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Russia, Saudi Arabia Close To Sealing Arctic LNG Deal

Gas storage

Saudi Arabia and Russia may finalize an agreement on the Arctic LNG 2 project in June this year or earlier, Energy Minister Alexander Novak said at the Russian Investment Forum in Sochi.

Last October, sources wishing to remain unnamed told Bloomberg the Kingdom was looking to acquire stakes in at least two oil and gas companies in Russia. One target was Russia’s biggest drilling contractor, Eurasia Drilling, and the other was natural gas independent Novatek, the company behind Arctic LNG, which started producing LNG at the end of last year.

The Eurasia Drilling deal could be finalized within the next three months.

But just a couple months later, in December, Saudi Arabia’s Energy Minister Khalid Al-Falih said that the Kingdom was looking for gas imports from various sources, stressing, however, that Russian supplies were not the most economical option.

“The question of Russian gas, and being able to export around the world, including potentially to Saudi Arabia, is an intriguing question that it would not exclude," he told Bloomberg in an interview. “Is it our lowest hanging fruit? The answer today is not. But I think we are in an interesting moment to talk about the potential to buy LNG from the Russian Arctic.”

Arctic LNG 2 will have a capacity of 18 million tons annually and is planned to go into operation in 2023—low hanging fruit or not. An investment in the project could secure more palatable prices for LNG imports for Saudi Arabia.

Related: Russia Is Taking Over Syria’s Oil And Gas

Yesterday, Falih told media that the Kingdom also planned to double its domestic natural gas production over the next decade, too, as it struggles to met soaring domestic demand. “When it comes to natural gas, over the next decade we are going to be roughly doubling our production to 23 billion cubic feet per day and substantially increasing the percentage of natural gas in the Kingdom’s fuel mix, displacing liquids and therefore reducing carbon (emissions),” he said at an industry event.

The shift to gas aims not just to diversify the Saudi energy mix, but also cut the amount of crude oil it uses for its power plant during the summer months of peak demand and send it abroad instead.

By Irina Slav for Oilprice.com

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