Russian Oil and Gas Industry: News #2

hard reality of the energy shortage tsunami heading the world's
way.

Why U.S. LNG Can’t Win In Europe

The Superpower Energy Project To Watch In 2020

The year has started well for Russia when it comes to energy. Two large energy projects have been finished, Turk Stream and Power of Siberia, and the third, Nord Stream 2, has passed the point of no return - with U.S. sanctions now unable to obstruct its completion. Moscow's ambitions, however, are loftier still. China and Russia have voiced plans for ever-closer political and economic cooperation. Energy is one of the most important areas of collaboration between these two superpowers due to the complementary nature of their economies. China requires ever-larger volumes of energy to power its expansion and Russia needs money to modernize and sustain a reasonable standard of living for its population.

For nearly two decades Russia has been trying to convince China to buy natural gas from its natural gas fields in Western Siberia. Moscow has both political and financial reasons to convince Beijing of this. The Russians have been looking for alternatives to lessen their dependence on Europe as the vast majority of the natural gas is exported towards the west. Supplying China with energy from the same natural gas fields would strengthen the country’s bargaining position vis-à-vis Europe as it would increase the available options in case demand decreases from either one. From a financial point of view the Altai pipeline is relatively cheap as much of the infrastructure is already present.

Negotiations on the pipeline have been slow due to Chinese foot-dragging. Northwestern China is already an important production area for oil and gas. Therefore, the regional market is already saturated. This means that Chinese companies would have to invest heavily in additional infrastructure to carry the gas to the densely populated areas in the east. Also, the country is already well-connected to Turkmenistan’s gas fields through Central Asia with a 55 bcm capacity pipeline.

Putin, however, recently made a bold move to kickstart the project and save face by reviving the second option through Mongolia. On December 5, Moscow and Ulaanbataar signed a memorandum of understanding for a feasibility study for a pipeline from Russia through Mongolia to China. The study is significant because it has the support of the leadership of the three involved countries. The results should be out within six months.

The relatively high costs of the project compared with the western alternative don't make it the preferred option from a Russian point of view. According to Interfax Putin said, "I know the route there [through Mongolia] isn't easy, but a preliminary consideration of this matter showed that it's realistic, and our Chinese partners tend to agree."

Moscow’s changing strategy seems to be motivated by recent developments and a new window of opportunity. The recent turmoil in Xinjiang could have convinced the leadership in Russia that another pipeline through the region won’t be approved due to security risks in the area. Another reason could be Moscow’s conviction that it is the right moment to push for Siberian gas to replace Central Asian energy as Beijing and Turkmenistan have been discussing a fourth line of the Central Asia-China pipeline. Although the infrastructure's deadline has been pushed back from 2016 to 2022, it remains likely that it will be completed eventually. Therefore, Moscow is pushing for its pipeline to be completed earlier to increase market share.

Besides a lower risk of supply disruptions, the Mongolian route has another advantage. The geography of the region makes it ideal for the construction of major pipelines. Moscow and Beijing have already shown that they are capable of finishing massive projects on time when the political will is there. Fueled by Western hostility, the political and economic cooperation of the Asian giants will strengthen even further in the future. Energy is a straightforward and necessary option for Beijing and Moscow to integrate their economies. If the project is to get a green light, it will most likely happen this year as the circumstances are ideal.

Hole wrote:It´s so expensive because it´s FREEDOM GAS.

OPEC+ Deal Helps Russia Double Wealth Fund Assets To $124B

The OPEC+ deal has resulted in economic benefits for Russia which has seen its National Wealth Fund (NWF) double its financial reserves to US$124 billion in 2019, Kirill Dmitriev, chief executive at the Russian Direct Investment Fund (RDIF), told the TASS news agency on Wednesday.

Russia’s National Wealth Fund is a part of federal budget assets, primarily supporting the country’s pension system.

Russia has been leading the group of non-OPEC producers that joined forces with OPEC at the beginning of January 2017 to reduce their combined oil production in the hope of draining down the oil oversupply and raising oil prices.  

Russia’s budget has benefited from the higher oil prices over the last couple of years since the so-called OPEC+ production cuts entered into force, top Russian officials have said.  

The NWF saw its reserves double from US$65 billion (4.04 trillion Russian rubles) to US$124.4 billion (7.7 trillion rubles) last year, Dmitriev told TASS today.  

The Russian budget—excluding the NWF—received an additional US$113 billion (7 trillion rubles) during the years in which the deal has been in force, he added.

“This largely indicates that the NWF resources through the fiscal rule have come exactly from the OPEC+ deal, increasing our reserves twofold,” Dmitriev said.

The investments the NWF plans for various projects of national importance “are mainly the investment of extra money Russia has earned on account of the OPEC+ deal,” Dmitriev told TASS.

Crude oil and condensate production in Russia hit a record high for the post-Soviet era in 2019, despite Moscow’s key role in supporting the ongoing OPEC+ production cuts. The new record oil production shows that one of the key parties to the OPEC+ deal, and certainly the key party in the non-OPEC camp of producers in the agreement, did not comply with its share of the cuts for most of 2019.

Removing condensate from the level of compliance—a concession Russia won at the December OPEC+ meeting—would make Russia’s compliance record look more acceptable to OPEC’s leader and key partner in the deal, Saudi Arabia, which is pushing for all rogue producers in the pact to fall in line with their quotas.

Troublesome start for first Arctic LNG plant manufactured by Russia

The Russian natural gas company has amazed world experts with its huge plants and infrastructure built in the remote Yamal Peninsula at record speed. The first train opened in December 2017 and the second launched in July 2018 were both ahead of schedule, the latter as much as six months.

The third train was officially launched in December 2018 and came as much as a year ahead of original plans.

By early 2019, the Yamal LNG had reached a production capacity of 16,5 million tons. Few months later, the company had completed its fleet of 15 new icebreaking carriers that could bring the liquified gas from the Sabetta terminal to the international markets.

However, there appears to have been more troubles with the 4th and last train of the Arctic project. According to newspaper Kommersant, the production facility is behind schedule and will not be ready before March, at earliest.

The plant was originally scheduled to open in December 2019.

The company is now losing about 900 million rubles (€13.1 million) monthly in lost revenue, the newspaper reports.

The reason for the delay is reported to be technical problems with the pipelines that are not designed for the extreme low temperatures in the area.

While the first three LNG plants in the project are designed and delivered by foreign companies, the fourth train is based on Russian designs and technology. It is Russian company NIPIGAZ that was behind the ill planning of the pipelines, Kommersant reports.

The 4th train of the Yamal LNG is believed to have a production capacity of about one million tons per year.

The building of the plant runs parallel to the company’s development of the Arctic LNG 2, the second major natural gas project developed by Novatek in the area. The project is built on the eastern side of the Ob Bay, in the Gydan Peninsula, and will start production year 2022.

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kvs wrote:The alleged losses are essentially hypothetical.   If the delivery was on schedule then X dollars would be made.  And now these
X dollars are not being made.  Big f*cking whoop.   Real losses are not happening.