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Role of russia in the global gas market


Author analyzed the condition of the gas industry in Russia, the prospects of application of natural gas in the transport sector of the country, the factors of long-term contractual approach in the current situation on the Russian market of natural gas, analyzes the problems faced by Russia's major gas companies, proposed directions and ways of their resolution.

UDC 332.1.338.49

Andrey Berezin,

Ph.D., Candidate from department «Legal regulation of economic activities»,

Ural Federal University named after the first President of Russia Boris Yeltsin e-mail: aberezin004 AT gmail.com Ekaterinburg, Russia

Key words: Natural gas, mining, transport, prospects

The Arctic Circle region’s rich oil and natural gas reserves split in territories belonging to eight different nations - Canada, Denmark/Greenland, Finland, Iceland, Norway, Russia, Sweden, and the United States. Approximately 61 large oil and natural gas fields have been discovered so far within the Arctic Circle - 43 are in Russia, 11 in Canada, 6 in Alaska and 1 in Norway [1].

Challenges to the exploitation of natural resources in the Arctic Shelf include a harsh climate, limited existing infrastructure, conventional and unconventional gas competition, long project lead times, environmental concerns over spill containment and spill recovery, overlapping sovereignty claims, and country specific regulation. However difficult it may seem, Russia is developing the means necessary to explore these resources now. President Putin reaffirmed his intention to push forward with this project in an address to industry workers in 2014. He said, “Today, oil and gas industry workers face a number of important tasks. Among them are the diversification of export flows, the development of promising new fields, the creation of modern clusters for processing and transportation of raw materials, the large-scale programs of the Arctic shelf development, the introduction of high-tech equipment and high environmental standards [2].

The Arctic Shelf reserves prove that Russia should remain an important global gas player even when factoring in unconventional reserves. To remain competitive, Russia needs to invest in infrastructure. Although it already possesses a vast outlet of natural gas distribution pipelines, Russia still lacks the resources to liquefy and transport gas via alternative routes such as gas tankers. Understanding the Russian LNG industry requires an exposition of the basic directions of geographic diversification of Russian export of LNG and an analysis of potentially promising markets. By developing the domestic LNG industry, Russia is seeking diversification of supply, market expansion, and independence from transit countries. LNG offers commercial exploitation of remote gas fields that can’t be connected to in the pipeline infrastructure because of the high cost. Maintaining Russia’s status as a world leader in the gas trade cannot be achieved without being a player in the global LNG market. In 2005, Russia first appeared on the global LNG market, but in the so-called "virtual" LNG. From 2005-2006, the firm conducted the supply of liquefied gas in the United States, Britain, South Korea, Japan as well as Mexico and India through two schemes: the scheme of exchange (swap) transactions and on the basis of individual transactions for the purchase and resale of spot LNG cargoes.

Gazprom exploits gas fields on the Yamal Peninsula and develops infrastructure for the Far East gas fields, as well as the Shtokman field development project capacity 7.5 MTPA [3]. The Shtokman project involves two phases: production of natural gas supplies by pipeline and the direction of its exports.In February 2009, Russia first appeared on the world market with its own LNG liquefied gas, to start deliveries to Japan via the project "Sakhalin-2". The capacity of the plant is 9.6 MTPA. Japan, South Korea, and customers from other countries contracted almost all the liquefied gas even before the production began.

The global economic crisis changed the balance of power between importers and exporters of liquefied natural gas. If before the determining factor in the development of LNG trade was a steady supply, now the determining factor is the problem of demand. What are the needs of countries importing LNG in the Russian product in the present conditions? To answer the preceding question, it’s necessary to understand the current state of the demand for gas in the US, Asia Pacific and Europe and the opportunities for the development of LNG trade with Russia.

Low prices and the strong growth of domestic gas production characterize the US LNG market, which indicates the lack of capacity of the planned primary market. The LNG market in Europe displays great potential for growth, as evidenced by the expansion of reception facilities and the construction of new terminals, longterm contracts for the supply of LNG and the desire of European countries to maximize the number of suppliers of "blue fuel" in order to increase security of supply.

Russia, even with access to the global LNG market, cannot be regarded in Europe as a major supplier of liquefied gas, because Russia supplies gas through pipelines. While Gazprom does not consider Spain and Portugal as buyers of Russian pipeline gas, these countries can be potential buyers of LNG. In addition, the supply of LNG can be carried out during the period of peak loads using regasification terminals of European countries on the basis of spot contracts, rather than the long-term contracts.

Asia and the Pacific, at least in the short-term, are the most attractive for Russian LNG exports. The Asia-Pacific region boasts a conveniently located resource base, as well as growing demand for gas in Asia-Pacific countries. The region’s emergence of new LNG importers (China and India) opens up additional opportunities for Russia. Despite an unstable demand for gas, competition between suppliers of LNG is intensifying. Asia-Pacific countries focus on many new LNG plants, which may lead to oversupply on the market. To avoid oversupply problems, as in the case of the "Sakhalin-2", the implementation of Russian LNG projects should be carried out on the basis of long-term export contracts on terms comparable to the lifecycle of the field. JSC "Gazprom" in the near future should strive to achieve real agreements. To reduce the risk of separation, imbalance of demand and supply, and return on the investments, The Russian monopoly needs to enter into strategic partnerships with foreign corporations on the principle of "assets for assets" and also to diversify markets with a focus on China and India.

Liquefied natural gas is playing an increasingly prominent role in the global energy trade.

The LNG market has a number of distinctive features and is characterized by the following main elements:

LNG is used for the same purposes as the CNG but integrates environmental and technological advantages. This fact opens up new perspectives for its storage and transport. The process of liquefaction reduces the volume of gas 600 times, while the translation of the LNG to a gaseous state makes LNG an effective form of transportation. LNG supplies gas in areas where it is technically impossible or not economically feasible to use CNG pipelines. The maneuverability of the LNG supply solves the problem of delivering gas to the potentially beneficial but distant markets.

LNG supplies in many countries function as an integral part of energy security. Both consumers and producers of energy carrier seeking to use LNG to diversify the direction and volume of deliveries.

An important advantage of the export and import of liquefied natural gas is independence from transit countries. As a rule, the heavy and lengthy negotiations take place to determine the transit rates, their approval and payment of different rates for the use of transit systems, and importers from possible disruption of gas supplies and the threat of unauthorized selection.

Growth Competitiveness in the LNG industry is constrained by a number of factors limiting the formation of large flows of liquefied natural gas. These include the magnitude of the LNG project, involving a significant investment on the part of manufacturers and associated high financial risk, high fire and explosion hazards of LNG plants and storage facilities, a variety of standards for energy consumption of imported gas, and terminal characteristics.

To understand the possibility of further active development of the LNG market, it is necessary to comprehend the following facts:

  • An upward trend in the growth rate of demand for gas. The economic slowdown, coupled with mitigation of climate and energy-saving technologies, could cause a decline in demand for natural gas. However, since natural gas is the main fuel for power plants in most industrialized countries, stability of consumption is almost guaranteed;
  • The presence of large gas reserves in places far from the pipeline network;
  • Uneven distribution of stocks of LNG and the remoteness of the regions with a high level of consumption of the main sources of production;
  • Cost reduction at all levels of the production chain;
  • Increased flexibility in trade agreements: the elimination of restrictions delivery points, reducing the minimum threshold of contracts on a "take-or-pay";
  • Increased price competitiveness of LNG: thanks to technological progress, the price in key markets is close to the prices of piped gas;
  • Growth in world capacity for production of LNG;
  • An increase in the tanker fleet, guaranteeing high security using advanced technology and has extensive infrastructure.

The development of liquefied natural gas will enable Russia to reduce its dependence on gas transit countries, to diversify the supply of Russian gas to engage in the commercial exploitation of remote gas reserves, previously unavailable to consumers due to economic reasons, if we were talking about the pipeline transportation, and strengthen export positions of Russia in the global gas market.

Further development of LNG production in the country may be accompanied by the following external problems:

  • the weakening of profitability of projects reduces their attractiveness for investors due to lower energy prices;
  • construction of many projects involving liquefied gas at more than one market is able to take in the near future. Entering an industry risks over-capacity and price-decline, as well as the possibility of no return on investment;
  • difficulty in starting a new project in connection with the tightening of bank credit policy, including in the area of project financing;
  • strong competition from other producing countries, particularly Qatar - the leader in the export of LNG;

A major internal problem of the sector of LNG in Russia includes a shortage of personnel and technology. Attracting foreign partners in Russian projects and cooperation with foreign companies for the preparation of highly qualified specialists solves the problem: foreign partnership offers a potential for exchange of knowledge and technology, including in the field of specialized tanker fleet.

Russia can boast certain competitive advantages, indicating that the domestic LNG industry could take its rightful place in global LNG exports. The first advantage is Russia’s large gas reserves. Second is the optimum transport component. Russia has access to all key customers, and the distance to markets (primarily to Japan) is shorter than from the Persian Gulf and other regions. Thirdly, the main gas reserves are concentrated in the regions of Russia with low temperature, which reduces the energy consumption for its liquefaction. Fourth, the supply of Russian LNG hardly associated with political and terrorist risks that guarantees the safety and reliability of gas supply. In addition, Russian gas has good chemical composition.

Production of LNG provides Russia with new opportunities reflecting the strategy of "Gazprom" to become a globally competitive energy company and its plans for international diversification. Gazprom does not need to abandon the network and implementation of new gas pipeline projects, by contrast, the combined use of the pipeline systems and LNG technologies will reduce the risks of export deliveries of Russian natural gas.

Transport is the fastest growing sector, albeit from a very small base, with its share of total natural gas consumption rising to 3% by 2035 [4]. Currently, in terms of the cost of transportation Russian Federation is significantly lagging behind developed countries. In Russia, the share of transport costs is about 20% of the gross domestic product, while in Brazil and India, it is 14% in the United States - 9% in Japan and Germany - 8%, the world average - 11.4%. The primary reason of the high cost of transportation is a significant share of depreciated vehicle fleet and inadequate development of transport infrastructure. Transportation is a major source of harmful emissions into the environment, accounting for about 40% of total emissions of pollutants and more than 10% of greenhouse gas emissions.

In the Transport Strategy of the Russian Federation for the period up to 2030, the improvement of transport system of Russia is a key factor of socio-economic development aimed at improving the quality of transport services, reduced total costs of society, dependent on transport, improving the competitiveness of the national transport system, strengthening the innovation, social and environmental orientation of development of the transport industry. The introduction of Natural Gas Vehicle (NGV) technology contributes to the improvement of the national transport system in all these areas.

Development and introduction of new types of NGV technology and infrastructure for the production of motor fuel, as well as the necessary service infrastructure is of great socio-economic importance to the development of the territories, especially in major metropolitan areas, as well as creating conditions for the sustainability of the transport system and the provision of high-quality and competitive transport services.

In remote areas and areas with limited accessibility, implementation of NGV technology will provide the necessary organization to ensure the transport of life and reduce the cost of development and operation of the infrastructure of traditional fuels.

The introduction of NGV technology is one of the major steps in the implementation of environmental policy in the transport sector, according to which environmental parameters will not stop, and the driver of the development of transport.

The use of natural gas as motor fuel allows to:

  1. reduce by 1.4-1.6 times the cost of transportation due to the lower prices of gas fuel;
  2. lower emissions of toxic substances into the environment (carbon oxide - 2.5 times, nitrogen oxide - 2 times, hydrocarbons - 3 times, smoke - 9 times);
  3. increase engine life and the life of the vehicles and special-purpose machinery by 1.3-1.5 times.

Currently, the use of alternative motor fuels in Russia remains low, so the effect on the scale of the country's economy is insignificant. In this regard, the Transport Strategy of the Russian Federation for the period up to 2030, set targets for increasing the share of all types of transport, including gas motor fuel.

The phased transfer of all types of transport and special-purpose machinery for the use of motor fuel will a)allow more efficient use of fuel and energy resources of the Russian Federation, b) to attract new sources of raw materials for the production of high-quality fuels, c) reduce transportation costs, d) improve energy efficiency of the transport system of the country, e)reduce the negative impact of transport on the environment.

In December 2012, with the participation of "Gazprom" established a subsidiary - Gazprom NGV" that will be a single operator of the market of gas motor fuel in the Russian Federation. "Gazprom NGV" forms an investment program based on the volume of purchases of gas engine technology in regions of the Russian Federation. For the investment program, "Gazprom NGV" established 9 branches in Moscow, St. Petersburg, Kazan, Yekaterinburg, Tomsk, Samara, Stavropol, Krasnodar and Kaliningrad.

The company works with administrations of Russian regions and municipalities in areas, including:

  • the selection of sites for new construction and reconstruction of the network of CNG stations gas station to accommodate the CNG units;
  • to reserve areas for future construction of a network of CNG stations.
  • In order to develop the market of motor fuel (HMT) the company is working with the manufacturers of gas engine technology to increase the range of products and establish the release of vehicles running on natural gas.

The Company has agreements on cooperation in the use of natural gas as a motor fuel with Russian companies: JSC "AVTOVAZ", UK “GAZ Group”, JSC “Kirov Plant”, OJSC “KAMAZ”, LLC “VOLGABAS”, LLC “Plant of the testing machine” LLC “MCC” Concern “Tractor plants”, JSC “Sinara- Transport Machines”, JSC “MAZ” and foreign : OOO “MAN Truck Bus RUS” Caterpillar Inc., Ltd. “Iveco Russiya”, Komatsu Ltd, JSC “BELAZ”, ZAO “Volvo Vostok”, LLC “IVECO-AMT”, LLC “Liebherr-Russland” and “Scania-Rus” vehicle manufacturers, as well as JSC “Russian Railways” and JSC “STORK”- distributor of Chinese companies Zhengzhou Yutong Bus, LLC “King Long - Rus”, the dealer King Long bus plant in Russia [5].

Thus, LNG would allow Russia to bypass transit countries. Modern trends in the global gas market dictate the need for the development of the domestic industry of liquefied natural gas. However, as long as markets are not ready to receive large volumes of gas, it is inadvisable to begin full-scale construction of the LNG plant. Export policy of “Gazprom” in the future, as well as in the project “Sakhalin-2” should be based on long-term export contracts for strategic partnership with foreign companies, including, for solving the problem of shortage of personnel and technology, and market diversification LNG sales with a focus on Asia-Pacific countries and India. Development of domestic will stimulate economy with influx of new technologies in transport sector of Russia’s economy, thereby increasing competitiveness of the economy.


U.S. Department of Energy, Energy Information Administration, “Arctic Oil and Natural Gas Potential,” October 2009

RT Question More - “Putin: Arctic shelf development ‘major task’ for oil and gas sector”, September 2014 - http://www.rt.com/business/185756- putin-arctic-oil-gas/.

Gazprom. Reference materials. The prospects of participation of "Gazprom" in the global LNG market. Shtokman project. http://www.gazprom.com/about/production/projects/deposits/shp/

BP Energy Outlook 2035 (February 2015) - p.50


Березин Андрей Эдуардович,

аспирант кафедры

«Правовое регулирование экономической деятельности»,

ФГАОУ ВПО «УрФУ имени первого Президента России Б.Н.Ельцина» e-mail: aberezin004 AT gmail.com г.Екатеринбург, Россия



Автором статьи произведена оценка состояния газовой отрасли России, проанализированы перспективы применения природного газа в транспортной отрасли нашей страны, определены факторы долгосрочного договорного подхода в современных реалиях на российском рынка природного газа, проанализированы проблемы, с которыми сталкиваются российские крупные газодобывающие компании, предложены направления и пути их решения.

Ключевые слова:

Природный газ, добыча, транспорт, перспективы.