Headline is somewhat misleading -- damn those copy editors!!
Moscow Times October 26, 2005 Russia Rising as Energy Superpower on U.S. Demand By Valeria Korchagina Staff Writer
The legendary sea-faring route from the United States across the Atlantic to Russia's northern city of Murmansk, through which vital supplies went to the Soviet Union some 60 years ago to help the country fight in World War II, is looking to get a new breath of life. This time, however, the traffic is going to be reversed, shipping liquefied natural gas, or LNG, from Russia to energy-hungry North America.
During the war, lend-lease proved to be a successful strategy for the Soviet Union, which desperately needed both food to feed the Army and equipment to maintain military operations, as well as for its Western Allies, whose help ensured that Nazi Germany's armed forces remained focused on the Eastern front.
In a strange turn of fate, the plans to ship LNG from Russia via the famous route also look to be beneficial for both sides -- Russian gas will benefit from reaching new markets, while the United States will satisfy its need to diversify its sources of hydrocarbons imports.
The need for diversification became increasingly evident in the aftermath of Hurricane Katrina's rampage across the U.S. Gulf Coast, which along with other problems brought the area's production and shipping activities to a halt.
The hurricane seems to have given new impetus to the energy dialogue between Washington and Moscow. It has also given Russia a chance to flex its muscles in its pursuit of a role as an energy superpower -- even if Russia is yet to produce its first LNG.
"Russia wants to be the new Saudi Arabia in terms of global energy -- a global energy partner for consumer countries," said Chris Weafer, chief strategist at Alfa Bank, who has advised the Organization of Petroleum Exporting Countries.
Saudi Arabia has since the 1980s reaped considerable political benefits from having an energy partnership with consumer countries.
"But it seems that the model that Russia is pushing is a more expensive version of that. Instead of just being a big global energy supplier shipping lots of oil ... Russia wants to be and is able to be a supplier of several types of energy ... which gives it better political leverage," Weafer said.
The development of the huge offshore Shtokman field -- which contains 3.2 trillion cubic meters of gas and 31 million tons of gas condensate and is by far the largest LNG project in Russia -- aims to develop the natural gas deposits located under the Barents Sea. As the production is launched in 2010, most of the gas condensate will be shipped to the United States, which plans to boost its total LNG imports to 180 billion cubic meters per year by 2025.
Gazprom, which is to lead the $20 billion project, has yet to make the final selection of foreign partners from among France's Total, Norway's Statoil and Hydro, and U.S giants ConocoPhillips and Chevron. A U.S. partner will be essential for Gazprom if it is to ensure access to the North American market.
"The U.S. market has a great potential for growth. We can only reach it using LNG technology. After all, you can't build a pipeline from Russia to the United States," said Sergei Kupriyanov, the spokesman for Gazprom.
In addition to the competition that Russia would have to face to sell oil to the United States -- mostly from the Gulf states, Mexico and Venezuela -- shipping oil across the Atlantic is very expensive. But even more importantly, Russia simply does not produce enough oil to feed United States' energy needs.
"All the oil Russia produces has essentially already been sold," said Valery Nesterov, an oil and gas analyst at investment bank Troika Dialog.
As a result, Russia accounted for only 1.9 percent of U.S. oil imports in the first quarter of 2005.
Gas, meanwhile, is an entirely different story for Russia. The planned route for Shtokman gas from Murmansk to the east coast of the United States will be significantly shorter than the distance the shipments from the Middle East have to make to North America, giving it an advantage over the Gulf exporters of LNG.
And the money that Washington is ready to shell out for LNG is certainly not getting smaller -- the price for 1,000 cubic meters of natural gas rose threefold in 2004 to reach $222. At the same time, European customers paid Gazprom only $136 for 1,000 cm of natural gas.
But most importantly, gas is set to grow in importance -- for Russia as well as for other hydrocarbon exporters -- because its global reserves are estimated to be immeasurably larger than those of oil.
According to BP, by the beginning of 2005 the world's proven extractable oil reserves were almost equal to proven extractable natural gas reserves, both at around 162 billion tons. But it is widely believed that there is considerably more gas yet to be discovered -- for example, since 1994, extractable proven reserves of oil grew by 10 percent, while the reserves of gas jumped by 25 percent. And Russia is well-placed to benefit from this -- it already holds 27 percent of the world's known natural gas reserves.
As a result, analysts now forecast that the share of liquefied gas on the world gas market is set to increase from the current 30 percent to around 50 percent by 2030.
"Some say that while the 20th century was the century of oil, the 21st century will be the century of gas," said Troika Dialog's Nesterov.
The U.S. demand for LNG -- the supercooled gas condensed to 1/600 of its natural volume -- is also poised to grow. While 14 billion cubic meters of gas condensate was shipped to the U.S. in 2003, consumption of it is expected to shoot up to 180 billion by 2025.
But potential buyers of Russia's LNG are certainly not limited to those based in North America.
Given Russia's geographic proximity to energy-hungry Japan, liquefied gas projects like Sakhalin-2 are likely to present strong competition to the Gulf producers.
Japan is expected to be the main buyer of LNG from the Shell-led, $20 billion project on the southern tip of the Sakhalin Island, which is expected to deliver its first gas shipments in 2008. Tokyo will purchase at least 3.4 million tons of LNG per year. Sakhalin Energy, the developer of the project, said it would also ship 37 million tons of LNG from Sakhalin to Mexico over a 20-year period.
To boost gas production and sales, Gazprom is also considering building an LNG terminal and plant in Ust Luga, near St. Petersburg, by 2009, to liquefy gas shipped through the network of already existing pipelines.
The shipments from Russia are also likely to be chosen by an increasing number of buyers concerned with safety. Unlike the LNG currently shipped from the Persian Gulf, the highly explosive product from Russia will be transported through the Arctic, rather than through routes that edge the highly populated shores of Southeast Asia and the Middle East.
Finally, by involving Western partners in LNG production -- as in the case of Shtokman -- or taking part in the distribution of gas abroad, as is assumed in Germany once a pipeline is built to that country under the bottom of the Baltic Sea, Russia is forging close cooperation not only with foreign governments but also the consumers themselves, thereby taking its role as a global energy provider much further.
"A more extensive web is being created in which Russia has a much safer role than just energy supplier ... and LNG is going to be a part of it," Weafer said.
Nu, zayats, pogodi!
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