This document was drafted in accordance with Presidential Instructions No Pr-2416 of 15 October, 2013.
The draft law amends Article 3 of the Federal Law On Gas Exports, as well as Articles 13 and 24 of the Federal Law On the Basic Principles of State Regulation of Foreign Trade Activity.
In addition to Gazprom and its subsidiary, it is proposed that the following legal entities be allowed to export liquefied natural gas (LNG):
· Natural resource users developing and exploiting federally-owned mineral deposits, whose licenses for the use of natural resources (As of 1 January, 2013) stipulate the construction of a liquefied natural gas production plant or gas distribution to a liquefied gas production plant for subsequent liquefaction;
· State companies, over 50% of whose statutory capital is controlled by the Russian Federation, and which use mineral deposits located in inland seas, territorial waters, on the continental shelf, including the Black Sea and the Sea of Azov, as well as their subsidiaries, over 50% of whose statutory capital is controlled by these state companies, companies producing LNG from gas being extracted from the above-mentioned mineral deposits or from gas being extracted under product sharing agreements.
The need to expand the list of LNG exporters is motivated by the following factors.
The global hydrocarbon market is currently being transformed due to new technologies and production processes, which reduce its cost, increase the share of economically profitable deposits, and which also change the production structure (production of difficult to extract crude oil, shale gas and oil and the development of shelf deposits).
The overall increase in demand through the use of difficult to extract deposits will influence the global oil and gas market. Oil and gas users will be able to more actively diversify oil and gas deliveries, and competition will also become tougher among oil and gas producing countries.
On the other hand, active economic growth in China, India and the Asia Pacific Region in general will ensure growing hydrocarbon resource demand, thus opening new opportunities for Russia.
European LNG demand is expected to increase. The high share of LNG spot deliveries makes it possible to flexibly reroute distribution and already creates competition for Russian pipeline gas against the backdrop of comparable transport costs. Europe’s total LNG imports already account for about 50% of the total pipeline capacity.
The gas segment, which sells LNG, and which has its own transport infrastructure, responds in a particularly sensitive way to changes in the global energy market. The development of gas liquefaction technology and processes turns the gas market, which had existed as a regional market until the early 2000s (the European, North American and Asia Pacific gas markets), into an interdependent global market, similar to the crude oil market.
The development of LNG technologies and production processes creates new challenges for gas-producing countries, which implement long-term and capital-intensive gas production projects, but which lack the demand on the part of gas users that was previously guaranteed by long-term contracts.
Therefore a decision to expand the list of natural gas/LNG exporters should accomplish the following objectives:
· Increase Russia’s share of the gas market;
· Maintain stable gas prices and general commodity prices;
· Minimise competition between Russian producers of pipeline and liquefied gas.
The Ministry of Energy believes that the current structure of joint LNG export channels makes it impossible to completely finance construction of LNG plants.
In an effort to rule out competition between Russian exporters on foreign markets, the draft law stipulates a mechanism for coordinating LNG exports. For example, the draft law stipulates a mandatory provision that requires gas exporters to submit gas export information to the Ministry of Energy under a procedure envisioned by the Government. Moreover, it is proposed that hydrocarbon export regulation authority, currently under the Ministry of Industry and Trade, be delegated to the Ministry of Energy.
The draft law will be reviewed at a Government meeting.
