The feeling at the company is that this shortage is increasingly damaging its prospects, and its management has lately made some major efforts to develop its own production and export infrastructure for LNG. Gazprom is making preparations to win a sizeable part of the market in order to dominate it by 2030.

LNG projects are being undertaken in response to changes in the gas market, as shown by a debate at the recent Gas Exporting Countries' Forum in Doha, the capital of Qatar, on April 9-10. Gas producers' growing desire to join forces is foundering on the absence of a gas market as a platform for joint moves, for example, in price coordination.

Actually, there is no global gas market at present; it is divided into regional segments, including North America, Europe, Asia and South America. Most deliveries are through pipelines, and prices are fixed by long-term contracts, rather than in daily trading. Even in the case of LNG exports, liquefication and deliquefication terminals are so costly to build that export flows cannot be rerouted on short notice, again prompting the use of long-term contracts.

On the other hand, gas exporting countries have called for some thorough structural changes in the markets, above all raising the proportion of liquefied gas in the world gas trade to at least 10-15%.

Increasing the share of LNG in the gas trade would in effect establish a world market. And that share is increasing quickly. World LNG sales in 2005 totalled 188.8 billion cubic metres, accounting for 26.2% of world gas sales (the figure was 3% in 1970).

A report released by PwC at the beginning of this year and dealing with prospects for a worldwide natural gas market says that stepped-up LNG operations will bring about far-reaching changes in the next three years. In 2010, as a result, liquefied gas will make up one-third of all supplies. By 2020, the amount of gas exported by pipeline will decrease to 38% of all trade.

The United States and South-East Asia, especially China and South Korea, are expected to consume most of LNG. Already, the latter's share of total gas consumption in the United States is more than 25%. Up to 85% (45 billion cubic metres) of Japan's gas consumption is in the form of LNG imports.

According to forecasts by the International Energy Agency (IEA), LNG imports to Europe in 2030 will rise six-fold, and total gas consumption in Europe will increase by 80%. LNG's share of the gas sold in Europe will grow from the present 8.6% to 27%.

The stakes are high in this game. According to the IEA, the gas industry - both investor-owned energy companies and their partners that control resources - will invest more than $135 billion in LNG terminals and tankers.

These global processes are making Gazprom step up its LNG efforts. With no production of its own yet, Gazprom has begun LNG deliveries through swap deals to the United States, Britain, South Korea, and Japan.

Russia will produce its own LNG early in 2008, as part of the Sakhalin II project. The plant will consist of two production lines with a capacity of 4.8 million tonnes each of LNG a year, two storage tanks of 100,000 cubic metres each and one LNG shipping terminal. A spokesman for Shell (one of the project's participants) said at the weekend that the capacity might be doubled. Considering that Japanese firms have signed contracts for 92% of the future volume, expansion is inevitable. According to experts, the Sakhalin II project will allow Russia to become a leading gas exporter to the Asia-Pacific region and the US.

Russia is thus diversifying its gas routes, pushing into gas markets previously closed to it for geographical reasons: the U.S. Atlantic seaboard and Asia-Pacific countries. Experts believe that Sakhalin II will make Russia a leading exporter of gas to those two markets.

Another LNG plant is planned in western Russia. Gazprom has short-listed four companies as possible partners for the Baltic LNG plant. In July, it plans to choose one or two, the plant's head, Alexander Krasnenkov, said at the weekend.

Gazprom and Sovkomflot, a shipping company, set up the Baltic LNG company in 2005 (the former owns 80%, the latter 20%). It will build a liquefication plant in Primorsk, with an annual output of about 5 million tonnes. Construction will cost $3.7 billion, and the plant is expected to go on stream in 2011-2012.

All these efforts are turning Russia into a global gas power. Moscow is continuing to play tug-of-war to gain a decisive say on the new world gas market that is rapidly taking shape. It is a difficult and costly process, but Russia has every factor - from mineral to geographic - at its disposal to mould the market in line with its own interests.

earlier related report
LUKoil plans to become second-largest gas producer in Russia
Moscow (RIA Novosti) Apr 25 - Russia's largest crude producer LUKoil [RTS: LKOH] plans to become the country's second-largest gas producer, the company vice president said at a 2006 company reporting presentation Tuesday.

"We hope to become producer number two after Gazprom [RTS: GAZP]," Leonid Fedun said.

LUKoil commercial gas production in 2006 was 13.6 billion cubic meters. The share of gas in the aggregate hydrocarbon production volume grew from 5% to 10% in the period, and will in the future be brought to 33%, in line with strategic plans.

By 2016, LUKoil plans to increase gas production five-fold - to 70 billion cubic meters.

LUKoil said earlier Tuesday its net income increased 16.2%, year-on-year, in 2006 to $7.48 billion, whereas earnings before interest, taxes, depreciation and amortization (EBITDA) increased 18.2% to $12.3 billion and sales grew 21.4% to $67.7 billion.

LUKoil CEO Vagit Alekperov said at a presentation in London that his company plans to start industrial production of gas at its projects, whose maximum production level is assessed at 10 billion cubic meters annually, in Uzbekistan in late 2007.

He said a level of 3 billion cubic meters could be reached in 2008.

Alekperov said the gas would be sold at a price negotiated between Gazprom and Uzbekistan, $100 per 1,000 cubic meters.

A consortium of investors said in August 2006 that they signed a production-sharing agreement to prospect and develop oil and natural gas fields in Uzbekistan.

Exploration conducted by Uzbekneftegaz, the Central Asian state's national petroleum corporation, proved the Aral Sea holds vast hydrocarbon reserves, and work has started on two of the eight gas condensate fields discovered there in the last few years.

The consortium, made up of Uzbekneftegaz, Malaysia's Petronas, Russia's LUKoil Overseas Holding Ltd., South Korea's KNOC and China National Petroleum Corporation, was established in September 2005.

Uzbekistan is the former Soviet Union's second natural gas producer, behind Russia, with an annual gas output of 55 billion cubic meters.

Igor Tomberg has PhD in Economics and is a leading research fellow at the Center for Energy Studies of the Institute of World Economy and International Relations, the Russian Academy of Sciences

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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