Russia's New Business: LNG

Russia's new business: LNG

Russia will ship its first LNG from Sakhalin tomorrow. That will mark the entry of Gazprom into a new business line and signal Russia’s intention to be an important, if not dominant, player in the growing LNG business. Below is an Op-Ed on the recently formed so-called Gas-OPEC structure and how it is tied into the development of LNG as a potential major contributor to global energy.

Gas-OPEC

Russia, Qatar and Iran formally inaugurated a new gas exporters forum in Moscow last December. The intention is to expand its membership to include all of the world’s major gas export countries and to establish a permanent secretariat with a fulltime Secretary General. If this fledgling structure does succeed in bringing together the world’s major gas producers, and in establi shing some common goals, then20it may become a catalyst for a substant ial increase in upstream gas production, in transport infrastructure and, in particular, the development of LNG to be a more important global energy source.

Moscow views this forum as a mechanism to help it advance its goals of attracting more investment funds into its gas industry to substantially increase production volumes over the next two decades and also establishing Gazprom as a major global force in the LNG business. Yes, it would also increase Russia’s importance as an energy partner to both western and eastern consumers, but counter balancing this is the fact that, if LNG was more widely available and used in Europe this past January, then the fears over the disruption of the gas flows via Ukraine would have been substantially lessened.

It is also important to focus on why the Kremlin wants to promote gas as a more important factor in global energy, with Gazprom having a central role. It is not the Kremlin’s objective to have greater control over energy supplies so as to leverage for political gains or to hold consumer economies hostage. That has never been the case since gas first started20flowing from=2 0the former Soviet Union and it is not now. Energy, especially gas, is Russia’s competitive advantage. It has a lot of it and is well placed between east and west to efficiently export it. The current government has made very clear its long-term ambition to create a more diversified economy in Russia with a higher level of global integration. Bartering energy for increased trade and to increase investment access to the rest of the world is a key part of that strategy.

To develop the countries considerable gas resources and especially to establish LNG as a bigger portion of the global energy pool will require hundreds of billions of dollars in investment. Russia cannot afford to fund that own its own and nor does it want to. The gas exporters forum will provide a mechanism for creating joint development projects and for greater coordination to ensure that projects are commercial and relevant. Including both gas forum partners alongside industry investors in production projects located in Sakhalin, the Arctic and Yamal Peninsula, plus proposed new LNG plants on the Baltic Coast and Murmansk, will ensure that these can proceed at a faster pace than if Russia was left alone to develop them. That makes a lot of sense not only to the Kremlin but for consumer countries also. That’s why the EU, in particular, and other ener gy importe rs needs to have a close involvement with the new structure.

 - Copyright 2009, Ural Sib. All rights reserved.

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