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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Is Saudi Arabia About To Enter The Arctic Gas Game?

Now that global oil markets have gotten used to Saudi-Russian oil production cooperation that first hit the scene in early 2017 in an effort to reign in global price concerns, it now appears that the two fledgling allies are also going to cooperate in the liquefied natural gas (LNG) sector. And this time too, it looks as if the alliance could take aim at U.S. energy ambitions.

The kingdom’s media savvy energy minister Khalid Al-Falih said at the India Energy Forum in Delhi on Monday that Saudi state-owned Saudi Aramco is open to the idea of marketing some of the LNG from the proposed Russian Arctic LNG 2.

“Aramco has the mandate to go global and not only invest in downstream but also invest in gas and LNG. We have looked at projects in Africa and the Mediterranean, and of course the Arctic with some Russian companies, Novatek. The idea is that Aramco will trade that [LNG] globally and bring some of that to India and other markets,” Al-Falih said.

“We have looked at projects in Africa and the Mediterranean, and of course the Arctic with some Russian companies, Novatek,” he added.

Mammoth gas project

Arctic LNG 2 will be a mammoth facility and increase Russia’s gas ambitions for not only pipeline gas to Europe but to key LNG markets in Asia that account for over 70 percent of global LNG demand, with that demand growth projected to increase amid China’s ramped up natural gas usage. The project envisages the construction of three LNG trains at 6.6 million tons per annum (mtpa) each, or 535,000 barrels of oil equivalent per day. It is seen starting up sometime between 2022 or 2023.

As far back as the beginning of the year, Saudi Arabia and Russia indicated that they could become LNG partners when Aramco and Novatek signed a MoU over possible cooperation in Arctic LNG 2. Related: Will The U.S.-Saudi Spat Upend Oil Markets?

Aramco is “seriously” studying investing in the planned Arctic LNG plant, Saudi Energy Minister Khalid Al-Falih told reporters in Riyadh on February 14 at a joint briefing with his Russian counterpart. Saudi King Salman is keen to strengthen energy ties between the two nations following their oil-cuts collaboration that helped drive crude’s recovery, according to Al-Falih.

Russian President Vladimir Putin is keen on developing more LNG projects in an effort to rival top LNG producers Qatar and Australia. However, with Qatar projected to reach 110 mtpa of liquefaction capacity within around five years, that’s an ambition that may never materialize. Saudi Arabia for its part is also seeking to double its gas production over the next ten years.

Key take-aways

The possibility of a joint Saudi-Russian alliance in not only oil markets but in gas markets has significant take-aways for both energy markets and geopolitical developments, particularly in the Middle East. First, it comes as the Trump Administration and Riyadh are feverishly trying to do damage control over possible Saudi implication in the alleged killing of U.S. resident and journalist Jamal Khashoggi. While Trump is trying to tone down criticism both internationally and among an outraged Congress on both sides of the isle, it remains to be seen what will happen if Turkish or even international investigations find Saudi Arabia was instrumental in wrong doing over the incident. Related: The Dark Horse Of The Oil Price Rally

Adding another layer of complexity to the issue, yesterday CNBC reported that Saudi Arabia was even considering a certain level of responsibility over the missing journalist, by admitting that Khashoggi was inside the Saudi consulate in Istanbul and that he could have even been killed inside the consulate.

Financing problems for U.S. projects

Moreover, Al-Falih’ comments on Monday over Saudi-Russian gas cooperation come as Russia and the U.S. Jokey for geopolitical leverage in the Middle East. In essence, the U.S. has backpedaled its decades long dominance in the region while Russia, mostly in the ongoing Syrian civil war and with its pro-Tehran stance, is increasing its influence in the Middle East.

However, geopolitics aside, a Saudi-Russian alliance in global LNG markets could create problems for U.S. project proposals that are already facing headwinds as the U.S. second wave of projects seek financing and long term off-take agreements to go forward amid Chinese tariffs on U.S. LNG. With the prospects of a protracted trade war between Washington and Beijing likely, numerous LNG projects in the U.S. could fall behind schedule or not even receive financing and lose out to a host of other eager competitors, including Mozambique, Canada, and bringing the situation full circle - even Russia.

By Tim Daiss for Oilprice.com

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  • Mamdouh G Salameh on October 18 2018 said:
    Saudi Arabia and Russia want to build upon the success they achieved when they engineered the OPEC + production cut agreement that helped push oil prices to above $80 a barrel and also stabilized the global oil market. So it comes as no surprise that they want to extend their cooperation to LNG.

    Saudi Aramco is seeking investment opportunities in the global oil and gas industry including the planned Russian Arctic LNG 2. According to the Saudi oil minister, Mr Khalid Al-Falih, Saudi Aramco is even open to the idea of marketing some of the LNG from the proposed Russian Arctic LNG 2 in India and other markets.

    Russian Arctic LNG 2 will enable Russia to make very important inroads into the global LNG market thus enhancing its dominance in the global gas market.

    The project envisages the construction of three LNG trains with a total capacity of 19.8 million tons per annum (mtpa). It is seen starting up sometime between 2022 or 2023.

    President Putin is keen on developing more LNG projects in an effort to secure a bigger share in the fast-growing LNG market particularly in both the European Union (EU) and the Asia-Pacific region. King Salman of Saudi Arabia is also keen to strengthen energy ties between his country and Russia following their oil-cuts collaboration that helped drive crude’s recovery.

    From a geopolitical angle, Saudi Arabia might also be interested in establishing some sort of a political alliance with the Russian-Chinese strategic partnership as a counterbalance to the United States at a time of rising tension with the United States.

    The recent claim by President Trump that the United States protects the oil-producing countries of the Arab Gulf is a brazen and crude attempt of blackmailing these countries and getting US hand on their money. The only threat facing these countries is Israel which is provided with money and the most sophisticated weaponry by the United States to maintain its threat and military ascendancy in the Middle East. America and Israel are one and the same and they pose the most serious threat to countries of the Middle East.

    Another discredited claim is that the US is protecting the global oil supplies and global sea shipping lanes. The US has its Central Command based in Qatar to ensure that it controls global oil supplies because whoever controls these supplies and oil’s shipping lanes and chokepoints controls the global economy.

    To add to this rising tension is the introduction by some members of the US Congress of the so-called No Oil Producing and Exporting Cartels (NOPEC) Act—that could, if passed, pave the way to antitrust lawsuits in the US against it and its national oil companies for alleged manipulation of the market.

    May be Saudi Arabia and its allies in the Gulf are starting to realize that the United States is not part of the solution to their problems but in fact part of their problems.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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