Russia’s Eastern Gas Program

By Ben Priddy, November 29, 2012

To shield the Russian gas industry from the Western economic downturn, Gazprom should focus efforts on meeting rising demand in the Asia Pacific region, President Vladimir Putin told industry leaders on October 22 in Moscow. Putin added that a combined rise in North American shale gas production, weakening demand for gas in Europe, and the EU anti-monopoly investigation into Gazprom could weaken the company’s position as Europe’s main supplier of natural gas. Thus, it should look to the Asia-Pacific region to open a new vector of the Russian gas business, he explained.

The energy-hungry markets of China, South Korea, and Japan are in search of new supplies of oil and gas, seeking ways to reduce their domestic energy deficits. China, as the region’s largest market for oil and gas, is the primary target for Russia’s gas diplomacy. But a decade-long dispute over prices and pipeline routes has frustrated the Russo-Chinese gas partnership. How can Moscow overcome the disputes and expand Russian gas sales further into Asian markets? According to a meeting between Russian and South Korean experts the day after Putin’s remarks, the answer should be: first the Korean Peninsula, then the rest.

Gazprom’s Asian Vector

The Russian National Energy Security Fund held a forum in Moscow October 23 to discuss the strategic challenges of developing energy ties in the Asia-Pacific region. “Russia is a natural leader in Eurasia and has many [economic and security] interests in East Asia,” Gleb Ivashentsov, former Russian ambassador to South Korea, stated at the forum. “[However,] military and political interests of [regional] governments are growing…and dependence on energy imports [in these countries] might lead to increased competition over access to resources. There is a need for an East Asian partnership that enables cooperation between energy suppliers, transit states, and consumers,” Ivashentsov explained. Moscow, according to officials at the forum, should use the Eastern Gas Program to open an ‘Asian Vector’ for Russia’s gas industry.

Business, government, and think-tank representatives at the forum agreed that Moscow should focus initial efforts on linking Far Eastern natural gas fields to consumers on the Korean Peninsula, before expanding into other Asian markets. “The Republic of Korea is looking [to attract] new suppliers that would increase the diversification of the country’s natural gas imports,” according to Sergei Pravosudov, director of the Institute of National Energy.

South Korea, as the world’s second-largest importer of liquefied natural gas (LNG) after Japan, is almost completely dependent on gas imports to satisfy the country’s domestic demand. According to the U.S. Energy Information Administration (EIA), approximately 80 percent of South Korea’s LNG imports came from Qatar, Malaysia, Oman, and Indonesia in 2009, creating a number of energy security challenges.

LNG tankers destined for South Korea must first transit the Strait of Malacca – one of the world’s key energy chokepoints – before entering the South China Sea. A gas partnership with Russia offers an alternative to South Korea’s dependence on LNG imports through this volatile region. For the Russians, opening an “Asian Vector” for