Translated material
Liquefied benefits
The government can support the new gas project of Gennady Timchenko and NOVATEK
Head of Government Vladimir Putin held a meeting in Novy Urengoy on the draft General Scheme for the development of the gas industry until 2030. The status of the event, according to Vremya Novostei, was lowered during the preparation process: previously a visiting meeting of the Cabinet of Ministers was planned (see issue dated October 6) . However, this would only emphasize the somewhat far-fetched nature of the reason, since the prepared general scheme does not stand up to any criticism. However, the main goal of the meeting - to demonstrate the state's interest in creating liquefied natural gas (LNG) production on the Yamal Peninsula - was achieved.“After the launch of the first and so far only LNG plant on Sakhalin, Russian gas occupied about 5% of the world market for this product. Now new projects are on the way. And first of all, we are talking about creating large-scale LNG production right here in Yamal,” the prime minister said in his opening remarks. And then Vladimir Putin announced that he had signed two government orders at once, both of which directly relate to the implementation of the Yamal LNG project, owned by NOVATEK and Gennady Timchenko. Firstly, the Prime Minister instructed the Ministry of Finance and the Ministry of Economic Development to prepare appropriate proposals on benefits for new gas projects on the shelf and in the LNG sector. “The mechanism for providing these benefits has already been formulated,” Mr. Putin emphasized. Secondly, he stated that a Comprehensive Plan for the development of LNG production on the Yamal Peninsula has been prepared. “Today it has been approved,” said the head of government, although until now there has been no information about a separate document on this matter.” The pilot project “Yamal LNG” was provided for in the draft general scheme and the Program for the integrated development of Yamal fields until 2035. “I ask the federal and regional authorities, business representatives to establish coordinated work to implement the decisions taken,” concluded Vladimir Putin.
By the way, the Shtokman field in the Barents Sea, which Gazprom was going to make the center for the production of its own LNG, was mentioned by the prime minister only once, and then in the context of gasification of the Murmansk region. True, the issue of the economic feasibility of the plant will be decided by the concern together with foreign partners (Total and Statoil) only at the end of 2011 due to uncertainty in the gas market in the Atlantic basin. But, on the other hand, the time to enter the market for Shtokman raw materials and for Yamal is approximately the same. The head of NOVATEK, Leonid Mikhelson, said yesterday that he plans to commission the first stage of the plant with a capacity of 5 million tons per year in 2016. And two more stages of the plant will be built no later than 2020.
The government at one time refused to provide Gazprom with additional benefits for Shtokman, limiting itself to zeroing the export duty rate for LNG. But Yamal LNG shareholders are waiting for a zero mineral extraction tax rate on gas and condensate, income tax holidays, zero duties on equipment, as well as a commitment from the state to invest $9-10 billion in the construction of a fleet and port infrastructure in Yamal.
Based on the results of yesterday's meeting, the fate of government subsidies is unknown. Mr. Putin limited himself to stating a fact: “There is a lot to be done here - to build an LNG plant and port infrastructure, to create a powerful fleet of icebreakers, gas carriers, ice-class cargo ships, and preferably all this should be of Russian production. This fleet must ensure year-round delivery of cargo and removal of hydrocarbons from the Yamal Peninsula.” But if the decision is actually made, then any sensible investor will immediately abandon Shtokman and offer their services to Yamal LNG.
NOVATEK, as you know, is looking for strategic partners in the project, offering them to purchase a share (up to 49%), which is now controlled by the structures of Gennady Timchenko. In the summer, after receiving proposals from foreign companies, Yamal LNG shareholders took a pause until a decision was made on benefits and subsidies, Mr. Mikhelson said. Yesterday, before the meeting, the Prime Minister visited NOVATEK's main field, Yurkharovskoye, where the conversation turned to Yamal LNG. The head of government asked whether “it is really necessary to attract co-investors.” “At the second stage you will need a little bit,” answered Leonid Mikhelson.
After the meeting, Deputy Prime Minister Igor Sechin convinced journalists that proposals for tax incentives for LNG projects, which were ordered to be prepared within two months, concern not only Yamal. “This is due to all liquefaction projects, the need for development of which is present in world markets,” he noted. “All ideas expressed by the meeting participants will be carefully considered.”
However, the head of Gazprom, Alexey Miller, was interested not so much in issues of supporting LNG, but in taxation of the gas industry as a whole and benefits for the Yamal fields. The monopolist was forced to begin development of the Bovanenkovskoye field on the peninsula within the framework of the current fiscal regime. Gazprom considers it necessary to zero out the mineral extraction tax and reduce export duties on gas from fields in Eastern Siberia, the Yamal Peninsula and the shelf - again, as a year ago, at a similar meeting with Vladimir Putin in Salekhard, Alexey Miller said. The order to work on these proposals was given following the meeting, says a Gazprom representative.
In addition, in his report, Mr. Miller complained that Gazprom’s additional expenses in the next three years, taking into account the increase in the mineral extraction tax and property tax (pipelines), will amount to 200 billion rubles. According to him, the planned increase in the tax on gas production by 61% in 2011 will increase the company’s expenses by 48 billion rubles, and the introduction of a property tax on main gas pipelines, proposed by the Ministry of Finance, in 2012 is estimated at 29 billion rubles, in 2013 - - 57 billion rubles. The issue of increasing the production tax, which has not been indexed since 2005, has been finally resolved. But regarding the levying of fees on pipeline infrastructure, Vladimir Putin ordered “a careful and collegial approach to this issue” so that “it will not be a limitation for our development in the future.”
While Russian Energy Minister Sergei Shmatko, at a meeting in Novy Urengoy, spoke about the prospects for growth in Russian gas exports in 2030 to 455-520 billion cubic meters (now it barely exceeds 200 billion cubic meters, taking into account neighboring countries) and China’s readiness to accept “any amount of gas, which we can supply there,” Deputy Chairman of the State Committee of the People's Republic of China for Development and Reform, Head of the State Energy Administration of the People's Republic of China Zhang Guobao told Interfax about the progress of the negotiations. According to him, Beijing is primarily interested in gas supplies along the eastern route (from Sakhalin through the Khabarovsk Territory), and not at all from Western Siberia to Xinjiang (the Altai project), since it already has import capacity from Central Asia. “Increasing gas supplies to Xinjiang is not so relevant,” Mr. Guobao explained. In the east, on the contrary, the lack of gas has a noticeable effect. “However, the position of the Russian side is clear; it does not want to discuss this issue,” the agency’s interlocutor added. He also emphasized that there is a price problem: “The Russian side is offering a price above $300 per thousand cubic meters.” Although Beijing, according to him, receives Turkmen gas at a price significantly lower than the Russian offer, approximately $200-210 per thousand cubic meters. “So the difference is about $100,” he explained. Earlier, Deputy Chairman of the Board of Gazprom Alexander Medvedev said that the parties had reduced the discrepancy in the price of a thousand cubic meters by $60.