Streetwise Professor

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.