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Source: www.asiaecon.org |

RUSSIA TO ENTER ASIAN ENERGY MARKET


Russia, the world's largest energy supplier, is looking to enter the Asian energy market. The change comes on an unprecedented liquefied natural gas (LNG) plant that is being constructed on Sakhalin Island. The plant in Sakhalin will be strategically located off Russia's east coast, only 150 km north of Japan. The location will put Russia in prime position to ship the LNG by tanker to the majority of the Asian countries. This will mark the first time Russia has shipped LNG by tanker.


Russia, the world’s largest energy supplier, is looking to enter the Asian energy market. The change comes on an unprecedented liquefied natural gas (LNG) plant that is being constructed on Sakhalin Island. The plant in Sakhalin will be strategically located off Russia’s east coast, only 150 km north of Japan. The location will put Russia in prime position to ship the LNG by tanker to the majority of the Asian countries. This will mark the first time Russia has shipped LNG by tanker.

Gazprom, the firm behind the LNG plant deal, is the largest extractor of natural gas in the world. Moreover, in 2008, Gazprom has been rated as high as the third largest corporation in the world when measured by market capitalization.

Currently only 4 percent of Russian produced energy goes to Asia. The majority of revenues comes from within the European Union. The Sakhalin plant alone will increase the global supply of LNG by 5 percent. Of this increase, 65 percent will head to Japan, 20 percent to the United States, and the remaining portion to South Korea.

When the plant reaches peak production, 8 percent of Japan’s energy demand will be met by the plant alone. This energy relationship will also help improve the political partnership between Russia and Japan. The group of islands occupied by Russia where the energy is coming from is also claimed by the Japanese. Opening up political and economic relations between the two countries will benefit both immensely.

Furthermore, Russia has signed a 20-year oil supply deal with China. The China Development Bank will lend $15 billion to Rosneft, a Russian oil firm, and $10 billion to Transneft, a state pipeline firm. In return, Russia is expected to supply China with 15 million tons of oil annually for the next 20 years.

Besides being the largest exporter of natural gas, Russia is also the second largest exporter of oil after Saudi Arabia and the second largest coal producer after the United States. However, the majority of Russia’s energy is exported to the European Union. With Russia’s entrance into the Asian energy market, it can become more diversified and more stable economically. By 2030, Russia plans to increase its share of the Asian energy market to between 21 and 32 percent. It also plans to be responsible for 20 to 25 percent of all LNG exports worldwide.

However, Russia’s expansion into Asia is unlikely to be successful without the cooperation and partnership of other Asian countries and foreign companies. In order to fulfill its targeted production, more infrastructure and investment will be needed. One example of cooperation is evident in the $25 billion investment from China. The $10 billion lent to Transneft will be used to help build the pipeline that will produce 600,000 barrels per day .

Prime Minister Vladimir Putin understands that Russia cannot conquer the Asian energy market without assistance and has announced its plan to abandon its isolationist business practices. Putin has called for “mutual access” to energy assets and has invited foreign countries and companies to work together. Foreign energy companies may be a bit reluctant to cooperate as they have been hurt by previous business energy ventures with Russia in the past.

Although Russia may be in the driver seat when it comes to energy positioning, cooperation is paramount if it plans to reach its ambitious goals in the Asian energy market. Simply owning the majority of energy exports is no longer enough if Russia wants to expand outside of the European Union. The LNG project on Sakhalin Island and the oil contract with China are great starts, but more cooperation with foreign companies and nations will be necessary to increase its global lead and enter Asia.

Source: www.AsiaEcon.org
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Source: www.asiaecon.org |


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