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| Rosneft Office in Moscow (photo Upstreamonline.com) |
Russian energy company Rosneft, which currently owns a majority share in Itera Oil and Gas, announced yesterday that it will acquire the 49% of Itera it does not already own for $2.9 billion. The deal will take place between Rosneft, led by CEO Igor Sechin, and Itera Holdings, Inc., a natural resources company controlled by another Igor, Igor Makarov. The move apparently has the blessing of Russian President Vladimir Putin, and will allow Rosneft to drastically expand its natural gas production abilities, which are currently only 1/10th the level of major state-owned rival Gazprom.
Putin and Igor Sechin, CEO of Rosneft (photo Maxim Shimetov)
Rosneft announced a few months ago that it intended to double natural gas production by 2020, and the acquisition of the remainder of Itera is a major step in that direction, following closely on the heels of the $55 billion deal earlier this year that saw Rosneft buy TNK-BP to become the world's largest publicly traded oil company in terms of production. Reuters has also reported that Rosneft is lobbying the Russian government for the right to export LNG; currently Gazprom has exclusive export rights.
Like many stories, I originally found out about this one via DealBook.
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Meanwhile, aforementioned Russian state-owned energy titan Gazprom revised its 2013 Europe gas export forecast upwards by 10 percent, to more than 160 billion cubic meters, and announced plans to triple its share on the LNG market to 15 percent, according to website Russia Beyond the Headlines. The gas monopoly stated that exports to Europe have been up by more than 10% on the year so far, and that by the close of 2013 Gazprom hopes to have exported more than 160 bcm (5.6 trillion cubic feet) of natural gas.
Also according to Gazprom, Turkey may soon surpass Germany to become the largest importer of Russian natural gas, since the Turkish energy market has been growing rapidly as of late. However, Turkish gas usage was down in the first few months of 2013, and thus Gazprom's forecast may be a bit too optimistic. Yet there will certainly be no shortage of supply to meet future demand, most of which Russia may be able to find in Asia.
Last year, according to The Moscow Times, "just 7 percent of Russia's gas exports were sold to Asian consumers, all in the form of liquid natural gas, or LNG, from the Sakhalin II project. But Russia's gas exports to Asia will expand dramatically if the construction of two new LNG terminals goes ahead: Gazprom's Vladivostok and Novatek's Yamal projects. Rosneft also plans to build a terminal in Sakhalin. If these three projects are realized by 2020, Russia's LNG capacity would increase from 10 million tons per year to about 45 million tons, or to an amount equal to 18 percent of global LNG exports in 2012."
LNG supply and demand are both set to dramatically increase around the globe, and Russia will face competition from a growing Australian energy sector, as well as the much-heralded LNG boom that has started in North America, especially the United States. Gazprom--and now Rosneft as well--will need to move quickly to sufficiently expand LNG production in order to not miss out on a prime energy opportunity in the near future.
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On a macro-economic level, the Rosneft-Itera deal and the slow expansion of Gazprom into natural gas and LNG could signal the start of a gradual large-scale shift in Russian energy policy towards a more broadly diversified approach that includes natural gas AND oil. With global demand for oil possibly peaking in the next few years, according to The Economist and other sources, Russia needs to move away from its traditional disproportionate emphasis on oil production and export as the foundation of the Russian energy sector, and instead focus on fully participating in the unfolding gas boom. Doing so will ensure Russia remains competitive and profitable in both the Western European energy market, where a great deal of Russian energy currently goes, and in the shifting global energy market as well. Expansion of energy exports to Asia is an absolute must to bolster long-term economic growth. Russia will likely remain overly dependent on oil and gas as the bedrock of its economic prosperity, but hopefully there will be at least some intra-sector diversification within energy moving forward.
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| The future of Russian energy: diversification or death? (Image from Foreign Affairs) |
New York Times - DealBook: http://dealbook.nytimes.com/
Russia Beyond the Headlines: http://rbth.ru/
Moscow Times: http://www.themoscowtimes.com/
Reuters: http://www.reuters.com/
Upstream Online: http://www.upstreamonline.com/
Also, here is a link to an interesting article about Russian oil that Foreign Affairs ran at the end of last year: Putin's Petroleum Problem
Feel free to leave comments or thoughts below.
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