Monday, August 14, 2006

The Russians are Coming..........................

The LNG debate takes a turn

Gazprom Registers U.S. Subsidiary

Gazprom has founded a company, Gazprom Marketing and Trading USA in Houston, Texas, to manage the regular delivery of liquid natural gas and the purchase of regasification terminals in the United States. Having begun to deliver gas to the U.S. in 2005, the Russian gas monopoly is planning to move to the direct delivery of liquid natural gas from the Shtokman field and to snap up 20% of the market, a share which could grow from 18 billion cubic meters in 2005 to 40-50 billion cubic meters in 2010.

On Friday, Gazprom's press service announced that British group Gazprom Marketing and Trading, Ltd. would gain a new subsidiary company: Gazprom Marketing and Trading USA, Inc. (GMT USA), registered in Houston, Texas in July. The new company will market the delivery of liquid natural gas and natural gas in America and will work on "the long-term development of the activities of Gazprom in the country."

The general director of GMT USA will be John Hattenbergen, who has worked on exploration, extraction, and marketing of gas and liquid natural gas for Marathon Oil, BP, El Paso Global LNG, and TransCanada Pipelines, Ltd. Mr. Hattenbergen is the real founder of GMT USA, explaining that marketing liquid natural gas "is not a business that you want to be in alone, so we are creating a partnership with other large players in the field."

Shell and BP control the largest share of the liquid natural gas market in the U.S. In addition, Gazprom is carrying on talks with Canadian Sempra, which controls gas distribution networks and four terminals. Of all the gas markets in the world, the U.S. market is the most dynamically evolving.

The yearly increase in the demand for gas in the U.S. will be 1.8% until 2025, and, according to the U.S. Department of Energy, by 2025 the delivery of liquid natural gas to America will grow to 100 billion cubic meters (it was 17.9 billion cubic meters in 2005). Four regasification terminals for liquid natural gas are already operating (at a capacity of 45.8 billion cubic meters), and ten more are being requested, for a total capacity of 140 billion cubic meters.

In September 2005, in conjunction with Shell Western BV and BG Group, Gazprom's first tanker for the transport of liquid natural gas arrived at Cove Point, USA. In December, a second tanker arrived with the participation of Gaz de France, MED LNG&Gas, and Shell.

As GMT told Kommersant, this year the company plans to send five or six additional tankers to the U.S. Between 2006 and 2009, Gazprom intends to obtain shares in or to rent space at one of the terminals for liquid natural gas on the east coast of the U.S. and the Gulf of Mexico and to begin delivery of liquid natural gas under long-term contracts (of up to three years).

In the words of the deputy head of Gazprom's board of directors, Aleksandr Medvedev, this will allow the company to shift to the delivery of its own liquid natural gas under long-term contracts within the framework of the Shtokman project. By 2010, Gazprom will be supplying gas not only wholesale but also directly to the final consumers. In the opinion of experts in the field, its U.S. operations will be profitable for the gas giant.

According to Troika Dialog analyst Valery Nesterov, even with prices for pipeline gas at $260 for 1000 cubic meters, the price of liquid natural gas will remain at $380-$400 per ton, which will allow Gazprom to steadily increase its holdings while increasing its delivery volume.

Sempra is closed to the All-Alaskan LNG.

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