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8 Jun, 2010 06:31

Gazprom looks to the east for new export markets

Europe's weakened gas demand market is leading Russia's gas export monopoly to Asia. Gazprom is considering liquefied natural gas sales to India, and has bigger ambitions in China.

The Sakhalin 2 oil and gas project is Gazprom's only route to Asia from the east of Russia. The company is on target to supply 9.6 million tonnes of LNG each year to Japan and South Korea. Gazprom is also supplying other Asian markets like India, Taiwan and Singapore – though not yet on a contract basis. And that's also true of China, the market that Gazprom is most keen to enter, says Stanislav Tsigankov, head Gazprom’s international business unit.

“Unfortunately so far the Chinese don't have any experience of striking long-term contracts to supply gas via pipeline so we have to agree to a number of other conditions like volumes of supply, flexibility, inequality – all this is being set up now.”

Price is the key issue – or rather a stumbling block – in the gas partnership with China, according to Sergey Pravosudov, General Director of the Institute of National Energy.

“The Chinese are keen to get the maximum discount for Russian gas. Initially they wanted to tie the price of gas to that of home-produced coal. However, Gazprom insists on binding the gas price to a basket of oil products on long-term contracts – as it does with other countries.”

Gazprom's gas supplies to other customers like Japan are based on long-term contracts. But those markets are a drop in the ocean compared to fast-growing China which could be worth as much as 80 billion cubic meters of Russian gas annually.