New Russian LNG projects are at risk of not paying off - Gazprom
MOSCOW. April 3 (Interfax) - The latest Russian liquefied natural gas (LNG) projects are at risk of not paying off, deputy Gazprom chairman Vitaly Markelov said.
"With the implementation of new Russian LNG projects in the absence of state control, the price of exported Russian gas will decrease owing to increased supply and high competition between Russian suppliers. Russia's budget revenues will be reduced owing to the replacement of pipeline gas exports by LNG exports with low tax deductions, which is the absence of export duties and mineral extraction tax. There are obvious direct losses to the state when selling gas from LNG projects to the detriment of pipeline export," Markelov wrote in a letter to Deputy Energy Minister Pavel Sorokin in March.
"There is a high risk that the new LNG projects will not be repaid and, as a result, the budget funds invested in them will be 'frozen' because of the expected excess of supply on the market and lower prices. There are new risks for LNG projects related to the European Union carbon footprint plans, because the carbon dioxide emissions of LNG projects are significantly higher than in pipeline deliveries," he said.
Gazprom said at its Investor Day in February when the impact of the Covid-19 pandemic was not yet so strong, and the oil market had not collapsed, that it saw a positive effect from the local price reduction. This should discourage competing volumes of LNG from the European market and render it difficult for investors in LNG projects to make final investment decisions for new projects.
Markelov said that the initial goal of implementing the LNG projects in Russia was to diversify external markets for Russian gas, primarily by sending gas to Asia-Pacific countries, for example, the Sakhalin-2 plant.
"In order to increase Russia's export share in the international LNG market, as well as to increase exploration work on the Sakhalin shelf, it is necessary to assess the options for loading existing and new LNG production capacities in the Far East of Russia. The optimal solution for utilizing new LNG capacities is the sale of Sakhalin-1 gas for the needs of the construction project of the third production line of the existing Sakhalin-2 plant. According to Sakhalin Energy, this option is more economically attractive for the Sakhalin-1 consortium and for Russian overall compared with gas supplies to address the new 'Far East LNG' project that is put up for sale by the Sakhalin-1 consortium," Markelov said.