Moscow (Voice of Russia) Sep 27, 2012 The Russian gas market will be undergoing a transformation over the course of the next 6-12 months. Renaissance Capital has released a new study on the industry outlining its prospects for the year, and urged investors to closely watch the coming developments.

In the near to medium term, Russian gas producers are expected to strengthen their ties with Asia, while regulation amendments, currently being discussed, should shake up the industry, improving its profitability and attractiveness.

At present, one of the key issues weighing heavily on the sector is the tax and royalty regime for geographically challenging areas.

Statoil's exit from the Shtokman project clearly highlighted this problem. Continuing to maintain high levels of tax collection is important for the political regime; however, it impedes the development of many next-generation fields, as investors remain wary and prefer to avoid Russia.

An ongoing EU probe into Russia's gas monopoly, Gazprom, in the region is yet another issue causing concerning. The investigation uncovered unfair competition and price-fixing, which raises a question mark over the company's position in Europe.

Furthermore, a broader theme, which could not be sidelined in the report, is the prospect of new gas supplies arriving on the market. Liquefied natural gas (LNG) shipments from the US or Canada to Europe will undoubtedly put further competitive pressure on Russia's Gazprom.

Experts at Renaissance Capital reiterated their confidence that North America would start exporting some amount of LNG in the near future, noting though that the scale and scope of the process would largely depend on the country's next leaders.

Not all of the industry experts would share this view though. Dr. Aviezer Tucker, assistant director of the Energy Institute at the University of Texas in Austin, speculated that, "whenever we are talking about energy, we are talking about long processes.

There is a revolution happening in the industry, but it is going to take five, ten or even fifteen years. Currently, it is illegal to export natural gas from the US. If we talk about Europe, the US will start exporting gas to the region only after it is allowed to export, and only after it starts exporting to East Asia."

The majority of industry insiders expect US politicians to address the issue of shale gas shipments fairly soon after the elections, implying that major changes might well occur in the near to medium-term.

In addition, another theme, which has caught the eyes of gas market watchers, is Gazprom's Asia strategy. There is ample opportunity for successful business in the continent through the company's full access to higher-priced markets, in order to balance its export portfolio and expand sales volumes.

Renaissance Capital postulated in the report that Gazprom's strategy will be LNG-driven, rather than pipeline-driven.

Having said that, analysts do not foresee Russia's gas giant signing a pipeline deal with China in the medium-term.

Gazprom instead is expected to announce an expansion to Sakhalin, as the company is currently undertaking a feasibility study for a Vladivostok LNG facility.

Another part of balancing the producer's portfolio is strengthening its ties with Indian gas importers. The report outlined this option as a desirable complement to Gazprom's current business in Asia.

Source: Voice of Russia