Russia’s gas monopoly Gazprom devised an expansive plan for becoming a major international player in the liquefied natural gas sector.

Gazprom set out on implementing a strategy that will allow the gas concern to take as much as 14 percent of the world’s LNG market by the year 2030. As a means of achieving its grand design, Gazprom is hoping to bring online new project capacity of the Shtokman field that will supply 50 billion cubic meters of gas per year. The LNG plan that Gazprom devised calls for 85 billion cubic meters of additional gas capacity.      

In addressing the delegates at the Annual General Meeting at the end of June 2011, Alexey Miller, the Chief Executive Officer of Gazprom, indicated that expanding the LNG capacity will only fortify Gazprom’s leading role on the global hydrocarbons market. Mr. Miller also noted that Gazprom’s exports for the quarter were already up by more than 25 percent on a year-on-year basis.  

At the Annual General Meeting, the stockholders voted to approve the payment of dividends in the amount of RUR 3.85 per share. Total dividend commitments of the gas conglomerate therefore stand at RUR 91 billion.

LNG project

Gazprom intends to take 14 percent of the global LNG market by the year 2030, according to Ms. Vlada Rusakova, a member of Gazprom’s board and the head of the gas conglomerate’s Strategic Development Department. That market share has been estimated at 85 billion cubic meters per year, or 76.5 million metric tons.  

In 2010, the sales volume of Gazprom Global LNG was 3.47 billion cubic meters, or 1.82 million tons of LNG. Of those figures, 2.18 billion cubic meters of LNG, or 1.6 million tons, will be acquired by Gazprom under a supply contract from Sakhalin Energy. Sakhalin Energy, in turn, produces liquefied natural gas at Sakhalin-2.

Still, Ms. Rusakova indicated that Gazprom is developing a new technical bridgehead and an economic platform to build extra LNG capacity at Sakhalin and elsewhere. The largest commercial undertaking in realizing Gazprom’s LNG ambitions will be the development of the Shtokman field that could supply as much as 50 billion cubic meters of gas per year.

Analysts estimate that at the first stage of Shtokman’s development, gas production would reach the level of 23.7 billion cubic meters. Furthermore, production can reach as much as 90 billion cubic meters per year. Altogether, the reserves held at Shtokman stand at 3.9 trillion cubic meters of gas.     

Increasing exports

According to Alexey Miller, Gazprom’s exportation of gas in all directions continues to be on the rise. In the two quarters of 2011, the exports of gas from Russia went up by 26.6 billion cubic meters, reflecting an increase of 26 percent. Mr. Miller noted that it is no longer appropriate to differentiate between the near-abroad C.I.S. market and the non-C.I.S. market. Today, it would be fair to say that Gazprom is working to supply a single market that is governed by the same rules and principles. Gazprom bridged the gaps between the two markets by fostering cooperation with other gas buyers in the countries of the former Soviet Union and gradually moving near-abroad supply agreements to European-price contracts.    

In 2010, Gazprom’s gas supplies to the near-abroad countries went up by 3.7 percent, reaching 70.2 billion cubic meters. Gas deliveries on European routes experienced a small decline of 1.4 percent to 138.6 billion cubic meters. The overall sales of gas by Gazprom to states outside the C.I.S. stood at 148.1 billion cubic meters.

The final decision on the financing and the time frame for the Shtokman venture is expected to be made by the end of 2011. If the project moves forward as is currently anticipated, the deliveries of gas through a pipeline system will commence in the year 2016. LNG supplies may start as soon as 2017.  

Gazprom is the majority owner of Shtokman Development AG. Two foreign companies, Total of France and Statoil of Norway also have significant stakes in the venture (25 percent for Total and 24 percent for Statoil). The license for the development of the Shtokman field belongs to Gazprom Offshore Production.  

Supplies from Kazakhstan

The biggest Russian gas company expects to increase twofold gas deliveries on the line stretching from Kazakhstan to Orenburg. According to Segei Ivanov, the Director General of Gazprom Dobycha Orenburg, the volume of gas supplies flowing from Kazakhstan to Orenburg now stands at 8 billion cubic meters and is bound to increase to 16 billion cubic meters.

New horizons

Gazprom’s general corporate development model to the year 2030 envisions that new gas horizons will be discovered and new products will be produced. Gazprom’s stated reserves now include over 2 billion metric tons of HMW (high molecular weight crude). These resources can very well be used for the gas chemical sector. Company scientists are now at work devising the technology that would allow developing those reserves.    

Additionally, Gazprom now has a considerable volume of helium reserves, and the company is working together with Geliimash to engineer containers for transporting helium in liquid form. 

Declining fields

According to Oleg Andreyev, head of Gazprom Yamburg, if the natural resource extraction tax in effect in Russia goes up, continuing production at older fields will not be any longer sustainable. If the tax on the extraction of natural resources is increased three times by the year 2014, as the government announced, working at declining fields, such as Medvezhye and Urengoi, will not be a profit-generating activity. 

It is furthermore Gazprom’s firm position that the natural resources extraction tax should be reduced for the regions of East Siberia and the Arctic. The regions do not have adequate infrastructure and present a challenging situation from the viewpoint of geology. At this time, the Ministry of Finance is promulgating regulatory measures to set the natural resources tax for Gazprom at RUR 480 for 1 000 cubic meters effective 2012. The proposal then calls for increasing the rate to RUR 600 in 2013 and RUR 635 in 2014. While the government is yet to endorse the increased figures, it is clear that the plan is to raise the tax solely for Gazprom. The tax will not change for any other company, and the rates as set out in the Russian Tax Code (RUR 251 per 1 000 cubic meters for 2012 and RUR 265 per 1 000 cubic meters for 2013) will continue in effect. 

Nord Stream

Gazprom procured USD 950 million in funds to construct the compressor station at Portovaya, which will be used to pump the gas into the underwater segment of the Nord Stream gas pipeline delivering gas from Russia to Germany.

Guarantees for USD 366.5 million were issued to Gazprom by the Export Credits Guarantee Department of the United Kingdom so that the Russian gas company could purchase pumping units manufactured by Rolls-Royce Power Engineering.

SACE, an export financing agency in Italy, issued a guarantee with the face value of EUR 408 million to Gazprom to purchase equipment from Siirtec Nigi S.p.A. for treating gas before it enters the pipeline. 

The station at Portovaya, the final compressor station on the pipeline’s overland segment stretching from Gryazovets to Vyborg, will be the most powerful compressor station anywhere in the world. The station is planned to utilize six gas pumping units, having the capacity of 52 megawatts, in addition to two other units with a 27 megawatt capacity.

Dividends

At the June annual meeting, the shareholders of Gazprom voted to approve a dividend of RUR 3.85 per share of the company’s stock for 2012. In total, the gas monopoly will be obligated to pay out RUR 91 billion. According to company sources, the Russian government and its other agencies will get RUR 45.6 of the total funds. The company’s profit of RUR 273 billion that remains after the dividends will have been paid for the previous year will be invested in company projects. In 2009, the gas giant paid dividends in the sum of RUR 2.39 per share.

The largest number of votes of the Gazprom shareholders in electing the company’s board of directors was cast for Mr. Valeriy Musin of the Faculty of Law of St. Petersburg State University. Mr. Musin received 23 billion cumulative votes.