it “the most attractive gas market in the long run,” Korchemkin said.

Gazprom may also face competition from other exporters to Asia, he said. Asian nations already purchase gas from Atlantic, Pacific and Middle Eastern suppliers, mostly in the form of liquefied natural gas, a business that Gazprom only entered this year.

Eastern Development Plan

The Russian government has instructed Gazprom to coordinate its Eastern gas development plan, prioritizing supply to local residents isolated from the grid. Most gas from Sakhalin Island, which is only 100 miles from the northern tip of Japan, will be used domestically, meaning Gazprom will need to tap new Siberian fields for export, Deputy CEO Ananenkov said.

Gas demand in Russia’s Far East may reach 25 billion cubic meters in 2020, outstripping forecast production of 24 billion cubic meters from Gazprom’s Sakhalin-3 offshore project, according to company estimates.

Yakutia may pump more than double that amount. The area, which holds about 2 trillion cubic meters of gas, may produce as much as 53 billion cubic meters a year by 2030, Ananenkov said. That gas will feed a planned 2,700-kilometer (1,680-mile) pipe to Khabarovsk, which will be extended to the Pacific port of Vladivostok.

LNG, Compressed Gas

Gazprom is studying fuel exports from Vladivostok in the form of liquefied natural gas, which is gas that’s chilled to a liquid for transportation by tanker, or as compressed gas, Ananenkov said.

The company aims to send a third of its exports to new markets in the U.S. and Asia by 2030 after opening up fields in eastern Russia, Vitaly Karaganov, head of the Energy Ministry’s oil and gas department, said in June.

Russia has enough gas to supply Asian customers as well as European markets, President Dmitry Medvedev said last September, adding that “without diversifying the development of the country eastward, our economy has no future.”

Gazprom accounted for 10 percent of Russian GDP last year, according to its Web site.

Sakhalin Supply

The company entered the market for liquefied natural gas in March when it started shipments to Asia from Russia’s first LNG plant on Sakhalin Island. Sakhalin Energy, led by Gazprom, has so far sent 27 tankers loaded with LNG, Galina Dubina, a company spokeswoman, said by telephone on Aug. 3. It plans to ship about 55 tankers this year, she said.

An annual 7 billion cubic meters of Sakhalin gas will feed the first phase of Gazprom’s pipeline to the Pacific coast, Ananenkov said. Transit capacity will later be expanded to 47.2 billion cubic meters to include a proposed link from the Yakutia fields, allowing exports to Asia-Pacific markets, he said.

Gazprom exported 158.8 billion cubic meters of gas to Europe last year.

To contact the reporter on this story: Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net