Russian energy deals with Asia reflect shift away from Europe


MOSCOW -- A string of new Russian deals with Asian customers marks the beginning of a major shift away from the country's traditional markets in Europe, where it is facing competition and regulatory pressure, said one of Russia's top energy officials.

The world's largest energy producer has for years threatened to switch its exports eastward, but Deputy Prime Minister Arkady Dvorkovich said in an interview with The Wall Street Journal that Russia has finally made a breakthrough in its efforts to tap the lucrative Asian market.

Russia has for decades been Europe's biggest energy supplier, but has faced criticism for its hardball tactics, including a European Union investigation launched last autumn into whether its state gas firm abused its dominance in Central and Eastern Europe.

Now, dwindling gas demand and regulatory pressure in Europe have dictated a change in strategy, said Mr. Dvorkovich, who oversees the government's energy policy.

Exports from Russian state gas giant OAO Gazprom's to the EU slid last year as power producers favored cheap coal imports from the US by booming gas production. Lower gas sales are hurting Russia's economy as they account for over 10% of export revenues.

"If Europe prefers energy sources that are not environmentally clean, that's a decision for Europe," Mr. Dvorkovich said. "It's okay. Demand exists in other regions of the world."

Mr. Dvorkovich said Russia would continue to be "safe and stable partners' to Europe and "deliver as much gas as it needs," but saw greater prospects for boosting sales in Asia.

President Vladimir Putin said Friday that Russia would for the first time allow companies other than Gazprom to export liquefied natural gas, a form of the fuel that can be shipped to more distant markets than pipeline gas.

Russia has been slow to develop LNG capacity and strike a deal to sell gas via a pipeline to hard-bargaining China. But now Gazprom and other Russian companies have major new projects planned.

Shortly before Mr. Putin's announcement last week, Russian energy firms signed a raft of gas-supply deals with Asian consumers.

OAO Novatek, Russia's No. 2 gas producer, signed an deal to ship gas from its planned Arctic liquefaction plant to China National Petroleum Corp., which acquired a 20% stake in the project.

State oil firm OAO Rosneft signed agreements to ship LNG to Japan, as well as agreeing to supply China with 15 million metric tons of crude oil annually for 25 years for just over $10 billion per year.

Mr. Dvorkovich said liberalizing LNG exports would speed up the three major projects planned by Gazprom, Novatek and Rosneft by increasing competition. The decision to open up exports "will put us into this market at the right time," he said.

"Russia has recognized, belatedly, that it could have missed the boat," on LNG shipments to Asia, said Jonathan Stern, head of natural-gas research at the Oxford Institute for Energy Studies.

If Russia is able to ship large volumes, it could have a "huge impact" on the Asian market, said Thierry Bros, a gas analyst at Societe Generale.

"Russia has a huge amount of gas that's cost competitive against the rest of the world. It could put pressure on other LNG projects, such as those in Australia, which are already suffering cost overruns," he said.

Mr. Dvorkovich said companies would be given permission to export LNG on a project-by-project basis. The government isn't currently considering allowing LNG shipments to Europe, he said, in order to prevent competition with Gazprom's pipeline deliveries to its main market.

Gazprom says it hopes by the end of the year to conclude a deal to sell pipeline gas to China. But the two sides are still negotiating on price, a long-time sticking point in talks.

Dow Jones Newswires

The Author