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Thursday, February 19, 2009

Gazprom Steps Into Asia

//Russian president inaugurates LNG plant that will help the country wean itself off European customers.
02-18-2009 - Forbes by Vidya Ram - As Russian stocks suffered a second day of battering in Moscow over fears for about the banking sector, President Dmitry Medvedev was far far away on the eastern island of Sakhalin to lend his support to a project that could mark the country's rise as a big supplier of energy to the Far East, and away from dependence on Europe. Medvedev, and Prime Minister Taro Aso of Japan were attending the launch of the Prigorodnoye liquefied natural gas plant, better known as the Sakhalin 2 project, on the island, which will begin shipments to Japan in late March. When at full capacity it will ship 9.6 million tons of the gas a year. It marks Russia's first proper venture into the liquefied natural gas market, which it had previously only dabbled in. Delayed from the end of 2007, and after Gazprom (other-otc: OGZPY - news - people )wrested control of operating firm Sakhalin Energy from Royal Dutch Shell, and Japanese firms Mitsui and Mitsubishi, the timing has proved fortuitous for Russia. This year's dispute over raising Ukranian gas prices proved the nastiest so far, and the subsequent halt to European supplies cost Gazprom $1.1 billion. The troubles highlighted the vulnerability of depending on piped gas supplies: Gazprom's revenues are only as secure as its relations with the countries the pipeline travels through. (See "Gazprom's Not-So-Quick Recovery.") Liquefied natural gas, transported by ship, offers a good solution to this problem, enabling Russia to send its supplies around the world, without worrying about local disputes. It would also help Moscow prepare for any defensive measures Europe could take to reduce its dependence on Russian supplies, including the construction of the hyped-Nabucco pipeline. (See "Different Gas, Same Problem." ) "Gazprom is also tapping the growth market of Asia and becoming an active participant in the global market for liquefied natural gas," said Andrew Neff, of Global Insight in Ankara. The LNG market, currently split between three geographic areas, but with demand rising, Neff believes that in the medium-term the market could become more akin to the oil sector, where gas is shipped more freely across the globe.

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