Russia energy

By Joseph Dobbs, European Leadership Network

Russian aggression towards Ukraine this past year has seen Vladimir Putin, the Russian president, lambasted by Western leaders. China has desisted from such criticism and instead signed two major gas deals worth hundreds of billions of dollars, co-operated in establishing a new development bank, and conducted joint military exercises. For some, Russia and China’s co-operation demonstrates their potential to challenge the global order. But in reality Russia’s pivot east faces too many hurdles to represent a viable alternative to working with the West.

Russia and China have much in common. Both states are increasingly nationalistic and share a common perceived threat of Western containment. In Russia’s case this threat comes primarily from the potential expansion of the North Atlantic Treaty Organisation (Nato). China’s perception of US containment strategies derives mainly from the American military presence in East Asia. Leaders in Moscow and Beijing have both watched with unease as the West supported the Arab Spring and the so-called “colour revolutions” that rocked the likes of Georgia, Ukraine and Kyrgyzstan. Read more

Vladimir Putin seemed pretty emphatic on Monday that Russia would stop construction of the South Stream gas pipeline, shelving a strategically important project that Moscow was counting on to cement its influence in south-eastern Europe.

Speaking after talks with President Recep Tayyip Erdogan, his Turkish counterpart, in Ankara, Putin said Russia would abandon the project to bring Russian gas to Bulgaria under the Black Sea, bypassing Ukraine, unless the EU dropped its opposition.

But does this really mark the full stop that it appears to be? It is true that Alexei Miller, CEO of Gazprom, the company charged with building the pipeline, told reporters: “that’s it, the project is closed”. But analysts see a more subtle game in play. Read more

As European leaders threatened yet tougher sanctions to punish Russia for its aggressive policies in Ukraine on Monday, Vladimir Putin was thousands of miles away in oil rich east Siberia making friendly with a visiting Chinese official.

“On the whole we are very careful about allowing our foreign partners in, but of course for our Chinese friends there are no limits,” Russia’s president said.

China is emerging as the winner in the Ukraine crisis even as Russia’s relations with the US and the European Union go from bad to worse. It has secured a huge gas deal with Gazprom and is making strides towards greater involvement in the Russian oil and gas production. Read more

Rosneft has raised the stakes in its campaign to strip Gazprom of its monopoly over Russian gas exports. In a sharply worded statement on Tuesday, Russia’s state oil company threatened to take Gazprom to court unless it opened up a planned pipeline to China to rival gas producers.

Gazprom has been gearing up to build the Power of Siberia pipeline since signing a $400bn gas export contract with China in May. Linking vast Gazprom controlled gas fields in east Siberia with the Russian Pacific, the 4,000km pipeline will feed gas to domestic consumers and to the Chinese border. Read more

As western governments impose sanctions on Russia, international majors with interests in the country have stayed out of the fray, saying it’s business as usual. France’s Total, for one, was not going to let the Ukraine crisis halt plans to finalize a deal with Russian Lukoil this week that paves the way for exploration of tight oil reserves in western Siberia.

Total has entered a joint venture with Lukoil to explore the tight oil potential of the Bazhenov formation in western Siberia, the French company said on Friday. Lukoil will have a controlling 51 per cent interest of the project, with Total holding the remaining 49 per cent. After conducting seismic surveys this year, the partners expect to begin drilling in 2015. Read more

By Andrew Foxall of The Henry Jackson Society

Russia may have completed decade-long negotiations to sell gas to China in a deal worth US$400 bn over the next 30 years, but the agreement barely begins to paper over the all-too-obvious cracks in Russia’s weakening economy. Moscow’s stock market reacted positively to the deal, but it is down 4.8% year-to-date. Elsewhere, all other indicators of economic prosperity in Russia have decreased since the start of 2014.

Russia is more dependent on the global economy than it ever has been. And it seeks even greater dependency – as President Putin made clear in his opening remarks to the St Petersburg International Economic Forum earlier today. On the one hand, dependency brings with it obvious benefits. On the other, it leaves a country much more open to the vagaries of investor sentiments and perceptions of political risks as well as expected economic returns. Read more

As Gazprom bullies Ukraine to settle its $3.5bn gas arrears, Russian domestic gas consumers are also running up multi-billion dollar debts. Ukraine is broke and Russian buyers, hit by the economic downturn, will struggle to pay up. Just as well then that Gazprom has finally clinched a $400bn gas contract with China which opens up a new potential market in the east from 2018.

Gazprom’s customers owed Rbs115.8bn ($3.35bn) for gas at the end of 2013, almost 40 per cent more than on December 31st 2012, Kirill Seleznev, director general of Mezhregiongaz, Gazprom’s gas distribution subsidiary, told reporters in Moscow this week. Read more

With the Ukraine crisis casting a shadow over Russia’s gas trade with Europe, Gazprom has moved to shore up relations with Turkey, its second biggest foreign gas customer after Germany. In talks in Ankara on Monday, Russia’s state gas monopoly agreed to boost capacity in the Blue Stream pipeline that transports gas across the Black Sea to northern Turkey.

On a working visit to Ankara on Monday, Alexander Medvedev, deputy head of Gazprom, met Taner Yildiz, Turkey’s energy minister, for talks aimed at boosting gas co-operation between the two countries. The two men agreed that capacity in Blue Stream should be upgraded to to 19bn cubic meters a year from 16bn cubic meters a year to enhance Turkish energy security. Read more

Russia brushed off the threat of western energy sanctions on Friday and pledged to press ahead with plans to build a new gas export pipeline that would strengthen its hold on European gas markets.

Russia is continuing work on the 2,500km South Stream pipeline that will carry gas across the Black Sea to southern and central Europe, Alexander Novak, Russian energy minister told a press conference in Moscow on Friday. Read more

Russia is pushing ahead with a $4.9bn project to expand the East Siberian Pacific Ocean oil export pipeline as surging oil demand from China and other east Asian consumers attracts oil sales at the expense of Europe.

Transneft, Russia’s state pipeline monopoly, won government approval for its investment program on Tuesday clearing the way for Espo’s capacity to more than double by 2020. Read more

Russia’s second largest oil producer Lukoil has put on ice its plans to list on the Hong Kong Stock Exchange. Lack of an accord between Russian and Hong Kong regulators means Lukoil has, for now, shelved its plans for a $1bn to $2bn secondary listing.

This is despite the company being keen to find Chinese partners for its big overseas operations as it gears up to ship more oil and products to the Asian giant. Read more

Russian gas exports to Europe jumped by 25 per cent in September, continuing a year-on-year rally that has been supporting sentiment towards Gazprom’s stock. While investors in Gazprom can expect fatter dividends this year on the back of rising export earnings, there’s a risk that the surge in European demand for Russian gas will be short-lived. Read more

Be nice to the little guy

Rosneft has finally caved in to pressure and offered to buy out minority shareholders in TNK-BP at a premium to the market price.

Minorities believe they got a raw deal when Rosneft took over the Anglo-Russian oil major this year and are hoping to do better. Rosneft thinks it’s doing them a favour, but the end to this saga is still a long way off. Read more

The hunt is on to replicate the US’s shale boom, and Russia is seen as a contender. FT energy editor Guy Chazan visits the Bazhenov shale formation in western Siberia, where Russian and foreign companies are trying to extract its riches.

Photo: Bloomberg

Commonsense would suggest that TNK-BP, in the process of being swallowed up by Rosneft, would be collaborating with Russia’s state oil company by now.

Instead the Anglo-Russian oil major went head to head with Rosneft at the auction of a big east Siberian oil field last month and came out on top. Read more