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    Gazprom, Novatek "Compete in Europe": Duma


The Kremlin is losing out from gas-to-gas competition, says the Russian Duma's energy committee head.

by: Joe Murphy

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Gazprom, Novatek "Compete in Europe": Duma

Gazprom faces competition in Europe from domestic rival Novatek, a leading Russian lawmaker has said, proposing that extra taxes or sales restrictions be imposed on the latter's Yamal LNG project to prevent this.

This competition is causing serious losses to the state budget, said Pavel Zavalny, who heads the energy committee of the State Duma, Russia's lower house of parliament, on February 2. The Duma should create a working group to discuss potential measures.

"We have to define conditions for target markets, volumes and price limits so that the budget does not lose out," he said at a meeting. "Otherwise, it appears that gas monetisation occurs for the sake of monetisation, and the state does not receive anything."

Around 84% of Yamal LNG's supplies have gone to Europe since its launch in December 2017, he said, and 69% have been delivered to markets where Gazprom's pipeline gas is sold, citing Gazprom data.

Novatek CEO Leonid Mikhelson hit back. "LNG is a global market. How can this be written into law?" He was quoted as saying by Russia's Tass news agency. The statistics cited by Zavalny are wrong, he added, estimating that more than 50% of Yamal LNG's cargoes had gone to Asia.

The 16.5mn metric ton/year Yamal LNG project enjoys significant tax breaks and this undermines the budget, Zavalny said, proposing changes to maximise tax revenues from gas exports. Yamal LNG pays no mineral extraction tax, property tax or export duties for LNG. It also pays a reduced profit tax of 13.5%.

Gazprom has complained about Novatek's expanding sales in Europe in the past, although this is the first time the Duma's energy committee has proposed measures against Novatek as a solution. But ensuring that Russia's two leading gas suppliers do not compete is easier said than done.

"There is no way to ring-fence Gazprom's European gas franchise from the influence of rising LNG production by Novatek," Ron Smith, analyst at Moscow-based brokerage BCS Global Markets, told NGW. "Even if 100% of Novatek's LNG were to be sent to Asia, it would only displace other LNG to Europe."

Gazprom also competes with Novatek in Asia, through the Sakhalin LNG project and the Power of Siberia pipeline, although on a smaller scale. Gazprom has a small stake in Novatek.