The Potential Impact on Asia Gas Markets of Russia’s Eastern Gas Strategy
Russia possesses the potential to produce significant gas from its Eastern Regions, with total proved reserves in East Siberia and the Far East of Russia standing at 5 trillion cubic metres (Tcm) while prospective resources could be as large as 65Tcm. This would appear to give Russia a huge opportunity for export sales into the Asia Pacific region, which contains the world’s largest LNG importing nations and two of the world’s fastest growing gas markets in China and India (also importers of LNG). It is surprising, therefore, that despite the obvious commercial logic of linking enormous gas resources to expanding consumption centres, to date Russia’s only significant exports in the region are from the Sakhalin 2 project, which currently sells 10.8mt (14.6 Bcm) of LNG per annum into the neighbouring Asian markets. However, it is possible this situation could change significantly over the next five to ten years as Russia attempts to re-focus its Asian efforts with plans for potential sales of piped gas and LNG. A number of key uncertainties remain, though: will Russia finally sign a gas export contract with China; will Gazprom as a result remain the dominant player, or will its domestic competitors Rosneft and Novatek take on a more prominent role? If the latter is the case, will Russia’s eastern strategy be driven by LNG alone, implying much lower volumes of exports into Asia; and finally, is it possible that Russia may miss this opportunity altogether, either as a result of political delay or failure to price gas competitively from these new projects? This Energy Comment from James Henderson and Jonathan Stern discuss these issues and assesses the potential consequences for the Asian gas market that new Russian gas supplies could have, as and when they ultimately are exported from the country’s Eastern Regions.