Rus­sia se­cures top spot in Europe LNG sup­ply

Gulf Times Business - - BUSINESS -

Hav­ing dom­i­nated pipe­line nat­u­ral gas sup­plies to Europe for decades, it’s taken Rus­sia less than a year to be­come one of the re­gion’s biggest sources of tanker-borne fuel.

That’s thanks to Ya­mal LNG, which last De­cem­ber started chill­ing gas into liq­uid in harsh Arc­tic con­di­tions – a rare case of a pro­duc­tion plant start­ing ahead of sched­ule. While mar­ket forces ex­plain why so much of Ya­mal’s sup­ply is end­ing up in Europe, in­stead of its main in­tended mar­kets in Asia, the de­vel­op­ment may strengthen calls that Rus­sia is too dom­i­nant in Euro­pean en­ergy.

“It makes sense to go to Europe, the mar­ket is there for us,” Mark Gyet­vay, chief fi­nan­cial of­fi­cer of No­vatek PJSC, the ma­jor­ity share­holder of Ya­mal LNG, said last week in an in­ter­view at the CWC World LNG Sum­mit in Lis­bon.

The $27bn Ya­mal LNG project is liq­ue­fy­ing gas at all three of its planned pro­duc­tion units, which were brought on­line within less than a year. The whole project was built seven months quicker than orig­i­nally planned, with the third plant set­ting a world record for LNG train con­struc­tion, ac­cord­ing to part­ner China Na­tional Petroleum Corp

While the buy­ers of that fuel can ship it any­where in the world, the plant’s out­put is in­creas­ingly stay­ing in the re­gion, driven by mar­ket sig­nals. In Novem­ber, Rus­sia was the biggest sin­gle sup­plier of LNG to north­west Europe.

LNG from the plant trav­els where prices are high­est and it’s the buy­ers of the fuel who de­cide where the tankers un­load. Last win­ter and to some ex­tent in the sum­mer, Ya­mal car­goes were mainly trans­ferred in Europe from spe­cialised ice-break­ing tankers onto cheaper-to-op­er­ate con­ven­tional ves­sels for fur­ther jour­neys to Asia, South Amer­ica and even the US Those moves have slowed as Asian bench­marks slid since Oc­to­ber.

The Euro­pean Union gets about a third of its gas from Rus­sia and has looked at LNG, in­clud­ing from the US, as a way to di­ver­sify its sup­plies. That comes as Moscow-based Gazprom PJSC de­liv­ers record vol­umes by pipe­lines and starts build­ing the Nord Stream 2 link, which will dou­ble di­rect sup­plies to Ger­many.

“Rus­sian gas is flood­ing Europe, both via pipe­line ex­ports and new sup­ply from No­vatek’s Ya­mal LNG project,” Les­lie Palti-Guz­man, pres­i­dent of New York­based gas ad­vi­sory Gas Vista LLC, said by e-mail. “With LNG de­mand slug­gish in Asia, nar­row­ing EU-Asia price spreads, and record-high tanker rates, Ya­mal LNG car­goes that would be re-ex­ported to Asia un­der nor­mal con­di­tions will stay in Europe this win­ter.”

Europe, in­clud­ing Tur­key, im­ported a record amount of LNG in Novem­ber, ac­cord­ing to Kpler SAS, which tracks com­mod­ity ship­ments.

“The per­cep­tion of LNG de­pen­dency is lower, given that it can be sourced from the global mar­ket and doesn’t link the buyer to a par­tic­u­lar sup­ply route, like the Nord Stream 2 pipe­line project would do,” Du­mitru Dediu, an as­so­ciate part­ner at McKin­sey En­ergy In­sights, said by tele­phone.

No­vatek doesn’t rule out that more LNG will stay in Europe this win­ter due to the high cost of trans­port­ing car­goes via the Suez Canal while sea ice closes the North­ern Sea Route for the sea­son, Gyet­vay said. The com­pany may con­sider swap­ping ar­range­ments for Asian de­liv­ery, he said.

“Eight years ago many peo­ple were say­ing ‘I don’t un­der­stand where Ya­mal is and I don’t un­der­stand how you are go­ing to be able to ship from that lo­ca­tion to mar­ket suc­cess­fully,’” Gyet­vay said. “Ya­mal is a tremen­dous suc­cess not only for No­vatek, but for Rus­sia, and now pro­vides the coun­try with a brand-new plat­form for LNG, the fastest-grow­ing seg­ment of the gas mar­ket.”

A gas flare, also known as a flare stack, burns at the Ya­mal LNG plant, op­er­ated by No­vatek, in Sa­betta, Rus­sia (file). The $27bn Ya­mal LNG project is liq­ue­fy­ing gas at all three of its planned pro­duc­tion units, which were brought on­line within less than a year.

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