Russia is promising tax breaks to lure foreign investors to strategic gas development projects on the Yamal peninsula, despite current demand levels which make them marginal value.

Gas deposits in the Yamal Peninsula are counted in the trillions of cubic metres, making up about 70% of Russia's reserves. The Bovanenkovo deposit alone may yield 140 billion cubic meters a year. But billions of dollars are needed to extract the fuel from the permafrost, and Artyom Konchin from UniCredit says there is currently insufficient demand to make it worthwhile.

“The biggest problem is that we don’t really see as much of restoration in the consumption volumes and apparently the company itself doesn’t expect the same level of consumption in Europe until 2013. So, we do have a dip and it’s going to be slow to recover on top of new reserves arriving to the European markets in the way of LNG imports or conventional gas production.”

Responding to the demand slide, Gazprom, last year, announced launch delays for both the Bovanenkovo and Shtockman projects until the end of 2012. Dmitry Lyutyagin, chief analyst at Veles Capital says that may interfere with Gazprom's plans to expand its short term presence in the LNG market.

“Russia's share in LNG is now about 2%, but the goal is 20%. The delay of such projects as Bovanenkovo and Shtokman means that the construction of facilities to produce liquefied natural gas will also be postponed.”

Hoping for a fast demand recovery, Russia is keen to pursue the Yamal deposits however, and is inviting foreign investors to take part. Prime Minister Putin, visiting the region, even promised tax breaks for investors developing new gas fields.

But with Gazprom currently a production capacity of about 600 billion cubic metres a year, there is no need to rush. A greater call on available funds coming from transportation projects like Nord Stream and South Stream, or managing its $54 billion debt, and this means that Yamal is likely to be some time away from development.