Natural gas liquefaction and transportation in a liquid form as LNG (liquefied natural gas) is referred to as the natural gas transportation of the 21st century. What is its main advantage over the traditional pipeline gas transmission?
As for physical characteristics, LNG is regular natural gas liquefied by rapid cooling to a temperature of 161 degrees below zero Celsius. LNG takes up 1/600th the volume of natural gas in the gaseous state, while its specific weight is approximately half of that of water. Liquefied natural gas transportation by specially designed LNG carriers is more cost efficient as compared with pipeline gas transmission over long distances.
These characteristics of liquefied natural gas suggest that the LNG technology development could have a serious impact on the world’s current energy balance.
The main advantage of LNG is the possibility to diversify supply routes, since the properties of liquefied natural gas allow for its transportation by sea over many thousands of miles, conduct transoceanic deliveries and flexibly sell it on the markets offering the most attractive prices. Thus, development of the natural gas liquefaction and transportation technology has changed the traditional image of the energy supply system where the buyer and seller are linked via a pipeline, giving way to a new global gas market.
Back in 2005 Gazprom untapped the sales market that was new for the Company by making a spot deal for LNG supply: Gazprom Marketing & Trading sent the first LNG carrier to the US market. Later on, the Company supplied LNG to Great Britain, South Korea, Japan, Mexico and India.
In 2009, Gazprom and its partners in the Sakhalin II project completed the construction of Russia’s first gas liquefaction plant in the town of Prigorodnoye, the Sakhalin Island. This project has allowed starting up regular supplies of Russian LNG to the Asia-Pacific markets. Even before the completion of the plant, its output was contracted out based on long-term contracts (with an effective period of 20 years or more) providing for the LNG supply to Japan, South Korea and North America. In addition, as part of the project a deal was made with Shell for the long-term purchase of approximately 0.9 million tons of LNG per year by Gazprom, together with the appropriate LNG receiving capacities at the Energia Costa Azul terminal located on the West Coast of North America.
By joining the Sakhalin II project Gazprom entered the LNG production industry and gained access to corresponding technologies. Meanwhile, inclusion of a long-term LNG supply contract into its portfolio enables the Gazprom Group to enter a separate sector of independent marketing of long-term LNG amounts. Thus, Gazprom is currently represented in all segments of the LNG value chain from upstream to downstream.
At present, Europe remains the most important export market for Gazprom. More than 65 per cent of exported gas is supplied to the countries of this region. At the same time, the Europeans have been actively discussing the issues of energy sources diversification recently, while the energy efficiency measures developed by the European Union are aimed to reduce energy consumption by 20 per cent by 2020. Despite this, the European market will remain the major market for Gazprom in the long run. However, in order to strengthen its position as a global energy supplier, Gazprom has been focusing on the projects that open up new markets for it, primarily, Asia Pacific and North America. And the LNG supplies will play a major role in strengthening Gazprom’s positions on these markets. In addition, the LNG technology helps prove gas supplies against actions by transit countries.
The LNG production technology provides an opportunity to respond flexibly to market changes. The LNG supply routes can be altered quickly enough, which is unattainable in case of pipeline gas supplies.
In order to maintain its leadership on the global gas market, Gazprom is implementing a Strategy for LNG Production and Delivery. Currently, the Group is looking into several options for building gas liquefaction plants.
Gazprom is preparing for making the Final Investment Decision in relation to the LNG production project based on the Shtokman gas and condensate field, which is the main LNG project designed to develop Gazprom’s market positions in the Atlantic region. LNG shipments from the first phase of the project will amount to 7.5 million tons (more than 10 billion cubic meters) per year.
The Company is analyzing potential execution of LNG projects in the Russian Far East, with due account taken of the existing infrastructure of the Sakhalin II project, as well as a conceptual design development for an LNG project based on the Yamal Peninsula fields. The analysis results will help decide on further implementation by the Gazprom Group of the LNG projects targeted at both the Atlantic and the Asia-Pacific regions.
As part of this strategy, Gazprom aims to achieve the LNG production level of up to 80–90 million tons in future, which will amount (depending on the pace of the projects implementation abroad) up to 25 per cent of the global LNG market.
Therefore, Gazprom further pursues the strategy to globalize the Company’s presence on foreign markets, diversify the supplies and consolidate the positions of the Gazprom Group as an international energy company. In addition, the LNG sector development will help the Company contribute to strengthening the global energy security by way of products transportation bypassing transit routes and by shipping LNG cargos to the regions in need of additional gas supplies.