Archive for January, 2012

Russia, LNG and Access to the Sea

Tuesday, January 31st, 2012

Go back to the roots of Russian nationhood and you’ll find a key driver of its foreign policy interests: attaining access to the sea (any seacoast). Peter the Great was obsessed with this passion, but in my mind the quest actually started with Ivan IV because it was Ivan whose army and Kremlin-funded explorers ploughed through the Mongol front and expanded Russian territory well into Asia.

This 500-year-old obsession is alive today. And you can see it played out in Russia’s insistence that LNG has a place in the energy supply mix. With U.S.-influenced producers so focused on shale and other unconventional gas sources. In late January, Gazprom CEO Aleksei Miller and Sovcomflot’s General Director Sergei Frank meet and decided that Russia should ship LNG produced in the Arctic along a Northern Sea Route to the Asia-Pacific region. Gazprom quoted Miller in a press release as saying:  “With regard to gas exports to the region, the development of LNG production is an absolute priority in comparison with pipeline deliveries. Consequently, the deliveries of Russian LNG through the Northern Sea Route allows us to significantly reduce transportation costs, thus making the LNG highly competitive.”

Think about it! Peter the Great sought access through the Baltic Sea. That’s why control of Lithuania, Latvia and Estonia has historically been so important to Russia. And Russia has succeeded in controlling that territory off and on. But now those states are part of the European Union, and for Russia that means “hands off.” South is certainly no option. Russia’s czars in the 19th Century played “The Great Game” with Great Britain in Afghanistan and Central Asia in an attempt to gain access to the Indian Ocean. The Soviet Union’s good relationship with India had to do with this.
So today, we see the Kremlin and Gazprom are clearly playing to Russia’s future asset - the longest coastline of any country in the world — locked up in the Arctic Sea, but navigable from June to November.

In November, Oil&Gas Eurasia, wrote about the successful transit of the 3D seismic vessel Polarcus Alima from Norway to Asia-Pacific via Russia’s Northern Sea Route. Though the route is not open year round, it is open to navigation enough that it presents a viable shipping lane for Russian LNG to the Far East. And since the route is shorter and less costly than other routes, it enables Gazprom to price the gas to sell. NOVATEK has been using this sea lane for two years already.
In November, Oil&Gas Eurasia wrote about the tanker “Perseverance”, which carried 60,000 tons of stable gas condensate for NOVATEK, through the Bering Strait and into the Pacific Ocean. In 2011, a total of nine high-tonnage tankers carried NOVATEK’s stable gas condensate to the Far East. Russia’s Northern Sea Route (NSR) starts at the port of Murmansk and heads East to the Bering Sea passing Alaska. Tankers also go West to Europe and the United States and Canada from Murmansk (which is a year-round warm water port.) But LNG destined for those markets had to be rerouted when western buyers shifted gears in the direction of domestically produced shale gas. Europe could still use Russian LNG but the economics of shipping it are complex if the US market is taken off the table.

So we wait and see. According to NOVATEK, the NSR is an economically viable alternative to the existing routes through the Suez Canal and the Strait of Malacca, and a new link between Russia and Europe to countries of the Asian-Pacific region. Interesting. Imagine how far Peter the Great might have gotten if he’d just have had the right technology.

If you have an opinion on the NRS, Russian LNG policy or the ultimate contest between shale gas and LNG, please give us your comments.