Real alternative to EU exports is born during recent talks in Moscow. Representatives of Chinese National Petroleum Company and Russia’s oil & gas giants Gazprom and Novatekhave inked the agreement to sell abundant Siberian resources to the fast-growing Eastern market. The Chinese are investing billions to Russia’s fuel energy complex diversification program. Positive Fitch report on the historic deal indicates that both parties are planning to reach synergies and profit from cooperation.
Since the adoption of the “third energy package” in 2009, Moscow has been deeply disappointed by European red tape in the sphere of energy policy. Step by step Brussels introduced bureaucratic hurdles for Russian energy companies on the EU market in order to revise downwards existing contracts on natural gas supply with fixed delivery volume. These purely political measures have nothing in common with market economy and resembled something from Russia’s recent past, namely the heavy-handed style of government regulation during Soviet era. At the same time leaders of some EU member states are daydreaming of mythic “shale opportunities” on the densely populated continent with limited drinking water resources.
Nearly dead projects like “Southern Gas Corridor” lacking both resource base and political will are advertised as something economically feasible, despite the fact that its participants, for example, Romania are calling for return of investments. Money back demands from smaller investors have always been a correct sign of a dead project. European authorities used all available “soft power” mechanisms but couldn’t convince sovereign states to wait about a decade for first return on investment. Today “Southern Gas Corridor” remains a catchy political slogan with little or none business background.
Russia remains the only stable energy source. “Nord Stream” and “South Stream” projects are making impressive progress in Serbia and Bulgaria. EU and Russia have agreed a deal on the use of Germany’s OPAL link to Gazprom’s Nord Stream gas pipeline, a Russian energy ministry spokeswoman confirmed on September 16. However, attempts of EU Directorate-General for Energy to create non-competitive advantage haven’t gone unnoticed in Moscow.
Russia’s fuel energy complex diversification program has begun to take shape in Siberia strengthening credit profiles of Gazprom and Novatek. Last Thursday, September 5, Russia’s top producer Gazprom and Chinese National Petroleum Company came closer to a deal to ship natural gas to China. Corporations agreed on basic terms but not on price that has been a cornerstone issue for years. Much debated price problem is going to be solved soon given the unprecedented level of intergovernmental cooperation on the highest level. Final agreement is expected by the end of 2013, Gazprom Chief Executive Alexey Miller said last week in St Petersburg.
An oil-linked benchmark, the Japanese Crude Cocktail, for Chinese or other Asian gas deliveries could be used as the point of reference for future price talks. The basic agreement signed by heads of Gazprom and CNPC in the presence of presidents Vladimir Putin and Xi Jinping “defines the volumes, start of deliveries, payments, “take-or-pay” amendment” and other issues, Gazprom announced in a statement.
High degree of readiness attracted Chinese investors to another Russia’s LNG endeavor aimed at the Eastern market. China National Petroleum Corporation and a consortium of Chinese financial institutions also concluded a memorandum on project financing for Novatek’s $20 billionYamal LNG project in Russia’s Arctic buying 20% stake in it. Novatek envisages the construction of an LNG plant with annual capacity of 16.5 million tons per annum based on the feedstock resources of the South-Tambeyskoye field (Yamalo-Nenets Autonomous Okrug). “CNPC’s entrance in Yamal LNG is an important milestone for the project,” Chief Executive Officer Leonid Mikhelson said in an e-mailed statement. “We are pleased to welcome a new, strong partner who will contribute its capabilities and resources to the successful implementation.” China, on its part, seriously considers increasing LNG imports to balance the use of coal in its fuel mix.
Fitch rating agency experts believe these deals indicate China’s growing willingness of to invest directly in Russian natural gas industry. Gazprom (BBB, outlook Stable) will enter a fast-growing market and mitigate non-transparent regulatory risks in Europe. After closing the deal Novatek may improve its “BBB-“ credit rating and raise funds for the challenging project in the High North.