The Outlook for Russian LNG
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The Outlook for Russian LNG Assessing the outlook for Russian LNG projects against a backdrop of sanctions and decline… Nicholas Cobb Managing Director / Independent Russia Analyst Cobb Energy Communications LTD 23.03.2015 Introducing CEC… Cobb Energy Communications (CEC) is an energy sector focused communications, About the Speaker: Prior to founding Cobb Energy in late 2012, Nic commodities and technical consultancy offering a wide variety of cost- worked for a number of leading events and trade media companies effective corporate services. Working with a range of organisations including including the Daily Mail Group, Centaur Media PLC as well as Argus the UK Government, major international events organisers as well as small to Media Ltd – a leading hydrocarbon price assessment agency. medium sized energy companies CEC is pleased to offer a bespoke, cost- effective and friendly service. Our service specialism includes: Having left DMG Nic setup Cobb Energy as a niche energy sector communications and events consultancy designed with the client . Corporate & Political Communications needs at its heart. Nic has experience of working with senior . Russia & the CIS Corporate Advisory leadership teams from across the energy sector including the full industry chain from upstream operators through to renewable . Sanctions advice energy companies and government. In addition CEC offers a . Research and consultancy comprehensive commodity brokerage service. UK & Russian Government Relations – Access to Russian Government, Duma, MFA, Ministry of Energy, Orthodox Church In late 2014 Nic launched the new 'Russian Corporate Advisory and Industry Service' which offers clients an enhanced energy and government . Energy and Commodities Brokerage relations service through proprietary contacts including former . Events Management & Production Ambassadors, a former UK Energy Minister, senior diplomats as well as well placed individuals within Russian and UK business. As an . Project Funding and Deal Facilitation independent energy analyst and Russia watcher Nic has worked with . In-Country Agent Support in the UK, Germany, Canada, Russia & the a range of organisations including the BBC, PR Week, Bloomberg and CIS others and regularly writes on East-West energy relations. Nic is an . Shale Gas & Gas Contracts Training / Consultancy avid Russophile and a Trustee & Director of the Great Britain Russia . Energy Research and Consultancy Society as well as the Chairman of the Westminster Russia Forum. For more information please visit www.cobbenergy.co.uk / email In addition Nic is also the Vice Chair of an in inner city school [email protected] governing board, and also stood as a candidate in the 2010 election. What will be discussed? • Overview of East – West energy relations – changing dynamic in serial decline… • Makeup of the Russian hydrocarbon & LNG sectors… – Who are the major players? • Corporate governance – nature of the state-industrial complex – In search of new markets – Sanctions and how they impact business operations • The Crimean Peninsula – stumbling block to future East-West energy cooperation • Current, planned and projects under construction – overview and project developments • What does the future hold for Russian LNG? • Q&A Overview of East – West energy relations – changing dynamic in serial decline… • The summary – poor and declining political – energy – corporate relations with no immediate sign of resolution • Traditionally strong relations with Western Europe: – Western gas supplies /Central & Eastern Europe dependent on Russian natural gas dating back to Soviet times – Traditionally close post Soviet corporate links with Balkan and Central / East European state – West as a major recipient of Russian energy products – Increasing ties with North American majors in Arctic exploration & knowledge transfer • What are the factors impacting current relations between Moscow and Western energy relations? – Ukraine , MH17, Crimea referendum and ongoing situation in Luhansk and Donetsk – Propaganda and media war – Moscow, Brussels and Washington – difficult to tell the wood for the trees – Geopolitical factors – Snowden, Syria and NATO-Russia tensions impacting policy making – despite corporate appetite to continue ‘business as usual’ operationally captive to geopolitical factors and sanctions – commercial slowdown beholden to political relations – Traditionally murky corporate governance and historic actions – BP-TNK etc • Moving ahead? – Short to medium term slow down in in-country business between Russian and Western corporates with business as usual as far as possible – As an inherently strategic sector – ‘energy’ and LNG may be the last to normalise – Removal of sanctions may allow European partners and technical providers the chance resume operations but London and Washington may drag feet for political gain – Moscow is keen to re-establish commercial links – Russia remains a high risk business environment but requires Western expertise to realise projects despite improving domestic capacity The Russian Energy & LNG Sectors ‘At a Glance’ Russian LNG Operators Case Studies: Who are the Major Players in Russian Novatek: Gazprom: Gas Sector? • Russia’s largest independent gas producer – seventh largest gas • Headquartered Moscow • Baltic LNG publically traded producer globally • Founded 1989 • Gazprom • Founded 1994 • State enterprise and owned by RF Government • Itera • Publically traded company on London • Management - state oriented –Chairman - ViktorZubkov and Moscow Stock Exchanges and • Number of employees – 393,000 Lukoil • owned by: • Global energy company with worlds largest gas reserves • Northgas – Leonid Miichelson – CEO – 28% share – Volga Group – 23% • Market share – 17% global and 72% national • Novatek – Total SA – 16% • Currently only producer and exporter of LNG • Rosneft – Gazprom – 9.4% • Major operations include aviation, banking, production and • Operations: exploration, transport and support services • Sakhalin Energy – Yurkharovskoye field (full ownership) Major projects include: Nord Stream, Sakhalin II, Shtokman, • SeverEnergia – South Tambeyskoye field (full • ownership) • Soyuzneftegaz South Stream, Yamal Megaproject and producing assets – Termokartskoye field (Part ownership • International trading arm • Surgutneftegas with Total SA) – Malo – Yamalskoye field – (Acquired via • Extensive interest in LNG exports and project development • Tatneft purchase of Tambneyneftegas) • Sanctions – subject to major sanctions – 51% stake in Sibneftegaz (With Itera) • TNK-BP – Joint project with Gazprom in Yamal – • TyumenNIIgiprogas with Total SA – Developing Sabetta Port in JV with RF Make-Up of Russian Corporate Sector: • Yuganskneftegaz Government – Host of other companies • Flat business structure • Sanctions: • Pre-dominance of state interests – Limited access to long term finance over 90 days • Close tie between business and the national interest – No interests in Crimea • Good opportunities for the right company Russia in Search for New Gas Markets… Russia seeks to expand its global gas client base… • Rapid re-alignment of Russian economy Eastwards •With increase in US Shale and increased production Russia looks to Far East and Asia to ensure project viability • Russia supplies 5% of global market from Sakhalin - aims to boost to 20% in 2030 •Ukraine – Russia tensions stokes interest for Western regas terminals • Russia liberalises export markets – major investments into Northern projects – e.g. $27bn investment into Yamal • Northern sea routes open up trade with Asia •Up to a point will always trade with Western partners but diversifying exports to include: • Japan • South Korea • China – undetermined impact on US exports • Major energy cooperation and integration • $400bn supply deal over three decades • Major new pipeline projects – Altai & West- East Pipelines •On the ‘doorstep’ term supply • Other Asian buyers • Change in official attitude – diplomatic re-alignment The Sanctions List… Types of Sanctions (EU): • Individuals & Organisations: – 151 persons and 27 entities linked to Ukraine crisis – Wide range of organisations including commercial entities – Ban on all imports and exports to Crimea • Sectoral sanctions: • EU nationals and companies may no longer buy or sell new bonds, equity or similar financial instruments with a maturity exceeding 30 days, issued by: – five major state-owned Russian banks, their subsidiaries outside the EU and those acting on their behalf or under their control. – three major Russia energy companies and – three major Russian defence companies. • Services related to the issuing of such financial instruments, e.g. brokering, are also prohibited. • EU nationals and companies may not provide loans to five major Russian state-owned banks. • Embargo on the import and export of arms and related material from/to Russia, covering all items on the EU common military list. • Prohibition on exports of dual use goods and technology for military use in Russia or to Russian military end-users, including all items in the EU list of dual use goods. Export of dual use goods to nine mixed defence companies is also banned. • Exports of certain energy-related equipment and technology to Russia are subject to prior authorisation by competent authorities of Member States. Export licenses will be denied if products are destined for deep water oil exploration and production, arctic oil exploration or production and shale oil projects in Russia. • Services necessary for deep water oil