Putin Shows Exxon how “Business” is Done in Russia

Streetwise Professor reports:

A few days back I wrote about ExxonMobil was facing the prospect of losing its right to export gas from its Sakhalin I project to China, and sell it instead in the Russian domestic market at below market prices.  Today Bloomberg carries another article that dovetails perfectly with that story:

OAO Gazprom, the world’s biggest natural-gas producer, plans to start piping East Siberian gas to Asia, where an increase in demand over the next 20 years may outpace growth in its traditional European markets.

Gazprom will send surplus gas east from the Yakutia fields, Deputy Chief Executive Officer Alexander Ananenkov said last week at a ceremony in the eastern town of Khabarovsk, as work began on a new pipeline to the Pacific Ocean.

A boom in Asian demand may open export opportunities as Gazprom taps new Siberian fields. The Moscow-based company, which in 2008 sent all its exports west, entered the Asian market this year by shipping liquefied gas from its Sakhalin Island development. It’s seeking to add customers in the region after pricing disputes with Ukraine disrupted shipments to Europe twice since 2006.

“Gazprom is targeting Southeast Asia because it is a logical, or natural, market” for gas from Yakutia, Mikhail Korchemkin, executive director at Pennsylvania-based consultants East European Gas Analysis, said in an e-mailed response to questions on Aug. 2. “It is a big growing market.”

. . . .

The Russian government has instructed Gazprom to coordinate its Eastern gas development plan, prioritizing supply to local residents isolated from the grid. Most gas from Sakhalin Island, which is only 100 miles from the northern tip of Japan, will be used domestically, meaning Gazprom will need to tap new Siberian fields for export, Deputy CEO Ananenkov said.
. . . .

The company entered the market for liquefied natural gas in March when it started shipments to Asia from Russia’s first LNG plant on Sakhalin Island. [Gee.  Remind me how Gazprom got Sakhalin gas?]  Sakhalin Energy, led by Gazprom, has so far sent 27 tankers loaded with LNG, Galina Dubina, a company spokeswoman, said by telephone on Aug. 3. It plans to ship about 55 tankers this year, she said.

Just note how it fits together.  ExxonMobil, unique among foreign firms operating in Russia, has the right to export gas to Asia.   Gazprom covets that market because it represents a major growth opportunity, and because it permits the company to lessen its dependence on European sales.  But Gazprom is also short of gas and needs to serve domestic demand.

How to resolve that dilemma?  Well, force ExxonMobil to sell the gas it had planned to sell to Asia inside Russia instead (at lower prices), and use its own gas to export to the more lucrative Chinese/Asian market.

I’d put heavy odds on it turning out that way.  It makes strategic sense, in an opportunistic way, and hence fits in with the Russian/Gazprom MO.

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6 responses to “Putin Shows Exxon how “Business” is Done in Russia

  1. Saudia Arabia tried terminating Exxon’s contract many years ago. They found they had no idea how to run an oil operation. There is nothing as complex as an oil field operation. It wasn’t long before Exxon was back running the Saudi oil fields.

  2. Its a bit like how they manage all their economy.

    Russians complain about immigrants from the former USSR, but without them the Russian economy would collapse (they are the only ones prepared to do any real work, Russians are in general too lazy).

    Look at the shutting down of the Cherkizovsky market, it has put around 100,000 people out of work and dislocated trade all through central Russia.

    The funniest bit is that one of the reasons for shutting the market down was stating that it had prostitutes working there. If they are going to use that reason then they would have to shut down every restaraunt, bar, cafe, and nightclub in Russia, not to mention the metro, and most street corners after dark.

    http://www.rferl.org/content/Market_Closure_Still_Reverberates_In_Moscow/1795488.html

  3. Andrew

    “Russians complain about immigrants from the former USSR, but without them the Russian economy would collapse (they are the only ones prepared to do any real work, Russians are in general too lazy).”

    Immigrants from the former USSR (engineers and technicians) from Tajikistan, Uzbekistan, Georgia and Kyrgyzstan with lazy Russians watching on the side are going to launch a Chinese satellite tonight.
    Are laughing Andrew at “in general” lazy Russians? So do I.

  4. La Russophobe

    “How to resolve that dilemma? Well, force ExxonMobil to sell the gas it had planned to sell to Asia inside Russia instead (at lower prices), and use its own gas to export to the more lucrative Chinese/Asian market.”

    You read my mail.
    I do my best (not only me) to distribute copies of many of these posts here in Russia among Russian students. We’ve had unexpectedly interesting live discussions about the nature of the modern West in several Russian cities. I am afraid to say I am a China lover and step by step, step by step and very cautiously with your kind assistance we are pushing them to my point of view on Eurasia. This editorial just confirms my efforts (not only mine) are not wasted. Putin and Medvedev are sliding in that same direction too. Days of their naïveté are almost over. Russia is China’s natural ally. What really matters down these lines China will thank Russia, not American Exxon for gas supply.

    I thank you all there.

    • For “Russian students” to discuss “the nature of the modern West” is the same as for a bunch of the kindergarten students to get together to discuss the latest developments in the solid state physics. What do you know in your unwashed semi-savage country of Russia about the West to discuss it? I am sure not much beyond what the Putin propaganda feeds you. Your and your comrades’ zoological hatred of everything Western proves it. Your love of China proves it too.

      I think discussing the meaning of the Protocols of the Elders of Zion is a much better topic for you and your barbarian friends to go over

  5. Russia is China’s natural ally.

    Yep, and Philippines are America’s natural ally. Russia is China’s source of cheap lumber, scrap metal, oil, gas and other commodities. The next step is Chinese military base in Transbaikal Military District.

    China will thank Russia – for selling oil below cost, and it will thank Russia for Far East sold to China at “fair price” as well.

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