The global LNG market, in which Gazprom intends to increase its liquefaction capacity by 250% to 25 million tonnes per year by 2018, will pose unfamiliar challenges to the company, according to analyst firm GlobalData.

Anna Belova, Ph.D., GlobalData’s Lead Upstream Analyst covering the Former Soviet Union, states that Gazprom, the world’s leading natural gas producer, is seeking to expand aggressively beyond pipeline-based gas marketing in order to extend its reach into Asian demand centres.

However, while Gazprom has a cost and logistical advantage in its current markets, upscaling LNG activities will mean encountering competition from Australia, the Middle East, and the US, further compounded by new Russian rivals.

Belova explains, “Rosneft and Novatek, backed by foreign partners, plan to bring new liquefaction plants online by 2018. Rosneft’s determination to become a world-class integrated oil and gas company requires it to expand its gas operations, while Novatek, the second largest gas producer in Russia after Gazprom, seeks access to international markets through LNG.”

“The two companies are the main beneficiaries of recent regulatory changes in Russia, expanding gas export options beyond Gazprom. Based on announced development plans, Rosneft and Novatek will account for almost half of Russia’s liquefaction capacity by 2018.”

The analyst notes that the current pipeline of LNG projects coming online will give Russia 8% of global liquefaction capacity by 2018, making it very difficult for Gazprom to secure its target of 15% total market share by that time.

Despite this, GlobalData believes that Russia has the potential to become a major LNG player, due to its world-leading gas reserves and the government’s aggressive strategy of employing attractive fiscal incentives for the oil and gas industry.

“Industry-wide tax breaks, when combined with advantageous cost structures at field level, can incentivise Russian LNG aspirants to overcome the high capital costs associated with liquefaction and export infrastructure. Government backing and strategic international partnerships will expand the Russian LNG industry’s reach into global markets, with multiple operators contributing to growth,” Belova concludes.