Gazprom Sees U.S. Exporting LNG in Decade, Downplays Competition

OAO Gazprom (GAZP), the biggest natural-gas producer, said it expects U.S. exports of the fuel in a decade, downplaying the prospect of increased competition.

The U.S. has overtaken Russia as the largest gas producer, using hydraulic fracturing, or fracking, and horizontal drilling to pump fuel from shale beds. Rising production has driven down prices, cut shipments to the U.S. and prompted owners of import terminals to study switching to liquefied natural gas exports.

“I don’t anticipate that the LNG exports from the U.S. could reach big volumes,” Gazprom Deputy Chief Executive officer Alexander Medvedev said in an interview. “In order to be competitive and to cover the cost, it should go not to Europe probably but to Asia, where the market demand is so high.”

Gazprom, which depends on piping gas to Europe for most of its sales, plans to grow in Asia and boost its share of the LNG trade by buying cargoes, building plants and seeking projects abroad. LNG is gas turned into a liquid and shipped by tanker.

The U.S. plans to be a net exporter of LNG from 2016, with initial sales of 1.1 billion cubic feet a day doubling after three years, the Energy Information Administration said Jan. 23.

While former Exxon Mobil Corp. chief Lee Raymond this month said politics and concern that production at shale fields isn’t sustainable may hinder development of LNG export plants, some gas companies are confident the U.S. will be a major exporter.

BG Group Plc, the U.K.’s third-largest oil and gas company, said in February the U.S. will be able to supply about 9 percent of global LNG output by the end of the decade and have capacity to export about 45 million metric tons a year from 2020.

Later Start?

U.S. LNG exports may start “later, maybe in the next 10 years” as approvals and construction take time, Medvedev said yesterday in New York. Volumes may be 10 billion cubic meters (353 billion cubic feet) to 20 billion cubic meters a year, he said. Cheniere Energy Partners LP (CQP) received permission from the U.S. Energy Department in May to sell LNG overseas.

“In the end it is good for the global gas industry because now the U.S. feels more secure, comfortable, and the role of gas is growing in the economy, including innovative sectors like bunkering for the fleet or transportation fuel,” Medvedev said.

Gazprom exports LNG from its share of the Sakhalin-2 plant off Russia’s Pacific coast and buys the fuel from other sources. Its total traded LNG rose 25 percent to 3 billion cubic meters in 2011, a presentation to investors last week showed. That’s a fraction of Asian demand, less than the demand in 2010 for Hong Kong alone, BP Plc (BP/)’s Statistical Review of World Energy shows.

While demand is increasing in China, India, Pakistan and Bangladesh, “not too much capacity” will become available in three to five years, Medvedev said. Gazprom expects Asian LNG prices to stay linked to oil or the so-called Japanese Crude Cocktail, a benchmark index used to price long-term contracts.

To contact the reporter on this story: Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net; Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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