Russia LNG Export: Recent Developments

by King & Spalding


The Russian Federal Tariff Service (the FTS) regulates the price at which Gazprom and its affiliates can sell natural gas to the wholesale market and to their affiliated refineries. The FTS also regulates the price of natural gas sold in the retail market to the general public, irrespective of the entity that produced/sold the gas. The sale of natural gas by independent producers (other than via retail) is not regulated.

Draft Legislation on Non-Regulated LNG Export Pricing 

In February 2017, the Ministry of Energy of Russia prepared the draft law "On Certain Matters Pertaining to Sale of Gas" ("Draft Law").[1] In early March 2017, the development of the Draft Law was reported to be terminated due to the negative outcome of its public discussion. However, shortly after this report, the Russian Ministry of Energy officially disproved all relevant statements and expressly stated its intention to continue with the development and adoption of the Draft Law.

The Draft Law envisages that Gazprom and its affiliates will be permitted to sell their gas at non-regulated prices to companies that export such gas as (i) LNG or (ii) products resulting from the refining and chemical utilization of natural gas, from facilities commissioned after 1 January 2017. The Federal Antimonopoly Service and the Ministry of Energy will continue to have the authority to oversee Gazprom's pricing of natural gas.

The Draft Law is reported to be primarily aimed at stimulating new LNG projects between Gazprom (and its affiliates) and foreign partners. The introduction note to the Draft Law comments that such projects would be a valuable contribution to the development of the Russian gas industry and provide a long-term source of income for the state budget. However, the notes to the Draft Law also recognize that currently the exporters of gas products (including LNG) have the advantage of buying natural gas at low government regulated prices, which is unprofitable for Gazprom, negatively effects the State budget, and disincentives Gazprom from selling to enterprises on the domestic market. Therefore, such change in regulation would also work to protect Gazprom's gas export margins.

Gazprom LNG Projects

Russia currently has only one operating LNG facility, the 10 million ton per year liquefaction plant operated by the consortium of Gazprom, Shell, Mitsui and Mitsubishi (Sakhalin II). In addition to Sakhalin II, Yamal LNG, a joint-venture of NOVATEK, TOTAL, CNPC and Silk Road Fund is under construction. It is planned to be built in three phases, with the first phase scheduled for start-up in 2017.

In the summer of 2016, Gazprom signed a letter of understanding with Shell concerning a potential LNG project at the Russian port of Ust-Luga on the Baltic Sea. The project is reported to include a two-train LNG plant and a pipeline connected to the Gazprom network. The Baltic LNG plant, according to publicly available materials, will have a capacity of approximately 10 million tons of LNG annually with an option to expand to 15 million tons and is currently planned to commence operations in 2021.

Earlier, Gazprom also was engaged in the Vladivostok LNG project, initially planned to target LNG sales from gas produced in Sakhalin, Yakutia and Irkutsk for delivery to the countries of the Asia-Pacific region. At the time, several Japanese companies were reported to be in discussions with Gazprom to join the project. In 2015, however, Gazprom announced that Vladivostok LNG was no longer a priority for Gazprom and postponed the project for an indefinite time. Vladivostok LNG is the second LNG project postponed by Gazprom in the past few years after Shtokman project was suspended in 2012.

Background on Export of LNG 

Back in 2013, Russia approved long-awaited legislative amendments opening its export regulations for LNG. The amendments effectively broke Gazprom’s single monopoly on LNG exports. Prior to that, the Gas Export Law of 2006reserved the exclusive right to export gas (including LNG) from Russia with Gazprom and its wholly owned subsidiaries.[2] In December 2013, by amendments to the Gas Export Law, the right to export LNG was extended to state-controlled Rosneft and Russia’s largest independent gas producer, Novatek. Our article "Russian LNG: Export Liberalization," published in the King & Spalding Energy Newsletter of February 2014, more fully describes the 2013 amendment. To access the article please visit


[2] Federal Law No. 117-FZ, “On the Export of Gas,” dated July 18, 2006 (the “Gas Export Law”).


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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