Rosneft, Exxon Weigh $15 Billion LNG Plant to Vie With Gazprom

OAO Rosneft (ROSN), the world’s biggest publicly traded oil producer, is in talks with Exxon Mobil Corp. (XOM) about building a liquefied natural gas plant to target Asia, challenging OAO Gazprom (GAZP)’s weakening export monopoly.

The LNG project, either on Sakhalin Island or in the Khabarovsk region on the Pacific coast, may cost $15 billion, Neil Duffin, Exxon’s president for development, said today in a video conference with Russian President Vladimir Putin and Rosneft Chief Executive Officer Igor Sechin.

Putin warned Sechin, a former deputy, to coordinate with other companies planning LNG projects in the region. OAO Gazprom’s monopoly faces a challenge from competitors that want export rights as they seek to enter the LNG market. Gazprom is planning a facility in Vladivostok and may expand its own Sakhalin LNG project, currently Russia’s only plant for cooling gas to a liquid for shipment by tanker.

“LNG is a magic wand, it is very important for both Gazprom and Rosneft,” Valery Nesterov, an oil and gas analyst at Sberbank Investment Research in Moscow, said by phone. “Rosneft can’t really sit and wait because the window of opportunity, where there is still uncontracted demand, is between 2018 and 2022.”

Putin has ordered the government to consider a “gradual” end to the monopoly on LNG exports as Rosneft and OAO Novatek (NVTK) are also seeking the right to ship the fuel to markets beyond the reach of Gazprom’s pipeline network.

‘Risking Loss’

Russia, the holder of the world’s biggest gas reserves, exports almost all of its gas to Europe through pipelines and risks losing LNG markets as international competitors increase capacity, Putin said in February. No final decision has been made yet on liberalizing Russian LNG exports.

“Gazprom’s export monopoly isn’t a significant obstacle for new LNG players,” Alexander Burgansky, an oil and gas analyst at Otkritie Capital in Moscow, said by e-mail today. “In all likelihood it will be lifted; in case it doesn’t, Rosneft could use Gazprom as an export agent for a small fee.”

Rosneft is discussing construction of a fleet for offshore projects with STX Group (028670), Sechin said today at the video meeting, which included Kang Duk Soo, chairman of the South Korean shipbuilding and shipping group.

Rosneft may use gas from the Sakhalin-1 project, where it is working with Exxon, Sechin said earlier today in comments reported by Interfax and confirmed by Rosneft’s press service. Rosneft and Exxon, which are also strategic partners on Russia’s Arctic shelf, plan to complete the study for the LNG plant in June, Glenn Waller, president of ExxonMobil Russia, said last month.

Gas Model

“Rosneft is copying a business model from international companies which have gas accounting for 30 percent to 50 percent of production and reserves,” Nesterov said.

Gazprom’s planned Vladivostok LNG plant may start operations in 2018, while its Sakhalin-2 project is considering a third production line.

Novatek, Russia’s second-biggest gas producer, is developing the Yamal LNG project in the Russian Arctic with Total SA. (FP) The plant is set to start producing LNG at the end of 2016.

For Related News and Information: Putin Calls for ‘Gradual’ End to Gazprom LNG Export Monopoly (1)

To contact the reporters on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net; Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net

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

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