CC BY
32RUSSIAN STRATEGY IN THE WORLD GAS MARKET: CLEAN BUSINESS OR POLITICAL
CALCULATION?
Shakhovskaya L.
PhD in Economics, Prof. of the Department of Entrepreneurship Economics,
Volgograd State Technical University Timonina V.
Master of Economics, Volgograd State University
Abstract
The article raises issues of Russian strategy in the global gas market.
Keywords: world gas market, russian strategy.
20 years ago, the main LNG importers on the world market were only nine countries. At present, their number has grown to 42, and in the future new consumers are expected to appear in the gas market. According to HIS Markit forecasts, in mid-2020 the demand for gas will increase to 465 million tons per year, while in 2018 the demand was only 320 million tons), and by mid-2030 this indicator can reach 630 million tons [6].
Company "Refinitiv" conducted research of the global LNG market with detailed consumption trends. Thus, world LNG supplies increased by 36 billion cubic meters in 2018, reaching a record 432 billion cubic meters. At the same time, a significant change in demand is expected in the APR countries [7].
For Russia, cooperation with the APR countries has trade and investment value, as the key source for exports is the energy resources of the Far East. This region contains more than 14% of oil reserves (approximately 4 billion tons) and 17% of natural gas (or 42 trillion cubic meters). The degree of competitiveness of the Far East territories is determined by the existing projects, which at the present stage already bring results to all partners - participants of business projects on LNG production [8].
One of projects is Sakhalin-2 (Sakhalin Energy), the shareholders of the project are "Gazprom" (50%); "Shell" (27,5 %); "Mitsui" (12,5 %) and "Mitsubishi" (10 %). The two main technological lines receive about 14.9 billion cubic meters liquefied natural gas, 11 million tons of which is exported to Asia-Pacific countries. The project targets primarily the gas markets of Japan and South Korea.
Another project - "Yamal LNG", ranks the stage of practical implementation and already reaches the capacity of 16.5 million tons/year. This project is implemented in cooperation with companies: "Total" and "CNPC" - 20%; "Silk Road Fund" - 9,9 % [9]. According to many experts, the strategically profitable position of the project will allow to export produced gas not only to Europe, but also to the countries of the APR. The success of this project is also ensured by the fact that in 2014 the project received 150 billion rubles from "The Russian National Welfare Fund", which acquired the issued bonds "Yamal - LNG". In 2015, "NOVATEK" agreed with the Chinese "Silk Road Fund" to provide a loan of 730 million euros to the Fund to finance the construction of infrastructure specifically for this project. After the loan agreement, China 's fund acquired 9% of "Yamal LNG 's" shares.
A new phase of cooperation between "Gazprom" and "CNPC" with regard to gas supplies through Altai to China under the project "Power of Siberia-2" is beginning. Many experts suggest that the export value will reach 30 billion cubic meters per year. Construction of the project is expected to begin in 2020. Until "Gazprom" and the Chinese company have reached a mutually beneficial contract, however, this project benefits China, as part of the infrastructure has already been created, and "Gazprom 's" break-even point of gas projects is relatively low [10].
In addition, "Gazprom" entered into a 2014-year contract with "CNPC" in 30 years to supply China with 38 billion cubic meters LNG per year under the project "Power of Siberia". At the beginning of March 2017 it became known that the project significantly expanded, thanks to the allocated joint investments of 158.8 billion rubles. Mainly, China is interested in supplying Russian gas to three provinces in the northeast: Hei-longjiang, Jilin, and Liaoning, which are in deficit not only in gas, but also in oil.
According to "Rosneft", the supply of only one oil to APR increased by 8.6% (about 43 million tons) by the beginning of 2017, not to mention gas.
On 8 March 2017, Russian and Indian Energy Ministers A. Novak and Dharmendra Mvhan discussed joint energy cooperation in projects on the Arctic shelf of Russia and future deliveries of Russian gas to India. With growing demand for gas in the Indian market and promising production projects in Russia, India 's interest in supplying Russian gas has become strategic.
The development of Sakhalin projects in the Far East will not only double the supply of gas to the 2 countries, as well as win competition in the LNG market from Australia 's main developing gas supplier in the sector. In 2016, Russian projects "Sakhalin-1" and "Sakhalin-2" supplied about 12 million tons of LNG per year to the Asian market, of which more than 70% to Japan.
At the same time, the Japanese company "Mitsui & Co" is discussing with "Russian Investment Holding" the project "Sakhalin-3" the field of which, together with two already implemented projects "Sakhalin," will completely replenish the resource base of Japan.
Competition in the world gas market (especially related to the development of the energy sector in the Middle East) does not allow that Russia is the largest suppliers in the market of the APR countries. However,
interest in Russian energy resources in the Asian market is constantly growing. China has long been present in the energy portfolio of Russian gas companies. This is due to its geographical position relative to Russia, as well as to the high reserves of hydrocarbons in the Far East, the safety of their supply, low political risks, etc.
The global energy market can be viewed from two points of view: first, in terms of the accumulation of
traditional energy sources in the subsoil, which are exhausted but not renewable; second, "where on the surface" these energy sources are a demanded resource for a world economy with inexhaustible demand.
The growth of the world 's population, the gradual increase in living standards, like many other factors, stimulate world energy consumption, which will grow by 1.3% annually in the next 20 years (see figure 1).
11
26
32
Oil
Coal
Gas
Water power Nuclear
Renewable energy Others
2
Fig. 1 Total primary resource consumption for 2019, % [1]
European countries are the largest buyers of Russian gas. In 2018 "Gazprom" delivered 200.8 billion cubic meters to Europe. Cheaper Russian gas with a well-
from Russia more profitable than those of the nearest competitors - Norway and Qatar. About 81% of Russian supplies come from Western Europe and 19% from
established gas pipeline system makes supplies Central Europe (see figure 2).
Fig. 2 Dynamics of Russian gas sales to Europe, billion cubic meters [5]
In 2018, Germany, Turkey, Italy, Great Britain Europe. In total, about 162.39 billion cubic meters and France - became the main gas importers in Western gases were delivered to Western Europe (see Figure 3).
Fig. 3 Volume of supplies to the Western European market, according to data for 2018, billion cubic meters [1]
Germany was the first largest consumer of Russian gas. However, in early 2019 Germany announced that it plans to revise its energy policy by 2050 and abandon coal and gas in favor of RES.
Despite political conflicts, in 2016, another importer - Turkey, did not stop increasing the purchase of gas from Russia. This year alone, the growth of Russian gas imports increased by 6.7%, to 23.9 billion cubic meters. l.
The third largest consumer of Russian gas is Italy, where consumption reached 22.77 billion cubic meters. Italy, compared to other countries, was energy dependent on Russia, in particular due to the explosion at the gas hub in Austria.
The market of Eastern and Central Europe is of particular importance due to its close geographical location to Russia. In 2018 the volume of the sold Russian gas was in these two regions of Europe 38.38 billion a cube meters (see Figure 4).
Czech Republic Croatia Slovenia Slovakia Poland Macedonia Hungary Bulgaria
0,46
_L
2,04
5,08
6,49
I 0,16
3,17
7,41
9,86
0
2
4
6
8
10
12
Fig. 4 Volume of deliveries to the Eastern and Central market according to data for 2018, billion cubic meters
[5]
Thus, according to the authors, the analysis of the data showed that despite sanctions and the decline in oil prices, Russian companies launched investment programs to develop new fields, optimize and increase efficiency at traditional facilities. The steady trend of changing the structure of oil production in Russia is the increase in the share of gas condensate production, which is connected with active involvement in the development of new projects.
At the same time, at present, the current conditions of the world energy market allow to expand the capacity for production of LNG and oil. For example, the US
plans to implement about ten new LNG production projects. According to some reports, three projects are under implementation: Sabine Pass, Ventures Calcasieu and Golden Pass. In Russia, final decisions on "Nord Stream - 2" investment projects may soon be taken, which has recently attracted sufficient attention. "Nord Stream - 2" is two lines of gas pipeline that should connect Russia and Germany, while expanding the existing "Nord Stream" gas pipeline (see Figure 5).
Nord
Den-
Es-
Nord Stream
• Po
Fig. 5 The route "Nord Stream -2" [2]
After entering of "Nord Stream - 2", up to 110 billion cubic meters gas per year will be delivered to Germany. This is a huge volume that will cover a quarter of the European Union 's total gas demand. As "Nord Stream" is operating by almost 100% (the gas pipeline in 2018 provided consumers in Europe with 58.8 billion cubic meters natural gas), the implementation of the new project raises some concerns from several European countries. They believe that behind the new Russian gas transit is the intention of the Russian authorities, who intend to abandon Ukrainian transit, thanks to the use of "Nord Stream - 2" and "Turkish Stream", and exclusively for political reasons.
However, Gazprom chairman - Alexey Miller noted that the gas pipeline project by passing Ukraine has no political component, but is driven by economic factors: first, the desire to limit the costs associated with the payment of transit, which reaches 2 billion dollars per year; and secondly, to reduce the risks posed by the unsatisfactory state of the Ukrainian gas transportation system.
At the same time, from Poland 's point of view, Russia uses LNG for political interests, which is carried out through manipulation of raw materials supplies and
prices in order to form political positions beneficial to Russia. Thus, Poland pays more for gas from Russia than, for example, Hungary, which is further along the gas pipeline route and buys smaller volumes of gas. According to business logic, prices should be higher for Hungary, however, the fact is that Hungary is Russia 's energy partner and that is why it receives some "energy discount" on blue fuel.
A similar situation is related to Germany, which also pays less for gas than Poland, although it is located further from Russian gas sources. The reason is that Germany is an investor in joint energy projects (for example, Simens, which invests in the Russian electricity industry and in the same "Nord Stream - 2").
Poland, which is more than 50% dependent on Russian gas, is forced to pay a price above the market. Moreover, it has repeatedly faced restrictions on gas supplies, which, according to Polish experts, is a mechanism of political pressure. Following a 2012 antitrust investigation into Gazprom 's unwarranted price differentiation for consumers and market fragmentation, the company not only did not reject the claim, but even proposed a settlement agreement (see figure 6).
m*
/•JC/ .v >
J8!> t
JN ^
HJ7 J, \
K
I 1) y ■ni
1. (T
s
C
y ■ < vVk w
J*
<
•J
j
c
■ _/
Tt
i 11
Prices ($ for 1,000 cubic meters): Finland - 384,8 Slovakia -
429,0
Netherlands - 371,4 Romania -
431,8
Germany - 379,3 Bulgaria -
501,0
Poland - 525,5
Greece
y
Share of Russian gas incohsum9tion,% I Gas consumption, billion cubic m9ters
Russiangas imports billions of cubic meters
Poland Lithuania Bulgaria Slovakia Finland Germany Belgium Netherlands Italy Romania Turkey France Austria Hungary Serbia Macedonia Estonia Croatia Greece
- 1,52
15,31
64,5
111,8
3,24
85,5
5,51
105,1
4,01
100,7
1,7
4,9
17,04
25,2
40,8
13,64
21,8
76,42
76,12
14,6
43,9 42,11
56,8
9,28
65,7
11,16
45,8
2,28
77,2
0,11
109,1
0,61
101,6
3,08
27,6
4,55
58,2
20
40
60
80
100
120
Fig. 6 Gazprom prices in Europe for 2017 [4]
Q
0
Taking into account all the above, Poland has decided to diversify gas supplies in order to overcome dependence on Gazprom. In 2015, a terminal was commissioned to receive liquefied gas supplied from Qatar, the United States and Norway, which is capable of receiving 5 billion cubic meters of gas. Work is under way to achieve 7.5 billion cubic metres. In mid-2018, Polish "PGNiG" entered into an agreement with "Venture Global" to purchase 2 million tons of LNG per year. Deliveries are to be made in equal shares starting in 2022 with two, currently yet to be built plants in the Gulf of Mexico. At the same time, PGNiG said that American LNG will cost the company a 20 - 30% cheaper than Russian gas [3].
In 2022, it is planned to put into operation the "Baltic Pipe" gas pipeline with a capacity of 10 billion cubic meters, connecting Poland with Norwegian sources. It is also planned to develop services for the sale of small volumes of liquefied gas in the Baltic Sea - the so-called "small-scale" LNG. In general, the new projects will allow 100% to ensure the Polish need for gas without Russian supplies.
All these projects have one goal - independence from Russia. It is worth noting that having the possibility of alternative deliveries, Poland can extend the contract with Gazprom, which expires in 2022, on market terms.
So, why is Poland against "North Stream - 2"? Perhaps, it 's all about her positions in Europe 's gas market. After all, Germany is the largest exporter of natural gas in the European Union, despite the fact that it itself does not produce a significant amount of hydrocarbons. It is Germany that has benefited most from the re-export of Russian gas, because pipelines from Russia are drawn both to the existing hub in Austrian Baumgarten in the south, to France and to the Benelux countries.
In addition, Germany is implementing a European natural gas sales center plan competitive with Poland, with the bulk coming from Russia. Thus, there is a struggle for the same markets.
The next reason for Poland 's opposition to "Nord Stream - 2" is the technical nature of the project. The Polish system of main gas pipelines was designed to serve the pumping of raw materials from east to west. The purpose of the construction of "Nord Stream - 2" and "Turkish Stream" is to eliminate this direction: in case of implementation of Russian plans, the gas that now passes through Poland would first enter the German "Greifswald", and then into the interior of Europe, through the gas pipeline "EUGAL" passing along the border with Poland.
Thus, from an economic point of view, "Nord Stream - 2" is an element of creating a competitive gas
hub against Poland. Over the next few years, there will be competition for natural gas markets in Central and Eastern Europe. Warsaw, like Berlin, would like to take first place in this competition, and "Nord Stream - 2" could give Germany a significant advantage.
Technical threats are related to the functioning of the Polish transmission system adapted to the transit of raw materials from east to west. The construction of "Nord Stream - 2" could lead the countries of the region, faced with the technical problems of transporting large volumes of gas from "Nord Stream - 2" through Germany to the east, to request the resumption of transit through Ukraine, even at unfavourable prices.
REFERENCES:
1. Global Energy Statistical Yearbook 2019. URL: https://yearbook.enerdata.net/natural-gas/gas-consumption-data.html (accepted 04 Nov 2019).
2. Nord Stream - 2. URL: https://www.nord-stream2.com/ru/ (accepted 04 Nov 2019).
3. Nord Stream - 2: Poland vs. URL: https://in-osmi.ru/politic/20190805/245585408.html (accepted: 05.11.2019).
4. ENI in Russia. URL: https://www.eni.com/en_IT/home.page (accepted: 05 Nov 2019).
5. Henderson, J., Sharples, J. Gazprom in Europe
- two «Anni Mirabiles», but can it continue? / J. Henderson, J. Sharples // Oxford Energy Insight. - URL: https://www.oxfordenergy.org/publications/gazprom-europe-two-anni-mirabiles-can-con-tinue/?v=f9308c5d0596 (accepted: 05 Nov 2019).
6. Upstream Oil & Gas. URL: https://ihs-markit.com/products/upstream-oil-gas.html (accepted: 05 Nov 2019).
7. Is the LNG market turning in 2019? URL: https://www.refinitiv.com/perspectives/market-in-sights/lng-market-turning-2019/ (accepted: 05 Nov 2019).
8. Kutuzova, M. Who will settle a new wave of LNG? : https://neftrossii.ru/content/kto-osedlaet-novuyu-volnu-spg (accepted 02 Nov 2019).
9. Kutuzova M. Arctic: from plans to development / M. Kutuzova // "Oil of Russia" Journal. - 2016.
- № 11 - 12. - P. 37 - 42
10. CNPC is ready to build "Power of Siberia - 2" itself: http://www.vedomosti.ru/business/arti-cles/2016/06/15/645346-cnpc-silu-sibiri (accepted 02 Nov 2019).
11. Dynamics of gas sales to Europe: http://www.gazpromexport.ru /statistics/ (accepted 02 Nov 2019).
