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Gazprom monitoring LNG and shale gas industries

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Hydrocarbon Engineering,

The Gazprom Board of Directors have announced they are following the prospects of the shale gas and LNG sectors around the world, as well as the opportunities and challenges for Gazprom.

At the meeting, the commercial production of shale gas was highlighted drawing attention to the fact that it is still concentrated almost entirely in the US, with relatively small amounts produced in Canada, China, and Argentina. Pressured by low hydrocarbon prices, US operators have had to considerably cut their investments in shale projects. Well drilling operations have been essentially frozen at a number of well-known US shale fields in 2016, with aggregate shale gas production showing negative growth since this March. Moreover, some 170 US-based production and servicing companies have gone bankrupt since early 2015.

In Canada, shale gas accounted for just 4% of total gas production over the course of 2015, while production estimates up to 2035 have been reduced almost five-fold. China's shale gas deposits are being developed at a much slower pace than expected. For the second year in a row, leading industry analysts are downgrading their estimates for shale gas prospects in China. It should be noted that foreign partners of Chinese companies withdrew from all joint shale projects under the agreements signed in 2008 – 2013. In Argentina, shale gas is mostly extracted during liquid hydrocarbon production. The possibility of commercial shale gas production in the country is yet to be confirmed.

The attempts to start shale gas production in continental Europe have not yielded any positive results. For instance, in 2016 exploration operations were terminated in Poland and Denmark. The meeting participants noted that in the medium and long term shale gas production outside North America would be limited to a small number of countries, with the US remaining the world's largest shale gas producer. Shale gas development in Russia is unfeasible in the foreseeable future, since the country has large conventional gas reserves.

In reviewing the development prospects for the LNG sector, the meeting, inter alia, touched on the commencement of LNG deliveries from the US East Coast. It was highlighted that in the European market US LNG was losing against Gazprom's pipeline gas.

Based on current estimates and projections, Latin America may become one of the main markets for US LNG in the medium and long term. In fact, most of US LNG was supplied to Latin America between March and September 2016. It was also stressed at the meeting that increasing the LNG share in Gazprom's portfolio with the purpose of expanding sales geography and boosting gas exports was among the company's priorities.

Currently, Gazprom is implementing the project for the construction of the third train of the Sakhalin II LNG plant and the promising Baltic LNG project. Gazprom will continue to monitor the development of the shale gas and LNG sectors around the globe.

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