GEOPOLITICAL IMPACT OF RUSSIAN LNG IN ASIA

The world “Geopolitics,” coined in 1904, meant “the study of how factors such as geography and economics influence politics and relations between nations.”  Now it means politics among (not just between) nations and rivalries for international power.  A geopolitically successful nation delivers on promises to allies and threats to rivals — or loses allies and strengthens rivals. And, earlier bat was Crude Oil now an added stick to settle the score is LNG between the Countries;

LNG has made impact relating to politics, especially  international relations, as influenced by geographical factors. As we all know, Crude Oil and Refined Petroleum products has been in control with almost all countries within the Governments control, and further they have added Natural Gas business too into Government Subject. Private Players are merely working like an investor and contributing 3-4% average in developing countries. And in developed countries too, their investment share is not too high and that too depend on Government’s preference. 

That is why, Oil & Gas business is playing major role in Geopolitics – settling rivalry or promise settlement; I mean, the counties are friendly with exporting countries can import Crude Oil and LNG from that Government as well as from private party from that country,   if they have good relation - where the American Stamp is in favor of both, because mostly the payments are in Dollar; If not, the deal is at risk; Dear friends, You know what I am talking, Iran is an example; Russia is an Example for Europe supply.  The changing natural gas landscape—driven by the rise of liquid natural gas (LNG) projects, unconventional boom in North America, protracted global economic slowdown, post-Fukushima recalibration in the nuclear sector, and shifting geography of demand and supply—has renewed debate over the geopolitics of Russia’s energy security. A common refrain is that the increasing interconnectedness and flexibility of global gas markets will introduce a welcome corrective to Russia’s energy policies at home and abroad, encouraging pragmatic commercial dealings and political accommodation with European and Asian partners. Recent steps toward supply diversification and price renegotiation across Europe—especially among heavily import-dependent Lithuania, Bulgaria, and Ukraine— are seen as harbingers of this power shift in Eurasian energy diplomacy.

Russian Gas & its GEOPOLITICAL FACE: A sundry container for LNG market;

A number of Russian oil and gas companies are seeking to grow their gas businesses through LNG exports to Asia. The Sakhalin-2 LNG facility, which is majority-owned by Russia’s largest state-owned gas enterprise Gazprom, already exports LNG to Asia. There are also four LNG export projects in various stages of development that could ultimately export to the region: Sakhalin-2 Expansion, Sakhalin-1’s Far Eastern LNG, Gazprom’s Vladivostok LNG and Novatek’s Yamal LNG. The first exports from these projects are projected to begin between 2017 and 2020. Some of these projects have significant Asian investor involvement, reflecting the keen Asian interest in importing Russian LNG. Notably, the Sakhalin-2 expansion, one of the world’s largest integrated oil and gas projects estimated at over US$25 billion, has Japanese companies Mitsui and Mitsubishi among its shareholders, and 20% of Yamal LNG is owned by China National Petroleum Corporation (CNPC).

Russia is also expanding pipeline gas exports to China. In May 2014, Russia and China finally reached agreement on a deal for Gazprom to supply CNPC with 38 billion cubic meters (bcm) of natural gas per year from East Siberia via the Power of Siberia pipeline. This thirty year agreement underwrites Gazprom’s Eastern Programme and makes a significant contribution to realizing the Russian government’s goal of developing a significant new export market in the Asia-Pacific region. Discussions are now underway on a second deal for Russia to sell China an additional 30 bcm of natural gas per year from West Siberia via the proposed Altai pipeline, which would run from Western Siberia to North-Western China. These deals are of global significance as they will impact China’s appetite for increased LNG imports and may set a benchmark price for gas to China.Under Current Government, Russia’s foreign energy position has embraced the interrelated goals of protecting shares in established gas markets, preempting competition from other sources and suppliers, and leveraging such efforts for commercial and political gain. Relying on a variety of tactics—e.g. discretionary price cuts/hikes, take or pay obligations, state supported subsidies and centralized control over the domestic sector, export tax exemptions, physical supply disruptions, and veiled threats of orchestrating a new gas cartel and arbitrarily switching deliveries between established import dependent European customers and emerging markets in Asia— Moscow has repeatedly flexed Russia’s tremendous natural gas endowments and diffused pipeline network against vulnerable post-Soviet customers and transit states. This has been pursued with seemingly little regard to the pain inflicted upon downstream customers in Europe and Central Asian supply partners. Hence, it is widely believed that geopolitical relief will come with the convergence of sustained weakness in Europe’s demand for gas, growth in global LNG markets, the unconventional gas boom in the United States, and the aggressive pursuit of new markets by other suppliers. Together these factors are expected to transform the global gas landscape in ways largely inimical to Russia’s great power ambitions, compelling Moscow to rethink its coercive strategy.

Let me take this LNG Geopolitics in two parts –    First, Geopolitics of American – Europe and Russian LNG and its impact in Europe, Russia and impacts on United States. And secondly Geopolitics of Arab World – Indian Sub Continent – Africa and Australian taking LNG as object of score settlement not Business;  Let me explain you my views on Geopolitics game from USA- Europe- Russia; The United States has some different definition and Russia has the same logic – but I have a question - can Cheap Oil will bring peace and development? Crude oil prices are at a four-year low and Liquefied Natural Gas (LNG) prices have also fallen since the beginning of 2014. Rising oil production and a slowing of growth in demand are the two main reasons for the drop and main cause is United States 120 Million BBLS Crude Production and Increase in Russian Production Per Day has made Arab Exports to slower down and was the major cause of sinking oil prices. Now, they can resolve this problem by opening up for private players to buy crude with easy procedures to create less gap between production and supply; Not only that, the prospect of large-scale shale gas production in the U.S. is also expected to bring down global energy prices after exports start in 2015.

Gateway House has compiled a list of 58 natural resource-dependent economies. They further shortlisted economies where oil and gas account for over 10% of GDP. Of the 19 countries and they thus identified, 15 are in West Asia, North Africa, Central Asia, and Latin America. Clearly, these regions will be hurt economically by falling energy prices, even as importers such as India, China and Japan gain. Lower energy prices will also impact ongoing geopolitical events—the Arab uprisings, AND us sanctioned states for oil deliveries. Thus European nations are increasingly - and justifiably - worried about the impending winter months when Russia could ratchet up the pressure on Europe, as it has done in the past, by imposing another gas halt with the consequent loss of life and negative economic impacts. Meanwhile the U.S. experiences an explosion of domestic gas production and many in Europe hope that an increase in American Liquid Natural Gas (LNG) exports could anticipate a looming crisis. And, other hand, certainly it is not in the best interest of the U.S. for its allies to be dangerously dependent on monopolistic imports from Russia or anywhere else. However, instead of sending a clear message that LNG export licenses and American energy leadership are coming, the U.S. Senate has put off addressing legislation on LNG exports until September, a risky delay when U.S. LNG could be a life-saving game-changer for Europe ……… Overall, Europe receives up to 30% of its gas from Russia, half of it by pipeline via Ukrainian territory. Even before the conflict in Eastern Ukraine, the pipeline was halted in 2006 and again in 2009 while Gazprom set monopolistic gas prices for much of Central and Eastern Europe. While American LNG may never fully replace Russian gas on the European continent, it can play an important geopolitical and an economic role.

LNG imports could enable states presently dependent on Russian gas to diversify and reduce reliance on long-term contracts with Gazprom, to dampen price gouging and to reduce the influence of potentially hostile states.

US Govt analysis demonstrates that U. S. natural gas reserves exceed all reasonable estimates of U.S. demand for at least 70 years; yet some critics say the U.S. should hoard all gas to "maintain" low domestic energy prices or to ensure a competitive advantage for select U.S. companies. However, as the leading global producer of natural gas, the U.S. could be a leader in creating a free and open global gas market and supporting our allies as they face strong-arm tactics from energy monopolists.

Yet this popular storyline is too crude for benchmarking changes to Russia’s foreign energy posture. To date, energy policy has been neither well integrated into a coherent Russian grand strategy, nor the primary driver of international cooperation or conflict. At home, structural impediments and institutional opacity have fueled divergent interests across the sector concerning investments, greenfield development, pricing, taxes, distribution, access to pipelines, and corporate governance that, in turn, have marred the Kremlin’s capacity to marshal national gas resources from both state and independent companies for discretionary strategic purposes. In retrospect, alarmist characterizations of natural gas as a substitute for the nuclear bulwark to Russia’s superpower status simply have been off the mark.

Similarly, Moscow’s shout has been greater than its echo. Notwithstanding pointed attempts at manipulating the fixed and regionally-defined natural gas infrastructure, success has been both more mixed and less effective than commonly presumed. To the extent that Moscow has realized gains by playing pipeline politics, it has been more successful at wrangling preferential commercial terms for prices and volumes than at altering the politics or foreign policies of highly dependent customers. Physical shutoffs too have been rare and, as evidenced by successive gas wars with Ukraine, have escalated uncontrollably and at great financial and reputational costs to Russian companies and the Kremlin. That Moscow had to follow through on threats to disrupt delivery and has been “co-dependent” on European gas exports to fill federal coffers and offset loss-making across the sector reveal the limited, if not double-edged, coercive potential of the gas weapon. Accordingly, any talk of a geopolitical chastening brought on by a shifting gas landscape must distinguish cheap talk from the nuances, dilemmas, and variation in Russia’s track record of gas diplomacy.

The Market of Russia is down …….. I don’t think so, but the critics say YES; there is no question that Russia as a conventional gas supplier, accustomed to relying on traditional pipelines and long-term contracts, is feeling the pinch of competition across all azimuths. The diversification of supply from the Middle East and West Africa, coupled with opportunities to purchase LNG displaced by the shale boom in the United States (which has overtaken Russia as the biggest producer) and prospects for unconventional production in Eastern Europe, has loosened Russia’s grip over established markets in the EU. Disputes over gas prices and oil indexation spearheaded by France, Germany, and Italy in response to the global supply glut paved the way for renegotiating delivery terms. They also prompted the freezing of European joint development with Gazprom in the Barents Sea, as well as Norway to cut its prices and grab a larger EU market share in 2012. In addition, an adverse judgment in the ongoing EU antitrust probe may foil Moscow’s strategy for restricting competition and dominating the European gas market via ownership of both supply and distribution. China’s persistent harping on price differentials and success at keeping Moscow at bay on a new gas pipeline deal only underscore how Russia is likely to remain captive to its formerly captive gas markets.

Gazprom’s market share also is being tested across post-Soviet Eurasia. Notwithstanding Russia’s determination to advance the commercially suspect Nord and South Stream bypass pipelines, Ukraine is poised to cast off Gazprom’s supply monopoly by attracting investment into domestic shale plays and diversifying procurement of natural gas from European suppliers. In an intriguing twist, Germany’s RWE contracted to deliver small but growing supplies (some of Russian provenance via re-export rights) to Ukraine, using Polish and Hungarian transit services. This reversal of flow in European gas has caught on with the Visegrad Four and emboldened Kiev to renege on extant take-or-pay contracts with Gazprom for a second consecutive year. Lithuania, too, threatens to break out of Russia’s stranglehold and discretionary pricing, with the development of an offshore LNG processing facility capable of eventually providing up to 60 percent of domestic needs. That the vessel slated to provide relief to this “energy island” of the EU is named “Independence” is especially pointed. Furthermore, the recent defeat of the Nabucco pipeline is likely a pyrrhic victory for Gazprom, given the uncertainty that confounds the South Stream project and that the preferred Trans-Adriatic Pipeline portends enhanced opportunities for rival Caspian gas in Russia’s prized European and Balkan markets.

Diversification in foreign markets has been complemented by a deterioration of Gazprom’s privileged position at home. Lower prices in Europe have put a crimp in Gazprom’s revenues just as it confronts significantly higher costs for development of new fields and pipelines. Furthermore, pressure from independent gas companies has prodded the Russian government to double taxes on extraction. Competition stirred by independent gas producers, such as Novatek, and the state-owned oil behemoth, Rosneft, has lowered prices and lured away lucrative industrial clients. The decision to liberalize LNG exports in 2014, coupled with the transfer of assets to Novatek and that company’s own opaque association with Putin, also betrays the Kremlin’s preference for a hedge against Gazprom’s troubled position in the increasingly competitive European market.

…. But Not Out ….. Russia will play LNG game for next 30 years;

Notwithstanding the blows to Gazprom’s monopoly position, Russia is not on the ropes, especially in European gas markets. The main reason stems from the structure of the natural gas industry. What matters for energy security is not simply physical supply but reliable and affordable access. With knife-edged differences among competitors in the global economy, utilities, firms, and states are acutely sensitive to fluctuations in price. The sector’s history of price volatility and need to lock in stable delivery for base-load power generation make it difficult to dislodge Russia and increase investment risks for ensuing future supply diversity amid episodes of cheap gas. Unlike the globally integrated oil sector, natural gas markets will remain regionally segmented for the foreseeable future. This is largely due to thorny above-ground problems related to storage and unlocking the transportation sector for gas, as well as to the high costs of long distance delivery and political resistance to market reforms in most countries. The deregulated U.S. gas market and attendant incentives for private and medium-sized gas-on-gas competition—so critical to spawning the shale revolution—are difficult to replicate, even in Europe where national energy companies and existing contracts remain entrenched. Although the U.S. shale boom has replaced or displaced previous natural gas supply, it has not fundamentally altered the import dependency of large gas customers in Europe or Asia. Should the knock-on effects eventually pose a drastic challenge to Russia’s deliveries to Europe, they also will hurt the interests of key Caspian long-distance suppliers, post-Soviet transit states, and Turkey as an emerging gas hub—potentially driving them closer to Moscow.

This structure of the industry perpetuates Russia’s competitive advantages in established European markets. Soviet legacy investment, production, and large-diameter cross-border pipelines effectively reduce actual costs and ensure Gazprom suitable margins for landing cheap gas to Europe. Although volumes and revenues may take a hit, Russia is nonetheless poised to increase market share in a coming era of spot price competition. It is also true that Russia faces daunting challenges and rising costs to opening up conventional greenfields in East Siberia to manage the decline in West Siberia or to realizing its shale potential. But such difficulties must be measured against the resistance to shale across Europe, startup costs for new LNG facilities worldwide, and prospects for tapping methane hydrates and other unconventionals in Russia and the Arctic. Russia also does not cast a uniform shadow across Europe. As successive gas conflicts made clear, European customers are not equally dependent on Gazprom, with both prices and market shares varying widely among Eastern and Western customers.

Recent studies underscore that these divisions not only cut across EU member states but also hound relationships between host governments and powerful energy firms within Western Europe, with the latter consistently welcoming established profit-maximizing business alliances that draw them closer to Gazprom. Despite Russia’s tarnished reputation as a reliable supplier, these intimate corporate relationships forged out of experience and mutual interests present it with a material and normative foothold in Europe that will be difficult to dislodge, and perhaps even an opportunity for imposing selective price discrimination.

Russian LNG in ASIA : Will be a booster to GDP of Russia;

Geopolitics of Arab World – Indian Sub Continent, However, access to energy sources is not the problem today for India, but India does face a problem, given its heavy dependence on the Russian & Persian Gulf countries and Iran for sourcing its oil and LNG. And, the problem is Sanction. A new theme is finding its way to the Indian discourses on energy security, as is bound to happen, drifting in from the West. Simply put, the United States is ending its dependence on oil imports from the Middle East and the geopolitics of the Middle East could never be the same again. The facts that could go into buttressing the thesis are rather meager and yet a fairly good case can be made out of them. The two achievers for Indian market Saudi Arabia & Russia; Saudi Arabia can play bigger role to become master in LNG supply, and making dependent the Asian sub continent and compensate the two years Crude Oil Loss due to sinking oil prices; LNG opening from Saudi Arabia if, it happens will make THE SAUDI ARABIA number in Arabian region, and will have better relation establisher in Asia and Middle east countries; And, it will boost world Arabian economy and will take UAE the marketing place to due to Banking facility a little easier; This will neutralize the impact of US Gas economics on the GDP of Arab Countries; And in the same manner, Russian Gas flow from Chahbar Port to Oman and then Oman to India will increase GDP of Russia by 3-4% by one product and on India 3-4%; But in that case India will become more powerful with a GDP of 12% almost; That will not be digestible situation for SAARC Countries; Mostly the China & Russia itself; Hence a break-up; The main victims of uncertainty in supply will be emerging economies like China and India who are still to diversify their sources of supply into long-term flexible contracts with other outside the region. 

But again, the West victimizing China and India? The point is, China and India aren’t quite on the same footing as victims. True, India is increasingly figuring as a major consumer of the Middle East’s oil. But China has surged ahead of India in the geopolitics of oil from the region. China is vastly more than a consumer. It is emerging as a tough competitor for the West in regard of the Middle East’s oil resources and the downstream business, because it is also a big investor and is already an increasingly aggressive player in the Middle East market building railroads and metros and massive petrochemical complexes and even presenting itself as an investment destination. Whereas Government of India plans to aggressively Import Oil & LNG from middle east for its deposit for future in the name of energy independence;  It is going to be sound impact in Middle East Oil & Gas Market;

The middle east oil reserves is almost – USD $ 300 Trillion Approx and LNG reserves worth 180 Trillion Dollars Approx and that to the middle east use of LNG and Crude for their own is very less; If India makes the business with – Saudi Arabia, Qatar, UAE and Oman for making a way to import LNG to India by Oman India Pipeline or by Ship; It will make – a- Geopolitical impact in Asia; Because Gas imported in India will serve all Saarc Nations including Pakistan as information thru media sources from Govt of India. The major Geopolitical impact of LNG supply to India will be more realistic ties with Arab World with Republic of India leading to other end Japan.

Geopolitical players in future – Russia -:- 87 billion barrels of proven oil reserves & 1,163 trillion cubic feet of proven natural gas reserves worth $40.7 trillion value at current prices; Turkmenistan -:- 0.6 billion barrels of proven oil reserves; 618.1 trillion cubic feet of proven natural gas reserves; $9.7 trillion value at current prices; Iran -:- 157 billion barrels of proven oil reserves ;  1,187.3 trillion cubic feet of proven natural gas reserves ;  $35.3 trillion value at current prices; Saudi Arabia -:- 265.9 billion barrels of proven oil reserves; 290.8 trillion cubic feet of proven natural gas reserve; $33 trillion value at current prices; Iraq -:- 150 billion barrels of proven oil reserves; 126.7 trillion cubic feet of proven natural gas reserves; $18 trillion value at current prices; Qatar -:- 23.9 billion barrels of proven oil reserves; 885.1 trillion cubic feet of proven natural gas reserves; $16.4 trillion value at current prices; UAE -:- 97.8 billion barrels of proven oil reserves; 215.1 trillion cubic feet of proven natural gas reserves; $13.8 trillion value at current prices; Kuwait -:- 101.5 billion barrels of proven oil reserves; 63 trillion cubic feet of proven natural gas reserves; $11.8 trillion value at current prices; Private Players are ready to bag the contract; Let’s see who is lucky;

Thank You.