New markets

New markets in the Asia-Pacific Region

Gazprom Group is actively operating on the LNG markets of the Asia-Pacific Region (APR), supplying gas to both traditional consumption markets (Japan, South Korea, Taiwan), as well as to the dynamically-developing markets of India, China and Southeast Asia.

For Gazprom Group, a key source of LNG to the APR is provided by LNG supplies from the Sakhalin-2 project. The nominal production capacity of the project, including two production lines, amounts to 9.6 mln t a year; that said, actual LNG production at the project consistently exceeds its nominal productivity rate. Thus, in 2016, the Sakhalin-2 project production volume exceeded 10.93 mln t of LNG.

In 2016, the share of Sakhalin LNG in the Asia-Pacific Region amounted to approximately 6%, and on the world market — to roughly 4.5%.

In 2015, Gazprom PJSC and Shell signed a Memorandum on the implementation of a project envisioning the construction of the third technological line of the Sakhalin-2 plant with a productivity rate of up to 5.4 mln t of LNG a year. In 2016, Sakhalin Energy began developing design documentation for the implementation of the construction project for the third technological line. Project launch into operation is slated for 2021.

Gas supply to China

Gazprom diversifies its exports by entering the Chinese market. The commitment to gas supplies to China will not affect contractual obligations to other countries purchasing Russian gas. Gazprom possesses sufficient gas resources and production capabilities to meet all of these obligations.

According to the conservative forecasts by domestic and foreign experts, in 2020 China’s gas demand may reach 300 — 400 billion cubic meters.

On May 21, 2014, Gazprom and Chinese CNPC signed a contract to supply China with 38 bcm of Russian gas per annum for 30 years. The President of Russia Vladimir Putin and the President of China Xi Jinping were present at the signing ceremony.

On October 13, 2014, a Technical Agreement was signed as a supplement to the Purchase and Sale Agreement on natural gas supplies via the Eastern route. The Technical Agreement defines basic parameters of design, construction and operation of the Power of Siberia gas pipeline’s cross-border section. In addition, the document contains the main technical and technological conditions of gas transfer from seller to buyer.

The resource base for gas deliveries to China are Irkutsk (Kovyktinskoe gas condensate field) and Yakutsk (Chayandinskoe oil and gas field) gas production centers. Gas deliveries will be carried out via the Power of Siberia gas pipeline that will stretch for 4000 km.

It is planned to launch gas production sourced from the Chayandinskoye field in late 2018. By this time, the top-priority section of the Power of Siberia GTS from the Chayandinskoye field to Blagoveshchensk and primary gas processing capacities will be put onstream. This will make possible to initiate direct gas supplies to China in 2019 according to the obligations set out by the signed contract.

Signing of the Framework Agreement between Gazprom and CNPC on gas delivery from Russia to China using the Western route, which took place in Beijing on November 9, 2014, became another milestone in enhancing Russian-Chinese gas cooperation. To implement the agreement, a new Power of Siberia-2 pipeline system is due to be constructed within the existing transmission corridor from Western Siberia to Novosibirsk with a follow-up extension to the Russian-Chinese border. The 2,600-kilometer gas pipeline will be equipped with modern and high-power compressor stations ensuring high efficiency and reliability of export supplies.

All expenses for pre-investment studies of the Power of Siberia-2 pipeline project are covered under the approved draft budget of the Gazprom Group Investment Program for 2015.

Both Russian and Chinese parties actively work on the promotion of the project. In the beginning of May, 2015, Gazprom and CNPC outlined the main technical and commercial parameters of the future supplies. They are defined by the Heads of Agreement for pipeline gas supply from Russia to China via the Western route, signed by the Gazprom Management Committee Chairman Alexey Miller and the CNPC Vice President Wang Dongjin. In 2015, Gazprom and CNPC also signed a Memorandum of Understanding on a project envisioning pipeline supplies to China of natural gas originating in the Russian Far East. In September 2016, Gazprom and CNPC signed an EPC contract for the construction of submerged crossing for the cross-border section of the Power of Siberia pipeline under the Amur River. Currently, work is underway on reconciling the terms of the special technical addenda to the previously-signed Technical Contract.

New markets in the Atlantic Basin

Latin America is another region of interest for Gazprom Group’s business; not only for its extensive gas and oil reserves, but also due to rapid gas market growth in countries like Brazil, Argentina, and Mexico. Therefore, some countries in this region are not only potential sources of LNG, but potential sales markets as well. Gazprom Marketing & Trading Mexico gives Gazprom Group a presence in the Mexican market, leasing capacity at the Costa Azul regasification terminal to receive LNG from the Sakhalin-2 project.

In 2013, Gazprom Marketing & Trading won an international tender to supply 15 LNG shipments totalling 1 million tons from Gazprom Group’s portfolio to Argentina in 2014-2015.

Also among the Atlantic Basin’s promising markets for Gazprom Group’s LNG are the Middle East and North Africa: countries such as Kuwait, the UAE, and Egypt, where domestic demand continues to grow but domestic production is declining (along with exports in the case of Egypt and the UAE). Gazprom Marketing & Trading has already exported some LNG to Kuwait and the UAE, and negotiations for deliveries to Egypt are in progress.

With the aim of expanding its presence in Atlantic Basin markets, Gazprom is also developing the Baltic LNG project. A decision to move the project to the investment stage was taken in early 2015. The plant will be built in the port of Ust-Luga, 160 kilometers from St. Petersburg, with an annual output capacity of 10 million tons.

In June 2016, Gazprom and Shell signed a Memorandum of Understanding at SPIEF on the Baltic LNG project, pursuant to which the parties are to study the prospects for cooperation within the scope of project implementation.

Gazprom is also expanding its LNG portfolio through purchases from third-party projects. In January 2015, Gazprom Marketing & Trading Singapore and Yamal Trade concluded a long-term sale-purchase agreement for 2.9 mln of LNG a year from the Yamal LNG project for a period of 20 years with delivery to the point of transshipment to Europe. Moreover, in November 2015, an LNG sale-purchase agreement was concluded between GM&T Singapore, Perenco Cameroon and SNH (La Société Nationale des Hydrocarbures du Cameroun) on Gazprom Group’s exclusive offtake of the entire LNG volume from the Cameroon LNG floating plant project beginning in 2017 (up to 1.2 mln t of LNG/year for 8 years).