In the northwestern Siberian town of Salekhard, Russia, President Vladimir Putin held a meeting on the development of the liquefied natural gas (LNG) industry on the Yamal Peninsula in the Arctic. In attendance were oil and gas companies from around the world, such as Shell, Exxon Mobil, and others from Germany, Italy, and Japan. Russia badly needs foreign investment in order to develop its massive natural gas resources. Though the country would probably rather rely on its own investors, the recession has hit Russia hard, forcing it to turn to wealthier foreign companies for money and technology.

LNG is a particularly technologically-intensive industry, since the process of turning gas into LNG entails the removal of other chemicals, dehydration, refrigeration it, and finally liquefaction it for transport. Since LNG is less dense than natural gas in its normal state, it costs less money to transport and can therefore be carried on special ships rather than through pipelines, which would be a boon for remote Salekhard.

The Kremlin reportedly has considered creating tax incentives to entice companies to plumb the depths of this frozen region of the world. Shell and Exxon Mobil were in attendance at Putin’s announcement in Salekhard. Putin also suggested that Russian and foreign companies “swap assets,” as the Wall Street Journal wrote. For instance, French company Total has considered selling off its least profitable European refineries.

Map of Proposed Pipelines from the Yamal Peninsula (red) with Existing Pipelines from Western Siberia (blue)
Map of Proposed Pipelines from the Yamal Peninsula (red) with Existing Pipelines from Western Siberia (blue) © East European Gas Analysis

Russia’s proposed plan is to center the LNG industry at the Tambey Fields on the Yamal Peninsula, thereby turning Russia into a major LNG exporter. Consequently, Gazprom would become a company with global, rather than simply Eurasian, reach [1].

But as the Interfax article makes clear, this isn’t a plan along the lines of a happy-go-lucky, Thomas Friedman style of globalization where the West supplies much-needed technology to emerging markets around the world. Instead, it appears as if Russia is attempting to export its monopolistic style of managing oil and gas resources into the global arena. By “swapping assets” with other countries, the Kremlin would control infrastructure in other countries and have special direct access to their markets. This might bring shivers down the spines of those who recall Russia’s past behavior with the Ukraine, which has on several times borne the brunt of Russia’s decisions to shut off the gas flow.

Russia’s end goal may be to create an international LNG cartel – perhaps one along the lines of the OPEC cartel for oil. Already, Russia has held talks with Iran and Qatar to discuss this possibility, which is still a long way off. All of this infrastructure, transportation, and technology, which are prerequisites for a healthy national LNG industry, if not a global cartel, comes at a hefty price, so Russia would be unable to control the worldwide natural gas market on its own even though it already dominates the European market, as this map below shows.

Natural Gas Pipelines, © BP
Natural Gas Pipelines, © BP

News links

[1] “Putin touts vast Yamal project for global export of Russian LNG,” Interfax

Categories: Oil & Gas Russia


Russia seeks foreign investors for Arctic gas development

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