Major Developments in Progress for Russia's Gas Sector

Sanctions against the Russian Federation, more specifically in its energy section, seem to have been gradually nullified due to a counteraction by Moscow, which as of late made significant progress on several long-standing issues that have long-term effects on the global natural gas sector.

Firstly, Gazprom and its Turkish counterparts agreed on expanding volumes transferred through the underwater Blue Stream pipeline from 16 bcm per annum to 19 bcm with further upgrades to be discussed in the coming months. For 2014, Turkey is expected to receive some 28 bcm of gas from Russian production, with quantities not coming from Blue Stream to be met by the Ukrainian transit system. Thus it can be safely concluded that Ankara is taking precautionary steps towards reducing significantly its reliance on Ukraine, whilst attaching itself further to the Russian company's overall long-term policy to have direct links with all of its major customers, as Germany with Nord Stream, a 55 bcm capacity link through the Baltic sea that bypasses Poland and the Baltic states.

In similar fashion, the South Stream project, which has been temporarily stalled due to premature general elections in Bulgaria, is being backed by all states that have already signed bilateral intergovernmental agreements with Moscow. Despite EU objections, it would be hard to resist a 63 bcm capacity flow into the EU that will not be subject to the domestic situation in Ukraine that has become especially dramatic. Well-placed sources in Bulgaria point out that no likely candidate will be able to form a government without a coalition backing it, thus it seems logical to assume that Bulgaria will eventually back South Stream in a firmer stance by the end of 2014, due to the fact that around 705 of the political forces are behind it, along with the important segments of the local business and financial elite.

Also of importance is the agreement by all states sharing the shores of the Caspian Sea (Russia, Azerbaijan, Kazakhstan, Turkmenistan, Uzbekistan & Iran). The treaty, which is expected to be fully implemented in 2015 will regulate the exclusive economic rights of all countries involved, the terms of navigation and fisheries and along with rights on oil and gas drilling. The most vital aspect is that all countries agreed that economic resources such as natural gas that are to be found 25 nautical miles offshore should be jointly exploited and all projects such as pipelines traversing the Sea should be agreed by all parties. In that case, the aims of transferring gas from Turkmenistan to Azerbaijan and then to Turkey on the way to the EU markets, seem like a farfetched dream, since it is almost certain that Russia and perhaps Iran could effectively block, in legal terms, such a procedure. Further to this, the prospective grand gas reserves are assumed to be in the midst of the Caspian, thus Russian companies can have a greater grasp of these resources and Iran also comes into play.

Concurrently, a report by the Energy Information Administration (EIA) revealed that Russian companies such as Gazprom and its oil arm Gazpromneft along with Rosneft, have seriously upgraded their techniques and know-how on shale gas and oil drilling. They are also moving on operations into the energy-rich Eastern Siberia in order to be able to maintain in the long-term steady and large hydrocarbon production. It should be noted that already a 38 bcm capacity gas pipeline has been agreed upon between Russia and Chinese buyers, while another agreement of similar quantities has currently been negotiated between he two countries. The rising Chinese demand for gas and the existence of excess capital in the country can assure Russian producers that by the mid of 2020's a new expanding market will be opened in the East for Gazprom, providing great room for leveraging its current reliance in the European sector. Furthermore, there have been positive discoveries in the Kara Sea and the joint exploration programs by ExxonMobil and Rosneft that have for the time being revealed 750 million barrels of oil field along with 340 bcm of gas.

Projections of assumed reserves in the specified sea region include talk of 10 billion barrels of oil and 3 tcm of gas, posing a great strain in the long-term plans of Exxon that risks losing access to such amounts of energy, due to the ongoing sanctions and the possibility of annulment of its joint ventures with Rosneft and the filling up of the position by eager Chinese or Indian corporations. The stakes involved are more than $2 trillion worth of reserves in today’s prices or even more if we take into account assumptions that the oil to be found can reach up to 87 billion barrels, which would amount to almost $9 trillion. In every case the continuity of the sanction policy as followed by the EU and US will be severely tested in the coming period as more facts and data come into light, by taking into account the antagonisms at hand between all major industrial forces in the planet, in which countries such as China are amongst the biggest ones, if not the biggest, with a vital need to secure great energy fields for the long-run.

Lastly in the LNG sector, Gazprom and Shell are again in touch to discuss the upgrade of the Sakhalin-2 LNG production facility with an additional 5 million ton train that can increase exports by 50% per year. Also, Sakhalin-3 is a new gas field has been discovered by Gazprom adding to positive appraisals that the whole region can be a reliable supplier for at least another 30 years worldwide. The installations are in a favorable geographical point supplying Japanese, Chinese and Korean markets, whilst the exhaustion of Indonesian energy resources and the expansion of energy consumption of Thailand, Vietnam and Philippines is to be met, amongst other by Sakhalin and Australian fields for the coming decades.