Russian oil and gas giant Gazprom (GZPFY.PK) is taking advantage of the high demand from Asian markets.
On Monday, the company announced its plans to invest a total of 1.2 trillion roubles ($38 billion) to develop a natural gas field and build a pipeline to ship the resource to Asian nations like China and Japan.
The move is the result of an order by President Vladimir Putin, who insisted that the state-owned company take advantage of the fast-growing demand from Asian customers.
European demand has been sluggish, and as Gazprom depends for the most part on exports to Europe, the company has been hurting. Shipping to Asia would provide a much-needed boost.
The investment will include 430 billion roubles ($13.7 billion) to develop the Chayanda deposit in Eastern Siberia, which is said to hold an estimated 1.2 trillion cubic meters (42.3 trillion cubic feet) of natural gas.
The company also plans to invest 770 billion roubles ($24.5 billion) in the pipeline, which would be 2,000 miles long and transport gas from the Chayanda deposit to the port of Vladivostok on the Pacific coast.
Gazprom is working with unnamed Japanese companies to build a liquefied natural gas plant at Vladivostok, where the gas can be processed for exports.
The plant, which will be able to produce 10 million to 20 million tons, will likely be online by 2020, and the pipeline will be complete by 2017.
"In the nearest future, we are able to create gas exporting capacity comparable to that of European gas exports,” (Gazprom CEO Alexei) Miller said.
But Russia’s second-biggest gas company, Novatek, is challenging Gazprom’s control over the markets.
As a state-owned firm, Gazprom is exclusive in its right to export Russian gas. Novatek, though a large firm, can only sell gas within the country.
But the company is demanding changes to the 2006 law that restricts its market.
Novatek is currently planning a LNG plant with Total (TOT), which the companies will build on Yamal, Russia’s Arctic peninsula. They plan to have the plant online by 2016, with a starting capacity of 5 million tonnes that will double in two years.
Right now, Novatek and Gazprom have an agreement by which Gazprom will export the resources from the plant. But company officials are concerned that Gazprom has not yet made moves to secure contracts.
From the Chicago Tribune:
“We have to understand that is we want to launch a project like this, we need to amend the legislative framework. That’s it,” (Gennady) Timchenko, who controls 23.49 percent in Novatek, said.
But Gazprom has stated that its intentions are to stick to the original export agreement. And as the biggest gas producer in the nation has the support of President Putin, it would take a lot for Novatek to secure the same rights.