Russian Oil and Gas Industry: News

Gazprom has begun filling gas with the Power of Siberia gas pipeline

India looks to import more LNG from Russia’s resource-rich Arctic region

Amur gas deal set to boost China-Russia links

Sibur, Russia’s largest petrochemical producer, is set to sign a gas supply deal that could significantly increase the capacity of a planned plant aimed at the Chinese market, potentially spurring billions of dollars of further investment.

The liquid petroleum gas (LPG) supply deal with gas producer Gazprom would allow Sibur and its Chinese partner Sinopec to increase potential output from the Amur plant close to the Chinese border by 80 per cent.

The preliminary, in-principle supply agreement is set to be signed next week at an economic forum in Vladivostok, in Russia’s far east, according to two people with knowledge of the talks.

The Amur chemical plant is one of the most prominent in a string of Sino-Russian business deals announced in recent years, as part of Russian president Vladimir Putin’s pivot towards Beijing amid soured ties with the west. Sinopec owns 10 per cent of Russia’s Sibur, while another 10 per cent of the company is held by the Chinese state-controlled Silk Road Fund.

The new deal increases the likelihood that Sibur and Sinopec, who signed a joint venture agreement in June that would give the Chinese company a 40 per cent stake in the project, could decide to construct a larger plant in Amur than first envisaged.

Expanding the plant to also use LPG would increase the project’s costs from an estimated $7bn-$8bn to $10bn-$11bn, one of the people said. A final investment decision will be taken before the end of the year, with construction set to last until 2024.

Gazprom, which has already agreed to supply the Amur plant with 2m tonnes of ethane a year, would supply 1.1m-1.5m tonnes of LPG under the terms of the deal, according to the people.

Sibur’s final investment decision on the size of the Amur plant is likely to depend on whether Russia’s government applies a negative excise tax on LPG, the people added.

Sibur and Gazprom declined to comment. 

Both the LPG and ethane would be refined from Siberian natural gas pumped through Gazprom’s Power of Siberia pipeline, which will open in December to become the first route to supply Russian gas to China. The vast majority of the planned Amur plant’s petrochemical products, which are used to make plastics, are expected to be exported to China.

If it uses the maximum amount of ethane and LPG agreed with Gazprom, the plant’s total output would be 2.3m tonnes of polyethylene and 400,000 tonnes of polypropylene.

Power of Siberia, the Amur plant and Chinese funding for liquid natural gas production plants in Russia’s Arctic have underlined the growing business ties between Moscow and Beijing, which have largely seen Chinese cash exchanged for Russian energy assets.

Russia is the world’s largest oil and gas exporter but is seeking to expand its petrochemical industry in an effort to increase value from its vast hydrocarbon reserves rather than relying on sales of raw energy products.

Sibur recently finished constructing a $9.5bn plant in Siberia that will roughly double the company’s petrochemical production.

Russia To Expand In World’s Fastest Growing Oil Market

New Arctic partnership announces construction of 17 icebreaking LNG tankers

The two companies signed the deal that formally establishes the new joint venture during this week’s Eastern Economic Forum in Vladivostok.

The vessels will all have top Arc7 ice standards and be built at the new Zvezda yard. They are to be delivered in the period 2023-2026.
It will be a completely new fleet of Arctic LNG tankers, built in Russia and sailing under Russian flag, Sovcomflot informs.

The vessels will serve the Arctic LNG 2, the major natural gas project currently under development by Novatek and its partners.

The new company will lead the technical development of the fleet, serve as its purchaser and keep control of the construction process. It will be the formal ship owner, operator and provide financing, representatives of Sovcomflot say.

According to company leader Sergey Frank, a joint venture is the best possible way forward considering the complexity of the project.
«Considering the capital intensity and duration of the project, and the need for consolidation of financial resources, construction potentials, use of new technologies and experience from fleet management in harsh ice and climatic conditions, the establishment of a joint venture is preferable,» he says.

According to the company, the new vessels will be technically different from the tankers built for the Yamal LNG project. The hulls will have a different shape, which reportedly improves the ships’ operational capacities in the shallow waters of the Ob Bay and the thick ice of the Russian east Arctic.

In a comment, Novatek leader Leonid Mikhelson highlights the need for consolidated efforts in the development of the Northern Sea Route.

«The efficient model for marine transportation of LNG from the Russian Arctic to the main international markets via the Northern Sea Route supports Novatek’s successful development of Arctic LNG projects and allows us to meet the President’s objective to increase goods shipments in the NSR to 80 million tons in 2024,» he says.

The new 17 ships will be built at Zvezda, the grand new shipyard developed by Rosneft. The Russian oil company will cooperate closely with the South Koreans in the process. On the same day that Sovcomflot and Novatek announced their new partnership, did Rosneft present a deal with Korean shipyard Hyundai Heavy Industries.

According to Rosneft, the deal makes the Korean company a key technological project partner and will provide the Russian shipbuilders with technical specifications and project documentation needed for the development of the fleet.

The Hyundai Heavy Industries has built all the tankers now serving the Yamal LNG project. The Yamal fleet will by the end of 2019 total 15 vessels. They now shuttle between LNG terminal Sabetta and markets in Europe and Asia.

EU's top court curtails Gazprom access to Nord Stream pipeline link

owais.usmani wrote:Bad news:

https://www.reuters.com/article/us-pgnig-gazprom-opal/eus-top-court-curtails-gazprom-access-to-nord-stream-pipeline-link-idUSKCN1VV0TH

EU's top court curtails Gazprom access to Nord Stream pipeline link

Putin wants deliveries of more Arctic gas to China

Russia Considers Possibility Of $25 Oil Next Year

GarryB wrote:I would like to see the Russians declaring that because of pipes that have not been maintained in the Ukraine despite earning transit fees that are supposed to provide for the maintenence of said pipes, they will no longer rout any gas via the Ukraine after 31st December 2019.

Ukraine already buys back flow back from the EU so they can continue to do that if they want, and if they want to remove sanctions and tariffs then there is room to negotiate, but a sanction is an attack, so it is not in Russian interests to give concessions to countries that are currently attacking them... including the EU as a block.

There are no options for the return of the Crimea to the Ukraine, it was the Crimeas choice and they have made it.

If the EU wants to fight Russia stopping Russian gas, then Russia can simply divert it elsewhere.... liquification is certainly a great way to make it mobile and able to be delivered anywhere on the planet... it costs money to do, but it sells for more as well so costs will be covered by the consumer.

A nice big hike in energy costs for Europe will be good for their economies... silly Russia offering them cheaper energy... what are they thinking?

The US Massively Underestimates The Trade War Blowback

Trade wars and sanctions are economic weapons against rival regimes, and like actual military warfare, often lead to unanticipated and sometimes devastating blowback from the targeted regimes.

A prime example was President Obama sanctioning Russia over its annexation of Crimea. The sanctions were designed to block Russia from any access to western financing, aimed at causing a dire financial and economic crisis in Russia that would force it to relinquish Crimea and end support for Ukraine’s breakaway territories.

In fact, the sanctions did cause Russia to enter a short-lived recession. But it also had other, much more drastic results for the West. It forced Russia to move closer to China, and Moscow saw Beijing as a great alternative to western financing for Russian industries.

At the same time, western companies were forced to withdraw from Russian mega-deals because of sanctions. The best-known example was Exxon, forced by sanctions to walk away from an Arctic joint venture with Russia’s state-owned oil giant, Rosneft, where it had invested $3.2 billion. In their very first effort, the partners successfully drilled oil wells containing 750 million barrels.

As noted by Reuters, the withdrawal was costly:

“Exxon will post an after-tax loss of $200 million as a result of pulling out of the Rosneft deal, but the true costs for the company run much deeper. Exploring and developing giant offshore fields in Russia was supposed to provide long-term growth for the company, and, in recent years, has seen falling reserves.”

But the opportunity losses are likely to be far higher for Exxon, the company that famously missed the US shale revolution. The long-term deal with Rosneft, expected to continue for decades, included exploration for oil in the Black Sea, enormous shale resources in Western Siberia, and the development of three large blocks in the Arctic (Kara Sea).

The trade war with China that has led to tariffs on billions of dollars in Chinese exports to the US, and as a result, Russia and China have moved even closer. It remains an absolute mystery why no one in the west had foreseen the blowback from economic warfare leading to an alliance between two of its most powerful adversaries.

China’s major state-owned oil companies and its Silk Road fund each became 10% partners in Russia’s first major Arctic LNG (liquified natural gas), project in the Yamal Peninsula, undertaken with Novatek, Russia’s largest independent gas producer. The project offers great prospects for enormous expansion.
The US acts as if it has been blind-sided by the Russian/China moves, even though years before it undertook economic warfare against them, China, the world’s largest energy importer, agreed to finance oil and gas multi-billion-dollar pipelines in neighboring Russia. Now Russia has become China’s largest energy supplier, equaling or perhaps even surpassing its energy supplies to Europe.

A similar scenario is taking place in the Persian Gulf where the US has withdrawn from the Iran nuclear deal, while imposing economic sanctions on Iranian oil exports.  The French energy giant, Total, that in recent years has been a leading international oil company in that country, was forced to withdraw because of sanctions, just like Exxon in Russia’s Arctic, it left billions of dollars on the table.

This may also answer the question as to why French Prime Minister Macron was so intent on inviting the Iranian Foreign Secretary to the recent G7 meeting in France. It’s also no secret that French carmakers Peugeot and Renault are the main suppliers to Iran’s auto assembly plants.

As stated by Global Village Space (GBS), China and Russia rushed to aid Iran, with China replacing Total, in a 25-year deal estimated to be worth some $400 billions. With that, China inherits a bonanza, providing much needed finance and technology to a country that was and could again become one of the world’s leading energy producers. China is looking to finance $280 billion to develop Iran’s gas, oil and petrochemicals industries, along with $120 billion to improve transport and manufacturing, making it a key partner in China’s Road and Belt program.

The deal also gives China the right to buy any or all Iranian oil, gas, and petrochemicals products at a minimum guaranteed 12% discount to global benchmarks, plus an additional discount of 6-8% for risk adjusted compensation. Financing will proceed using local currencies, avoiding the costs of converting to a hard currency like the US dollar or the Euro, giving the Beijing yet another 10% cost advantage.

GBS further reports that the security for these projects will include up to 5,000 Chinese security personnel on the ground in Iran to protects Chinese projects and to safeguard the transit of energy products from Iran to China, including security for the very strategic Hormuz Straits.
In direct defiance of US sanctions against Iran, China has stepped into the breach, increasing its oil purchases from Iran while becoming Iran’s major energy trade and finance partner. Like Russia, it seems that Iran is moving towards a military alliance with China. If the west worries about China’s expansive moves in the South China Sea, along China’s own borders, what to make then of China moving in on Hormuz, where some 30% of world oil is transited each day?

If these are considered winning policies for the West, one has to ask what failure looks like.

The West is already slowly becoming aware of the blowback this disastrous policy has caused. Evidence for this can be found in Macron’s efforts to persuade Trump towards a peaceful resolution with Iran.

It is well known that the US has been in secret meetings with Iran representatives, much to the dismay of the Saudi Arabia and Israel. As Bloomberg reports, after the G7 meeting, Trump publicly and repeatedly stated he was ready to meet with Iran’s President, Hassan Rouhani. Bloomberg also reported that in a meeting with his Cabinet, Trump announced that he was ready to ease sanctions as a possible way to open negotiations between the two countries. Treasury Secretary Mnuchin agreed with the President, while National Security Advisor Bolton voiced strong opposition, that only one day later, led to his firing. Secretary of State Pompeo stated that Trump may meet on the sidelines of the upcoming UN meeting with Iran’s President.

The firing of Bolton was immediately followed by a fall in the price of oil and gold. Allowing Iran to continue to increase supplies into already well supplied oil markets will add downward pressure on oil prices. For the Trump administration, this is not necessarily a bad thing… unhappy consumers at the gas pump make for unhappy voters.

Similarly, the Trump Administration badly needs to move towards ending the trade war with China in order to calm global markets. The recent announcement of the resumption of trade talks between the US and China in October may provide an opportunity for a similar easing of tariffs and a path towards further resolution.

Although these actions could help to quell global tensions, it may be too late to reverse some of the serious damage caused by US-led economic warfare. Once China positions itself in Iran, it will not likely be interested in withdrawing from its new strategic position in the Middle East, that it gained as a result of US near sighted foreign policy.

Prior to the election, we may see a breakthroughs in the trade war, and the alleviation of sanctions with Russia, Iran, China, and perhaps even North Korea, but the US will almost certainly see the negative consequences from adversaries it helped to expand and strengthen.