Rosneft-Exxon Alaskan LNG Project Competes with Russia's Gas Ambitions in Asia

By Ben Priddy, April 5, 2013

WEB EXCLUSIVE, Moscow. Rosneft's Igor Sechin announced plans this week to take part in a joint LNG project with ExxonMobil in Alaska. The project aims to supply markets in Asia-Pacific with gas from the Point Thomson natural gas and condensate field on Alaska's North Slope.

An agreement between the companies in mid-February gave Rosneft the option to acquire a 25 percent interest in Point Thomson, which is estimated to hold approximately 25 percent of the known gas resource base in state's North Slope region. However, plans to develop an LNG terminal at Point Thomson could contradict Rosneft's own long-term gas ambitions in Russia.

Currently, ConocoPhillips' Kenai, Alaska LNG terminal is the only active terminal in the United States that exports LNG to markets in Asia, primarily to Japan. ConocoPhillips announced plans to shutdown the Kenai terminal in February 2011 due to a flood of LNG supplies from Qatar and Australia to Asia. However, ConocoPhillips kept Kenai open after the Fukushima nuclear disaster a month later, which resulted in a spike in Japanese demand for LNG as the country sought to replace its reliance on nuclear power. Japan is now the world's largest importer of LNG and there is a global gas scramble to supply customers in South Korea, China, and elsewhere in the Asia-Pacific. "I am 90 percent certain that by 2018 LNG consumption in this region will nearly double," Sechin said April 3. "Our participation in Point Thomson allows us to respond to this demand."

Yet, Point Thomson could end up becoming a competitor to other Russian LNG projects that are aimed at supplying the same markets in Asia. In March, Sechin threw his support behind government plans to liberalize Russian LNG exports from Yamal Peninsula and Russia's Arctic regions, ridding Gazprom of its monopoly on gas exports and paving the way for Rosneft and Novatek to expand into global gas markets. The Russian government later announced that LNG liberalization would only allow for export to Asian markets in order to protect Gazprom's European business. Since then, independent gas producer Novatek received final government permission to build its LNG terminal on Yamal and chose France's Technip and Japan's JGC to build it. Yamal LNG will have a 16.5 million ton capacity (one-fifth of Japan's current demand) and is scheduled to come online in 2016.

Rosneft's participation in the Point Thomson LNG project could be in exchange for ExxonMobil's participation in the Russian company's LNG project at Sakhalin in the Far East, Mariya Belova, Senior Analyst at SKOLKOVO's Energy Center, told Kommersant on April 4. However, Rosneft's participation in projects that focus on supplying Asia contradicts all logic of Russian LNG export liberalization that has created competition between Novatek's Yamal LNG, Gazprom's Vladivostok LNG, and also Rosneft's Sakhalin LNG project, Belova explained.

The Russian government has yet to announce its final decision regarding LNG export liberalization here. Yet, Sechin seems intent on pursuing the Point Thomson project with ExxonMobil. "We have certain procedures to carry out, but the agreement is