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Gazprom questions price mechanisms for LNG

Liberalization means opportunism, deputy chief executive of Russian gas giant says.

By
Daniel J. Graeber
Russian energy company Gazprom says China may be exploiting market stance with gas, though independent gas company Novatek sees opportunity. Photo courtesy of Novatek.
Russian energy company Gazprom says China may be exploiting market stance with gas, though independent gas company Novatek sees opportunity. Photo courtesy of Novatek.

MOSCOW, April 26 (UPI) -- Russian energy company Gazprom said liberalizing the market for liquefied natural gas means contractual talks with China are under threat.

Gazprom Deputy Chief Executive Officer Vitaly Markelov said counterparts at the China National Petroleum Corp. are using liberalization as a bargaining chip on the price it would pay from Russian LNG.

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"This negatively affects the talks with the Chinese side on other projects related to Russian gas supplies," he was quoted as saying by Russian news agency Itar-TASS.

Since 2006, the Russian government has said it was moving toward a market-based model for the gas market. Gazprom, however, has a tight grip on supplies and export arteries.

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The company has a 30-year sales agreement with China to deliver up to 1.3 trillion cubic feet of natural gas per year through a pipeline dubbed the Power of Siberia. In March, Gazprom secured a five-year loan from the London branch of the Bank of China for more than $2 billion.

Russia's economy is hobbled by dual strains of economic sanctions related to crises in Ukraine and the low price of crude oil. Liquefied natural gas, meanwhile, offers for maneuverability outside the geopolitical constraints associated with conventional pipeline arteries.

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Novatek, the largest private natural gas company in Russia, said it was moving forward with the development of its flagship LNG project on the Yamal Peninsula. In a market characterized by tight spending trends, the company said the costs of development are low enough to compensate for higher maritime shipping costs to the Asian-Pacific markets.

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"This makes Yamal LNG economically feasible in today's low hydrocarbon price environment and highly competitive in key importing markets," the company said in a letter to shareholders.

Gazprom in 2022 hosts a LNG summit in St. Petersburg. Billed as the largest global event for the LNG sector, Gazprom said it was taking advantage of its leadership in the gas market with the international forum.

Deputy Chairman Alexander Medvedev said he was "convinced" the company would make a significant contribution to the global LNG sector.

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