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The future of Russian LNG

Russia's oil and gas industry is in a period of moderate uncertainty, as sanctions imposed upon it by the EU and the US have made it difficult to do business. The sector has been able to adapt to these penalties, however, and is able to avoid too many negative effects in 2015. This is partly due to Russia's strength in the liquefied natural gas (LNG) market.

The nation has access to huge reserves of natural gas and the infrastructure to process its liquid form, putting it in an excellent position to increase the amount it produces and exports to other nations. Here are a few of the reasons why Russia is likely to focus more and more on LNG in the future:


Large reserves

The first reason is simply that Russia has access to massive amounts of gas. However, while plenty of nations have access to the resource, few have access to the necessary facilities needed to produce and export LNG. This is an area Russia has invested heavily in recently.

Gazprom - which at the moment is Russia's only producer and exporter of LNG - currently has four ongoing projects: Sakhalin II, Vladivostok LNG, Baltic LNG and the LNG regasification terminal in the Kaliningrad Region. Between them, these sites have a production capacity of almost 40 million cubic metres.

Furthermore, the nation is working on a project in the Yamal Peninsula that would have the capacity to produce 16.5 million tons of LNG per year. The region is estimated to have gas reserves totalling as much as 22 trillion cubic metres, giving Russia a huge supply with which to work.


Avoiding sanctions

Of course, EU and US sanctions imposed on Russian firms make it difficult to secure both investment and the technology needed for LNG projects like that in Yamal. However, there are plenty of options still available to companies like Gazprom. For example, investments made in dollars are typically difficult to achieve.

However, French firm Total is getting around this by attempting to fund the Yamal project in euros and Chinese yuan. The company hopes to raise around $15 billion through Chinese banks to finance the scheme.

Patrick Pouyanne, Total's chief executive, told The Wall Street Journal: "It's not an easy task, to be clear. We would have preferred to do it with dollars." However, he added that China's financial institutions showed "a strong willingness to build the project financing".


Growing markets

Russia has plenty of markets to choose from as well, including the potential for demand in Europe to grow significantly. Speaking at a conference in Vienna, Laurent Vivier - Total's senior vice president for strategy, markets and LNG - said that European demand is "basically decreasing all the time, a bit lower than last year, but it's going to increase in the future".

This is due to a change in power generation, with coal power plants being phased out and new regulations on reducing CO2 making gas a more viable option to supplement renewable energy. Meanwhile, other markets are opening up elsewhere around the world.

Egypt, for example, has just announced its intention to import 35 cargoes of LNG from Gazprom over the next five years. Mr Vivier added that Asia is another growing market, saying: "Asia has been the driving force behind all the development of LNG in the past five years."

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