Gas from the Arctic: Putin’s winning move against the USA and against the dollar
Despite multi-layered international sanctions against Russia following its February 24, 2022 invasion of Ukraine, President Vladimir Putin's "special energy project" — the development of the country's immense gas and oil resources in the Arctic — took a major step forward last week, confirming that the Arctic LNG 2 flagship will begin operations by the end of this year .
Besides the relevance of Russia being able to complete a financially and technologically challenging project despite the heavy sanctions in place against it, Arctic LNG 2 is of vital importance to Russia for several broader reasons. Given the scale of Russia's broader plans for the Arctic, it is equally important to the United States and its allies how Russia proceeds in that region.
One of the reasons the Arctic is so important to Putin is the immense size of its oil and gas reserves, much of which are on Russian soil. According to Russian authorities, the country's Arctic sector includes more than 35.7 trillion cubic meters of natural gas and more than 2.3 trillion metric tons of oil and condensate, most of which are located in the Yamal and Gydan peninsulas on the southern shores of the Kara Sea.
According to an authoritative source in the European Union's energy security complex, these figures could be underestimated. Putin has long believed that Russia's presence in the global liquefied natural gas (LNG) market does not reflect its huge presence in the world's oil and gas markets more broadly, and that the perfect basis for addressing this problem is from Arctic LNG projects, as detailed in my new book on the new global oil market order. According to Putin's comments, the next 10 years or so will see a dramatic expansion in the extraction of these Arctic resources and a consequent expansion of the Northern Sea Route (NSR) as the main transport route to monetize these resources in the global oil and gas markets. of the gas.
Gas as a strategic weapon
Another reason Arctic LNG projects are so important to Putin is that liquefied natural gas is the world's form of emergency gas, as has been dramatically highlighted again following the Russian invasion of Ukraine. as also detailed in my new book on the new global oil market order. Unlike pipeline gas supplies, LNG does not require years to lay pipelines and build ancillary support infrastructure. It also doesn't require extensive and time-consuming negotiations on complex contracts. Instead, it can be quickly purchased in the spot market and promptly shipped to wherever it is needed. With the world increasingly in need of LNG supplies, as demand surges in Europe after flows from Russian pipelines halted, Putin knows boosting Russia's LNG supply capabilities has never been more important. from a geopolitical point of view . The importance Russia places on the ability to move LNG quickly to its key markets, such as China, and Asia more broadly, is underlined by the fact that the country has invested heavily in building its LNG transshipment facilities on the coast of the Russian Far East in Kamchatka and its Northern Sea Route.
A final key motive playing a role in Russia's Arctic oil and gas effort is its ability to subvert US dollar-based hegemony in the energy market , especially as it involves one of the world's largest oil and gas producers. gas in the world and one of its major buyers . Already early in the story of the Arctic LNG projects, Novatek CEO Leonid Mikhleson said that future sale to China denominated in renminbi was under consideration.
This was in line with his comments on the prospect of further US sanctions – following Russia's 2014 annexation of Crimea – which would only hasten Russia's process of shifting away from a US dollar-based oil and gas trade . “This has been discussed for some time with Russia's biggest trading partners like India and China, and even Arab countries are starting to think about it… If they create difficulties for our Russian banks, then all we have to do is replace the dollars". Such a strategy was tested in 2014, when Gazprom Neft tried to trade cargoes of crude oil in Chinese yuan and rubles with China and Europe, to reduce Russia's dependence on dollar crude oil trade, in response to Western sanctions. initials against the Russian energy sector.
Away from the Dollar
Putin's determination to move forward with Arctic LNG projects was clearly visible after Russia's annexation of the Crimea region in 2014. Mosta has consistently backed the project financially with tens of billions of capital injections. dollars. Currently, according to comments from China National Offshore Oil Corporation (CNOOC) – which holds a 10% stake in the Arctic LNG 2 project, which involves three "Trains" liquefaction lines, 19.8 million metric tons per year each – the first 6.6 million mt/y train will be started up before the end of this year.
This follows its recent installation on the seabed base at the Utrenniy terminal on the Gydan peninsula. In addition, according to CNOOC, all other partners – 60% Novatek, and 10% each for CNPC, TotalEnergies of France and a consortium of Mitsui of Japan and Jogmec – continued to pay the requested funding according to the schedule.
The start-up of the first train of Arctic 2 LNG is in line with Novatek's plans to develop its LNG export capacity up to 70 million mt/y by 2030, including 19.8 million mt/y of Arctic LNG 2. In turn, this fits into Russia's plans for LNG production of 80 to 140 million mtpa by 2035, which would be higher than that of LNG powers Qatar and Australia.
So this Arctic project is one of the ways for Putin to weigh even more on the strategic world energy market and to help several countries disengage from trade in dollars, which has grown thanks to American LNG traded in the Gulf of Mexico and which flows abundantly into Asia. How will the US react?
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The article Gas from the Arctic: Putin's winning move against the USA and against the Dollar comes from Scenari Economics .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/gas-dallartico-la-mossa-vincente-di-putin-contro-gli-usa-e-contro-il-dollaro/ on Tue, 29 Aug 2023 09:00:19 +0000.