Russian LNG in Asia Pacific: Low Price Market Environment

by  Jinsok Sung


The past few years have seen substantial demand for liquefied natural gas in the Asia Pacific, attracting the attention of suppliers, due to import-dependent states like South Korea and Japan, with the latter’s need to replace power generation from nuclear after the Fukushima accident, and rising economies like China and India. This demand has created a race for suppliers, from Australia to East Africa. For Russia, LNG exports are a vital part of its pivot to Asia, and Russian LNG projects have their own advantages over competitors due to geography and price.

Key words: Russian LNG; Asian LNG market; JCC; Henry Hub.


Asia Pacific natural gas markets are continuing to attract the attention of exporters due to higher prices than other regional markets and increasing consumption. LNG imports in Asia are growing fast, especially since the 2011 Fukushima disaster. As nuclear power plants gradually went offline, they went through highly scrutinized safety inspections to get back online. Consequently, Japanese utilities were forced to import more gas, coal, and oil to meet electricity demand. Fukushima coincided with the nuclear scandal in South Korea, which forced several nuclear reactors to stop operations after audits found fake certificates issued for components of nuclear power stations. Import growth in the region was further accelerated by China and India, who have emerged as two of the biggest and fastest growing economies in the world. The top 5 LNG importers in the world are Japan, South Korea, Taiwan, China and India. Additionally, several other countries in Southeast Asia and Latin America increasingly have resorted to LNG import increases each year.

After the Fukushima disaster, gas took over much
 of the role of nuclear power generation in Japan and LNG imports increased considerably between 2011 and 2014. South Korea, almost entirely dependent on LNG for its gas consumption like Japan and Taiwan, beat predictions 
as annual LNG imports have risen by 7.9% between 2003 and 2013 and by 10% between 2009 and 2013.[1] In India, due to decreasing gas production and no pipeline connections with other countries, LNG imports remain the only option to fill the gap between consumption and production. Due to the expansion of infrastructure, the increasing share of gas in power generation and its advantage as an environmentally friendly energy resource, gas consumption in China has continued to exceed the projections of leading international organizations such as the IEA and EIA up until 2013. High LNG prices caused by increased demand and record oil prices of over $100/barrel gave excellent opportunities for LNG exporters. The number of LNG projects in the US, Australia, and Russia, with total production capacity over 50% of the global LNG trade, drove investment and swiftly started construction on projects.

However, when the constructions of new LNG plants were in full swing in 2014, the market started to show signs
 of oversupply. Demand in South Korea recorded a sharp decrease and LNG import growth in China disappointed as it purchased just 0.38 mtpa (0.52 bcm)[2] more than 
the previous year. Stagnating consumption and falling
 oil prices brought down LNG prices and the introduction of a large volume of new LNG projects further strengthened competition in the global market. The LNG import price in Japan and Korea returned to pre-Fukushima levels in 2015 with annual average LNG import prices around $10/mmbtu ($280/bcm).[3]

Total volume under construction and in planning to enter the global market is larger than total LNG trade volume in 2014.[4] Along with pipeline gas export to China, LNG 
is an important export diversification option for Russia. Three projects in planning in the Russian Far East (Sakhalin II LNG expansion, Vladivostok LNG, Sakhalin I) have a geographical advantage to their competitors in the Asia Pacific market. But how competitive Russia LNG will be with other major exporters and if there will be enough 
of a market niche for Russian companies under the current unfavorable market situation remains a subject of analysis. In this paper, the strengths and challenges of Russian LNG and price-competitiveness of Russian LNG in the Asia Pacific market are discussed.

The New Wave of LNG Supply to the Asia Pacific Market

LNG export projects in Russia, Australia, and USA are already under construction. Projects in Canada, Mozambique, and Tanzania are at the planning stage and some 
of these projects are hoping to begin construction in one or two years. Within this new wave of export projects, the Australians are the frontrunners. Queensland Curtis LNG, the first of them launched, reportedly shipped its first cargo in January of 2015 to China.[5] At the same time, Sabine Pass LNG, the first LNG project in the lower 48 states of the U.S., is expected to begin LNG exports in March of 2016.

The historic debut of Sabine Pass LNG in the global market is the result of the “Shale Revolution” in the U.S. The Shale Gas Revolution has revived the American gas industry, which had previously experienced stagnating production.[6]

Expected launch year Volume
Russia 2017- 16.5 mtpa (22.44 bcm)

Under construction

Australia 2015-2018 62.1 mtpa (84.46 bcm)

Under construction/Completed in 2015 and 2016

USA 2016-2019 75 mtpa (102 bcm)

Under construction

19.5mtpa (26.52 bcm) (Approved by FERC, not under construction. Sabine Pass LNG train 5/Lake Charles LNG)

Global LNG trade volume in 2014 = 239.1million tonnes (325.18 bcm) 153mtpa (208.08 bcm) (Under construction/ completed in 2015/2016)

Table 1. LNG export terminal projects in Russia, Australia, & USA

Source: International Gas Union, (2016), World LNG Report – 2015 Edition, IGU.

 Australian LNG: Racing for Number One. When all LNG liquefaction plants in Australia under construction are completed, it will be the largest LNG exporter in the world with a production capacity of 86 mtpa (116.96 bcm), surpassing Qatar with a capacity of 77 mtpa (104.72 bcm). The liquefaction capacity of the new wave of LNG plants, 61.8 mtpa (84.05 bcm), that started construction in the 2010’s in Australia is almost 35% of all LNG consumption in Asia Pacific region in 2013, 178.04 Mt (242.13 bcm).[7] All of the Australian projects are planning to start operation before 2018, outpacing most of their competitors thus having an advantage in expanding their market shares in the Asian market ahead of others. Australian LNG projects are unlikely to compete with new LNG projects of other competitors for long term contracts, as almost all the production volumes are contracted with long term buyers. Australian companies have managed to maintain the oil indexation gas pricing system for their contracts, which is strongly preferred by many exporters. Amid strengthening competition, there are growing voices from buyers for lower prices and the inclusion of a hub pricing system in contracts. Considering that many projects have not taken final investment decision due to worries over finding buyers and right pricing, Australia is enjoying a significant advantage. However, since Australian LNG projects are among the most expensive in the world, the current low LNG price will remain a serious cause for concerns for Australian exporters.

Project Capacity mtpa (bcm) Start production
North West Shelf Train I/II 5 (6.8) 1989
North West Shelf Train III 2.5 (3.4) 1992
North West Shelf Train IV 4.4 (5.98) 2004
Darwin LNG Train I 3.6 (4.9) 2006
North West Shelf Train V 4.4 (5.98) 2008
Pluto LNG Train I 4.3 (5.84) 2012
Total in operation (2013) 24.3 (33.05)
Queensland Curtis Train I/II 4.3/4.3 (5.85/5.85) 2015
Australia Pacific Train I/II 4.5/4.5 (6.12/6.12) 2016
Gladstone LNG Train I/II 3.9/3.9 (5.3/5.3) 2015/2016
Gorgon LNG Train I/II/III 5.2/5.2/5.2 (7.07/7.07/7.07) 2016/2017
Wheatstone LNGTrain I/II 4.5/4.5 (6.12/6.12) 2016/2017
Itchys LNG Train I/II 4.2/4.2 (5.71/5.71) 2017
Prelude FLNG 3.7 (5.03) 2017
Total 62.1 (84.46)

Table 2. LNG export terminals in Australia

Source: International Gas Union, (2016), World LNG Report – 2015 Edition, IGU.

North American LNG projects: Shale gas reaches global market. Due to the ‘shale revolution’, North America will transform into a net gas exporter. As of February 2016, three trains of the Sabine Pass LNG project are under construction in Louisiana and the first train has started operation. Cameron LNG, Freeport LNG, Cove Point LNG and Corpus Christi LNG received necessary government approvals in June, July, September, and December, in 2014 respectively and started construction in 2014 and 2015.[8] All of these projects are brownfield projects and therefore require less development costs than the greenfield projects in other countries.

Quantity mtpa (bcm) Start year
Sabine Pass LNG 21 (28.56) 2016
Cameron LNG 13 (17.68) 2018
Freeport LNG 13 (17.68) 2018
Cove Point LNG 6 (8.16) 2017
Corpus Christi LNG 16 (21.76) 2018
Total 75 (102)

Table 3. U.S.LNG export terminals

Source: Federal Energy Regulatory Committee, (2016), North American LNG Import/Export Terminals Approved, FERC.

Twelve LNG export projects received approval for export from the National Energy Board in Canada but at the time of this article’s publication, no LNG export terminal
 is under construction.[9] The majority of the proposed terminals are located in British Columbia on the West Coast of Canada. Therefore, they have a geographical advantage for accessing the Asia Pacific market, compared to American LNG. However, Canadian projects have been facing delays due to various reasons such as low LNG prices, difficulties with finding long term buyers, and disagreement with local residents and the government over environmental issues. In October 2014, the development of the Prince Rupert LNG project was paused.[10] The majority of Canadian projects are expected to start production after 2020 and it is likely that many will not be realized. Canadian projects have difficulties in finding long term buyers. This is largely due to disagreements with buyers regarding prices and pricing systems. Many Asian buyers insist that the price be indexed to the Henry Hub, but Canadian LNG developers would not agree on it due to worries over profitability of projects.

East African LNG projects. Considerable amounts of gas were found on the Southeastern Coast of Africa, namely in Mozambique & Tanzania. The East African governments are planning to transform their natural gas assets into an export center by building LNG plants. Projects in Mozambique are at a more advanced stage. Italian and American operators, ENI and Anadarko, are planning to jointly build liquefaction plants and ENI intends to build a floating liquefied natural gas plant (FLNG) independently. Considering the volume of reserves and geographical advantage, Mozambique can be competitive supplier, not only for East Asian buyers but also for countries in emerging LNG markets, namely South Asia, Southeast Asia and Latin America.

Reserves Capacity mtpa (bcm) Planned production start
Mozambique 945-1470 million tonnes recoverable natural gas (1285-1999 bcm) Initial capacity 20 (27.2) with plans to expand to 50 (68) + FLNG (Initial capacity 2.6 (3.54). with plans to expand to 7.8 (10.6) 2020 –
Tanzania 315 million tonnes (428 bcm) 10 2020 –

Table 4. LNG export terminal projects in Tanzania and Mozambique

Source: Mozambique LNG, (2016), Mozambique LNG. Available at: [Accessed 20 February 2016]; BG Group, (2016); TANZANIA, BG Group. Available at: [Accessed 20 February 2016].

Russia’s LNG projects. The Russian energy company, Novatek, took a final investment decision to build an LNG plant on the Yamal peninsula in Northwestern Siberia shortly after the Russian Federation abolished Gazprom’s gas export monopoly on December 1, 2013.[11] As Russia seeks to diversify gas exports, LNG, together with gas pipelines to China, is viewed as an important way to achieve this goal. Diminishing demand and increasing competitiveness with coal, renewables and other gas exporters makes the market situation in Europe less favorable to Russia than in the past. One advantage of LNG, compared with pipeline export, is demand security. Unlike pipelines, which can export gas only to limited buyers, LNG can reach all customers with LNG import terminals. For example, Yamal LNG will export gas not only to Asia (China) but to European buyers as well.

Gazprom and Rosneft have additional plans to build liquefaction plants in Vladivostok and on Sakhalin Island. Sakhalin II LNG, Russia’s first LNG project launched in 2009, has already established itself as a reliable partner to buyers in Asia. It has been producing LNG more than its nameplate capacity from 2010, the first year when production reached its production capacity (Figure1). It shows that demand
 for Sakhalin LNG is production-constrained, meaning that there is more demand for it. Considering there are projects that cannot fulfill their supply commitment for their buyers, Sakhalin LNG can be regarded as a reliable supplier to buyers.

The geographical proximity of projects in Vladivostok
 and Sakhalin Island to the biggest buyers in the world will serve as a great advantage over their competitors. If all of 
the planned projects in the Russian Far East are completed, together with Yamal LNG, the total LNG export volume could reach about 1/3 of Russia’s total gas export volume.

JSung graph1

Figure 1. Production volume/Production capacity ratio of Sakhalin II LNG project

Source: Sung, J. (2015), Competitiveness of Russian Gas in Asian and European Market in Changing Market Environment [Powerpoint slides] ENERPO program, European University at St. Petersburg, 24 April.

Project Capacity mtpa (bcm) Current status Start operation Operator
Sakhalin II 9.8 (13.3) In operation 2009 Gazprom
SakhalinII expansion 4.8 (6.53) Planned 2018 (Planned) Gazprom
Yamal LNG 16.5 (22.44) Under construction 2017 Novatek
Vladivostok LNG 15 (20.4) Planned 2020- ? Gazprom
Sakhalin I 5 (6.8) Planned 2020- ? Rosneft
Total 51.1 (69.5)

Table 5. Russian LNG export projects for Asia Pacific market
Source: Rudnitsky, J. (2012), Gazprom Expansion of Sakhalin-2 LNG Plant May Cost $7 Billion, Bloomberg, 30 January. Available at: [Accessed 20 February 2016]; Gazprom, (2016), Vladivostok LNG project, Gazprom. Available at [Accessed 20 February 2016]; Rosneft, (2014), Rosneft and ExxonMobil Extended Agreement on Implementation of the Far East LNG Project, Rosneft, 23 May. Available at: [Accessed 20 February 2016].

Major LNG Importers In the Asia Pacific Region

China: Will it continue to be a driver of LNG market growth? China has been the fastest growing LNG market in the world in terms of volume. China’s LNG imports have more than tripled over a five­year period from 5.7 mtpa (7.75 bcm) in 2009 to 18.60 mtpa (25.3 bcm) in 2013. The advantage of gas as a cleaner fuel helps drive market growth even further in China where air pollution has become a serious problem. China announced a plan to ban construction of new coal­fired plants in three key industrial regions around Beijing, Shanghai and Guangzhou. 
It also aims to cut coal’s share of the country’s total primary energy mix to below 65% by 2017, while increasing the share of nuclear power, natural gas and renewable energy. Coal consumption in China accounted for 67.5%
 of total energy use in 2013.[12]

However, China’s role as a driver of LNG market growth has somewhat diminished. In 2014, its LNG imports had virtually no growth in comparison with the previous year. In 2015, China’s LNG imports recorded its first ever decline.[13] Even before the slowdown of the economy and gas consumption, China was well-contracted or in other words, over-contracted. As a result of over-contracted long-term LNG import volumes and a reduction of gas demand, China is planning to resell part of the contracted volumes in the international market.[14]

There are mixed outlooks on whether between 2020
 and 2025, after the construction of the Power of Siberia and Central Asia Line D pipelines, China will need new LNG contracts. This will largely depend on:

  1. Whether pipelines can be constructed on time;
  2. How fast the pipelines will reach full production 
  3. The level of gas demand in China;
  4. Successes in the domestic development of unconventional gas.

With the addition of pipeline imports (63 bcm with 36 bcm from Russia, 25 bcm from Central Asia), total
 pipeline import capacity will exceed 130 bcm. However, it is clear that new pipeline imports will take much
 of the share of LNG imports and China will be in a good position as a swing buyer in international gas markets between pipelines and LNG.

Japan: The return of nuclear reactors. After the Fukushima disaster on March 11, 2011, all nuclear reactors in Japan underwent safety inspections. Of the 43 operable reactors that are potentially able to restart, 24 of them are in the process of restart approvals. As of February 2016, two nuclear reactors, Sendai I/II went back into opera
tion in August and October of 2015 respectively, after receiving final approval from the NRA[15] and local governments.[16] The capacity of nuclear generation was taken over by natural gas, coal and heavy oil with natural gas grabbing the largest share. As some operable nuclear reactors will gradually come back online, it is anticipated that gas consumption will slowly start to decrease although not as much as the electricity generation capacity of nuclear reactors since oil will be first forced out. Oil is primarily used as a pick shaving generation fuel in Japan. The restarting of nuclear reactors is a slow process and considering that many reactors are not going through the regulatory process for reoperation, it is unlikely that nuclear will regain its previous share of over 25% in electricity generation.

South Korea: Natural gas loses shares in the domestic market. South Korea’s LNG imports rose by 7.9% between 2003 and 2013 annually[17] due to development of infrastructure and consumption increases in the industrial and power sector. In 2014, LNG imports decreased after the restart of nuclear reactors that were closed for safety inspections in 2013 when the scandal of faked certificates of components erupted and reactors were closed for the replacement of components. No other country in the world decreased LNG imports as South Korea had 
in 2014. According to the 2nd Energy Base Plan announced in January of 2014, the Korean government plans to cut its reliance on nuclear power to 29% of the total power supply by 2035, down from the previously planned 41 percent. By the outlook of Ministry of Trade, Industry and Energy
of Korea, gas consumption will grow by 1.93% annually until 2035. It suggests that South Korea needs new long- term contracts to cover demand in the next couple decades. However, in 2015, South Korea gas imports recorded another shocking fall in LNG imports, down from 
39.8 mtpa (54.13 bcm) in 2013 to 33.3 mtpa (45.29 bcm) in 2015, decreasing by almost 17% in two years. Worried by the contraction of demand, KOGAS has offloaded 
its excess long-term LNG import contracts equaling 4mtpa to EDFT of France in 2015.[18] It is believed that a large
part of the 4 mtpa (5.44 bcm) offloaded volume includes LNG contracts with Sabine Pass LNG. KOGAS already sold 0.7 mtpa (0.95 bcm) out of its 3.5 mtpa (4.76 bcm) LNG import commitment from Sabine Pass LNG to TOTAL,
 which means it has resold all of its contracted volume with Sabine Pass to French companies.[19] Unlike many long-term LNG contracts that have destination clauses, long-term contracts with American LNG exporters are based
 on a FOB[20] basis. Therefore, LNG contracts with American exporters became the first to be resold.

India: Leading importer in South/Southeast Asia. Different outlooks suggest that current LNG contracted volume 
and domestic production cannot cover the domestic gas demand of India. The gap between India’s needs and its domestic production will continue to grow as consumption is expected to increase and domestic production decreases. Natural gas production in India declined by 36% between 2010 and 2013.[21] The gap can only be covered by LNG imports for the time being since, at the time of this article’s publication, it is not clear when or if the TAPI pipeline from Turkmenistan will commence.[22]

Emerging LNG markets – Southeast Asia, the Middle East and South America. Countries in Southeast Asia, the Middle East and South America are expanding their LNG import facilities. Thailand was the first country in Southeast Asia to receive LNG cargoes in 2011. Indonesia and Malay
sia, traditional LNG exporters in the region, started LNG imports in 2012 and 2013 respectively. In the Middle East, Kuwait was the first country to import LNG in 2009 and in South America, Argentina started LNG imports 
in 2008. LNG imports are growing fast in these regions and new regasification facilities are being built in Indonesia, Singapore, the Philippines, Jordan, Vietnam and other countries. The combined factors of population growth, economic development, and the growing popularity of gas
for electricity generation are driving demand in these countries. Total combined LNG imports in Southeast Asia, the Middle East and Latin America in 2013 reached 28 million tons (38 bcm), exceeding LNG imports in China (18.6 Mt) and close to the combined LNG imports in China and India (31.65 Mt) (Figure 6). Argentina has substantial conventional and unconventional gas reserves but has been experiencing production declines. This caused
 a moratorium of pipeline gas exports to Brazil, Chile
, and Uruguay and at the same time, it accelerated LNG imports in Argentina, Brazil and Chile. In the short term, LNG imports in the region are anticipated to rise. If Brazil and Argentina succeed in expanding production considerably, realizing their vast potential, domestic production may meet increasing demand and decrease LNG imports in the long run. However, LNG imports in the Middle East have been steady for the past several years with annual imports stabilizing in the range of 3­4 mtpa (4­5.5 bcm). Low natural gas prices, population growth and rising demand for electricity and the industrial sector have given domestic natural gas production difficulties in meeting demand in some countries in the region. At the same time, natural gas is increasingly gaining its popularity
as a replacement for crude oil in the power sector with the purpose to increase crude oil exports and on its merit as a cleaner energy resource.

Total capacity of regasification facilities in the Middle East is expected to reach almost 40 mtpa (54.4 bcm)
by 2020, which is around 4-fold of the current capacity. Abu Dhabi is planning to build a regasification plant with
 9 mtpa (12.2 bcm) capacity to meet its electricity demand and in Kuwait, a new onshore regasification terminal is being developed to replace the current offshore terminal and expand their receiving capacity. Southeast Asian countries can be considered as the leading emerging LNG market as geographical characteristics of Malaysia, Indonesia, and the Philippines, and growing deficit of gas in the countries such as Thailand and Vietnam make LNG a more suitable way of gas supply. The IEA expects that gas consumption in Southeast Asia will rise by 80% to 250 bcm in 2035. At the same time, net exports of gas from Southeast Asian countries will decrease from the current 62 bcm to 14 bcm by 2035.[23] The outlook suggests that a large part of increased demand will be supplied by LNG imports as there are limited opportunities in the development of new international pipelines.

JSung graph2

Figure 2. Growth of LNG import at emerging markets
Source: Sung, J. (2015), What to expect for Russian LNG? (Что ждет российский СПГ?), Neft Rossii, July-August. Available at: [Accessed 20 February 2016].

JSung graph3

Figure 3. Average annual LNG import price in Japan
Source: Ministry of Finance Japan, (2016), Trade Statistics, Ministry of Finance Japan. Available at: [Accessed 20 February 2016].

Price-competitiveness of Russian LNG with Traditional LNG Exporters

Terms of every long-term gas contract are different. There- fore, the price of each contract is different. As shown on Figure 3, price differentials between Omani LNG and Indonesian LNG to Japan in 2013 are around $5/mmbtu. LNG contracts signed between Yemen and KOGAS in 2004 and between Gazprom and KOGAS in 2005, were particularly favorable to the buyer as a strong buyers’ market was formed at the time of signing the contract and
 also due to increased competition among new LNG projects. LNG prices for Japan from Sakhalin II, Russia’s

first LNG project started in 2009, is also maintaining its price-competitiveness over other exporters. Even though Russian LNG prices to Japan are higher than Korea, they were staying at more acceptable levels for Japan amid rocketing LNG import volumes and prices after Fukushima disaster. The price of Sakhalin II LNG for Japanese buyers remained lower than those of its competitors from 2010 to 2014 except for LNG from Oman.

Sakhalin (Aniva Bay) Middle East
Shipping days 3-5 days ~20 days
Shipping cost $0.5/mmbtu ($14/bcm) $2/mmbtu ($56/bcm)
Choking point No Malacca straight (Pirates/Tanker congestion)
Distance ~1500km ~15-6000km (Qatar to Korea/Japan)

Table 6. Sakhalin II LNG and LNG from Middle East

Source: IEA, (2014), The Asian Quest for LNG in a Globalizing Market, International Energy Agency. Available at: [Accessed 20 February 2016];

Harada, D. (2014), Updating Russian Crude Status in Japan Rising LNG Projects Targeting Asia Pacific Market, Japan Oil, Gas, and Metals National Corporation, 17 April. Available at: [Accessed 20 February 2016].

JSung graph4

Figure 4. Price-competitiveness of Russian and American LNG in Japan and Korea

Source: Trade statistics, Korea Customs Office; Trade statistics, Ministry of Finance Japan modified by author; Petroleum Association of Japan, Oil import price; EIA, Natural gas price. Data and statistics are modified by author.

Price Price competitiveness of Russian LNG (JCC indexed LNG) Price competitiveness of American LNG
JCC   ↑
JCC   ↓
Henry Hub   ↑
Henry Hub↓

Table 7. Price-competitiveness of LNG with crude oil and Henry Hub indexation

Source: Author’s analysis.

JSung graph5

Figure 5. Breakeven price of global LNG projects

Source: Complied by ERI and IEEJ, based on various sources; Energy Research Institute of the Russian Academy of Sciences, (2014), A New Option for Russia’s Gas Supply to Japan, ERIRAS, 16 May. Available at: Gas_Supply_to_Japan.pdf [Accessed 20 February 2016].

Planned Russian LNG projects in the Far East have a lot of merits such as lower transportation costs to major buyers such as Japan, South Korea, China and Taiwan. Shorter shipping days to buyers will make them more competitive in comparison with other exporters. Another advantage of Sakhalin LNG is that tankers do not have to pass so-called “choke points” such as the Malacca and Hormuz straits which are at times politically charged and heavily congested with tanker traffic.

The light blue line of Figure 4 shows Henry Hub prices between 2010 and 2015 translated into possible American LNG DES[24] prices to East Asian countries according to pricing formula of the Sabine Pass LNG export contract with KOGAS. Sakhalin II LNG prices for Japan are in line with 
the JCC price movement as the price of Sakhalin LNG is indexed to crude oil prices and Henry Hub prices and American LNG indexed to Henry Hub prices are moving independently. During lower JCC prices and a higher 
Henry Hub price period (year 2010), prices of Russian LNG to Korea/Japan were lower than American LNG calculated by the Sabine Pass LNG pricing formula for the KOGAS contract.[25] As the JCC price moves upwards and Henry Hub prices downwards, possible American LNG prices gradually became lower than Russian LNG in 2011 and 2012. 
In 2013, the JCC[26] remained slightly lower than in 2012 and Henry Hub prices higher. However, increased Japanese spot imports due to suspension of nuclear reactors in Japan have raised LNG import prices, which made Russian LNG prices for Japan move not in line with JCC prices in 2013. Russian LNG prices to Korea maintained low levels until 2013 because long term LNG prices between Gazprom and Kogas were fixed at $3.5/mmbtu ($98/bcm).[27] However, it is difficult to be used as a reference for future contracts as it is unlikely such a condition will be repeated. 
It is not exactly known what caused the price hike of Russian LNG to Korea in 2014 and 2015. It is believed to be a result of price renegotiation between KOGAS and Sakhalin Energy or the influence of higher spot LNG import prices. Considering spot LNG prices remained below $10/mmbtu throughout 2015, it is believed that there has been pricing renegotiation between the two parties.

Despite the shocking price fall of the JCC from $105/barrel in 2014 to $56/barrel in 2015, possible annual average of U.S. LNG prices in Korea and Japan were slightly lower than Russian LNG prices. It is a result of very low Henry Hub prices, which decreased from $4.37/mmbtu in 2014 to average $2.62/mmbtu in 2015. Although it is expected that the Henry Hub price will rise due to the large volume of LNG export and pipeline export to Mexico, however, it is difficult to predict by how much. At a Henry Hub price level of $3/mmbtu, Russian LNG as well as LNG indexed to the JCC will require prices below $60/barrel to be competitive with U.S. LNG.

Despite huge volumes of planned LNG export projects around the world, few anticipate that all of the planned projects will be realized. Projects that cannot find long­term buyers will have to cancel or delay their projects. Under the current market situation with lower oil prices and increased competition, long-term contract LNG prices as well as spot LNG prices plummeted at the end of 2014. The realization of LNG projects will depend on whether project development costs are low enough to maintain profitability with lower LNG price market environments and projects can be constructed in time to meet the buyers demand. According to Figure 5, researched by ERIRAS and IEEJ, the Sakhalin II expansion project requires the lowest break-even price among Russian projects, which is in the region of $6.8/mmbtu as expanding production capacity costs less than building a new plant. Project costs of Vladivostok LNG turned out to be the most expensive with a breakeven price at around $11.2/mmbtu. Current trends of lower LNG prices and growing competition are posing bigger risks for LNG project developers. Shell decided to abandon their Arrow LNG project in Australia[28] 
and Gazprom is looking at possibilities of dropping Vladivostok LNG and instead supplying more pipeline gas to China.[29] The future of the
 Sakhalin I LNG project by Rosneft also looks unclear due
to combined factors of low international gas price and high development cost. Gazprom and Shell have agreed to expand Sakhalin II LNG,[30] however the Sakhalin II expansion plan may face delays and at the time of writing as it was included in the list of economic sanctions.[31]


The Asia Pacific market had been the fastest growing LNG market with the highest prices in the world. Large price differentials between Asian markets and others together with growing demand motivated countries such as Russia, Australia, US/Canada and Mozambique/Tanzania to join the race for the lucrative market. However, as soon as the new wave of LNG projects was introduced into global market, Asia Pacific LNG markets stopped expanding and prices began to plummet as a result of oversupply and the oil price fall beginning from the second half of 2014. Price risks are posing problems on the profitability of projects that have high development costs.

Russian LNG projects have a clear advantage over their competitors. The location of projects in the Russian Far East makes them the closest LNG producers to major LNG importers in the world. Prices of Sakhalin LNG maintained reasonable levels for Japan when LNG prices to Japan sky-rocketed after the Fukushima disaster and due to high oil prices. Transportation routes from Russia to the East Asian countries don’t include choke points such as the Malacca Strait where there is tanker traffic congestion. Sakhalin LNG has a price advantage over its competitors from the Middle East and Australia thanks to low transportation costs. The oil price collapse made Russian LNG price-competitive with Henry Hub indexed U.S. LNG, a potent newcomer in the market. The fact that Sakhalin LNG has been selling more than its production capacity each year proves that it is one of the preferred suppliers for buyers.

While Russian LNG projects have their clear merits, they are not without problems. Except Yamal LNG, which is already under construction, other LNG projects under planning such as the Sakhalin II LNG expansion, Sakhalin I and Vladivostok LNG have been facing lengthy delays for various reasons.

It is anticipated that the Asia Pacific market will stay oversupplied and price will not return to previous levels
 in the region of $15/mmbtu for the foreseeable future. 
The launch of the Power of Siberia pipeline to China 
and the completion of restarts of nuclear reactors will clear market uncertainty and considering the prevailing unfavorable market situation with oversupply and stagnating demand, it is believed that there will be more opportunities for projects with higher development costs such as Vladivostok LNG and Sakhalin I going forward into the 2020’s. However, the Sakhalin II expansion project will have fewer difficulties to find buyers as it has very low development costs and has established itself as one of the successful projects and most reliable suppliers.

Jinsok Sung

Researcher and PhD candidate at Gubkin Russian State University of Oil and Gas. Jinsok’s doctoral dissertation is titled “Gas pricing system in Asia Pacific market: influence of Europe and USA.” Jinsok had previously worked at the Gazprom Institute on Yamal Peninsula (2011) and at the Moscow office of Japan Oil, Gas, Metal Corporation JOGMEC (2012).

Address for correspondence:

[1] GIGGNL, (2014), The LNG Industry 2014, International Group of Liquefied Natural Gas Importers. Available at: [Accessed 20 February 2016].

[2] Million tons per annum. All units converted to billion cubic meters with BP conversion factors

[3] Korea Customs Office/Japan Ministry of Finance.

[4] International Gas Union, (2016), World LNG Report – 2015 Edition, IGU.

Available at: [Accessed 20 February 2016].

[5] Schaps, K. (2014), UPDATE 1-BG to export first Australian LNG cargo to China, Reuters, 29 December. Available at: [Accessed 20 February 2016].

[6] EIA, (2016), Natural Gas Gross Withdrawals and Production, U.S. Energy Information Administration. Available at: [Accessed 20 February 2016].

[7] International Gas Union, (2016), World LNG Report – 2015 Edition, IGU. Available at: [Accessed 20 February 2016].

[8] Federal Energy Regulatory Committee, (2016), North American LNG Import/Export Terminals Approved, FERC. Available at: [Accessed 20 February 2016].

[9] National Energy Board of Canada, (2016), Export and Import License Applications, NEB Canada. Available at: [Accessed 20 February 2016].

[10] Morgan, G. (2014), BG Group puts Prince Rupert LNG plans on hold, Financial Post, 29 October. Available at: [Accessed 20 February 2016].

[11] Gazprom Lost its Monopoly (У “Газпрома” отобрали монополию). Vedomosti, 3 December. Available at: [Accessed 20 February 2016].

[12] Watt, L. (2013), China bans new coal-fired plants in 3 regions, Associated Press, 12 September. Available at: [Accessed 20 February 2016]; BP Statistical Review of World Energy 2014/Country Insight/China.

[13] Sikorski, T., Tertzakian, A., (2016), China gas data, Energy Aspects, 26 January. Available at: [Accessed 20 February 2016].

[14] Wan, K. (2015), China’s LNG surplus heads west, Argus, 8 September. Available at: [Accessed 20 February 2016].

[15] Nuclear Regulation Authority

[16] World Nuclear Association, (2016), Nuclear Power in Japan, WNA, 29 March. Available at: [Accessed 20 February 2016].

[17] Ministry of Trade, Industry and Energy of Republic of Korea, (2014), The 2nd Energy Base Plan, Ministry of Trade. Available at: [Accessed 20 May 2016].

[18] Vukmanovic, O. (2015), Korea Gas Corp offloads excess LNG supply on to France’s EDF, Reuters Africa, 11 November. Available at: [Accessed 20 February 2016].

[19] Lee, C. (2014), Korea Gas formalizes deal to resell part of US Sabine Pass LNG to Total, Platts Korea, 7 January. Available at: [Accessed 20 February 2016].

[20] Free On Board

[21] EIA, (2016), International Energy Statistics: Dry Natural Gas Production 2009-2013, EIA. Available at:,&syid=2009&ey-id=2013&unit=BCF [Accessed 20 February 2016].

[22] Reyaz, M. (2015), TAPI pipeline: A new silk route or a pipe dream?
Al Jazeera, 16 December. Available at: [Accessed 20 February 2016].

[23] Tan, F. (2016), Southeast Asia’s net oil imports to move than double by 2035-IEA, Reuters, 1 October. Available at: [Accessed 20 March 2016].

[24] Destination

[25] Sabine Pass LNG price formula for LNG export to Korea Gas Corporation P (LNG) = Henry Hub price * 115% + fixed capacity fee ($3/mmbtu) [18] + transportation fee to Korea/Japan via Panama canal ($3/mmbtu); Rogers, H., Stern, J. (2014), Challenges to JCC Pricing in Asian LNG Markets, Oxford Institute for Energy Studies, February. Available at: [Accessed 20 February 2016].

[26] Japan Crude Cocktail: Average crude oil import price of Japan

[27] Revenkov, V. (2013), Prices for Russian LNG to South Korea unreasonably

low, Gasweek via Institute for Economics and Finance, 9 October. Available at: [Accessed 20 February 2016].

[28] Wilkinson, R. (2015), Shell cancels Arrow LNG project, Oil and Gas Journal, 30 January. Available at: [Accessed 20 February 2016].

[29] TASS, (2014), Gazprom: exporting pipeline gas to China can be an alternative to Vladivostok LNG project, TASS, 10 October. Available at: [Accessed 20 February 2016].

[30] Golubkova, K. (2015), Update 1-Gazprom, Shell agree to expand Sakhalin-2 project, Reuters, 18 June. Available at: [Accessed 20 February 2016].

[31] Pinchuk, D., Golubkova, K., (2015), U.S. sanctions put Gazprom-Shell alliance plans in jeopardy, Reuters, Reuters, 10 August. Available at: [Accessed 20 February 2016].



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