Oil Report

ANALYSIS-Russia needs partners in Asia energy race

MOSCOW, Feb 18 (Reuters) - By opening its first LNG plant and sealing a 20-year oil supply deal with China, Russia has taken huge steps this week toward its long-held aim of expanding its influence in Asia’s hungry energy markets.

To cement this role, Moscow may still need the help of international partners with the expertise to develop complex oil and gas projects and the financial clout -- especially in the case of China and Japan -- to drive such plans to conclusion.

Russia, the world’s largest energy supplier, plans by 2030 to boost its share of the Asian energy market to between 21 percent and 32 percent, from about 4 percent currently, said Valery Nesterov, oil and gas analyst at Troika Dialog brokerage.

"It's the first step toward securing its ambitious goal of taking up 20 or 25 percent of world LNG exports in future," he said, referring to the launch on Wednesday of the Sakhalin-2 project, controlled by gas export monopoly Gazprom GAZP.MM.

The launch comes a day after state-controlled oil champion Rosneft ROSN.MM and pipeline firm Transneft secured a $25 billion loan from Beijing in return for oil supplies to fuel the Chinese economy over the next two decades. [ID:nLH444229]

Russia, the world’s second-largest oil exporter after Saudi Arabia, has long sought to diversify its exports away from the West and is targeting China as the main market for oil that will be extracted from a new generation of fields in East Siberia.

Diversifying into Asia offers Russia an alternative to Western markets, where Gazprom already supplies a quarter of Europe’s gas needs, and gives the Kremlin more political clout on its eastern borders.

“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,” said Chris Weafer, chief strategist at investment bank UralSib.

The LNG plant on the Pacific island of Sakhalin will supply 5 percent of world demand for the super-cooled gas when running at full capacity of 9.6 million tonnes per year. Top LNG buyer Japan will secure 7.2 percent of its imports from the plant.


Extending its influence in Asia, say analysts, will require Russia to fulfil more production and infrastructure projects, the cost of which could be shared with consumers.

In order to satisfy oil demand, Transneft must first complete its 600,000-barrels-per-day pipeline to the Pacific and a spur to carry half of this amount to China’s pipeline network.

The $10 billion China is lending to Transneft TRNF_p.RTS as part of the overall $25 billion loan should accelerate the completion of the project but, analysts say, underlines Russia's need for help in developing its ambitious energy projects.

Prime Minister Vladimir Putin surprised investors last month when he called for “mutual access” to energy assets, saying Russia -- which is entering its first recession in a decade -- should not refer to “isolationism” in the field of energy.

Foreign energy majors, stung by previous experiences in Russia, might need some persuasion to partner with the Kremlin, which tightened its grip over the country's natural resources during a decade-long economic boom driven by high oil prices. Royal Dutch Shell RDSa.L retains only a minority stake in Sakhalin-2 after ceding control to Gazprom, while BP Plc BP.L was entangled in a bitter row last year with the Soviet-born billionaires that share ownership of oil producer TNK-BP.

Replicating Sakhalin-2 without a partner would be tough, as Gazprom relied on Shell’s technical expertise to complete the $22 billion project, said Peter Zeihan, vice-president of analysis at U.S.-based geopolitical intelligence firm Stratfor.

“The ability to translate a success at Sakhalin anywhere else is pretty thin, because they’re not the ones who did it in the first place,” Zeihan told Reuters.


The next major LNG project, Shtokman, aims to develop a huge offshore gas field in the stormy Barents Sea. Gazprom has already partnered with Norway's StatoilHydro STL.OL and France's Total TOTF.PA to develop the project.

Alexander Medvedev, Gazprom's deputy chief executive, said the company was considering the interest of its three partners at Sakhalin-2 -- Shell, Mitsui 8031.T and Mitsubishi Corp 8058.T -- in possible LNG projects on the Yamal peninsula on the north Russian coast.

Gazprom has said U.S. energy majors were also being considered as partners for the projects in the Russian Arctic.

“Much will depend on how quickly (Gazprom) can get acquainted with and advance technologies, and to what degree it will be self-reliant,” said Troika Dialog’s Nesterov.

“In future, it’s bound to rely heavily on co-operation with project partners,” he said.

A shortage of skilled labour in Russia might also prove a problem in developing complex new projects, particularly LNG.

“The Russians are still among the more skilled people on Earth, but they’ve got to pick and choose their projects very carefully,” said Zeihan.

Editing by Keiron Henderson