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Wednesday, September 23, 2015

New Russian gas deals are "enough to make even a seasoned energy observer's head spin"

New Russian gas deals are "enough to make even a seasoned energy observer's head spin". (csis).

In the twelve months since the collapse of global oil prices and the imposition of Western economic sanctions against Russia, the number of new Russian gas export project announcements has skyrocketed.

Only last month, Gazprom signed a memorandum of understanding (MOU) with three European companies to build a second large gas pipeline system under the Baltic Sea called Nord Stream II.

This was preceded by the announcement in December by President Vladimir Putin himself of the cancellation of the ambitious South Stream gas pipeline under the Black Sea to be replaced by an equally grandiose project, soon to be dubbed Turkish Stream.

In Kurdish a donkey is called: 'Kerdogan'

Both Nord Stream II and Turkish Stream are designed to bypass the critical transit route through Ukraine utilized by 40 to 50 percent of Russia’s current gas exports to Europe.

Russia and Gazprom’s position on whether gas transit through Ukraine will continue after the current agreement expires in the not-too-distant future flip-flopped within a matter of weeks recently – first proclaiming that all transit will cease after 2019, then declaring that negotiation of a new deal has been ordered by President Putin.

In the past year, we have also seen the supposed conclusion of not one but two large gas deals with China. Together with numerous previously proposed liquefied natural gas (LNG) and export pipeline projects, this picture is enough to make even a seasoned energy observer’s head spin.

To make matters worse, the mainstream press tends to report each one of these announcements, no matter how fanciful, as if they are all realistic projects that will be completed by the notional target dates even as Russia’s financial position continues to deteriorate.

The total cost of these projects is somewhere between $150 and $200 billion, and it is unlikely that Russia (even together with its prospective partners) could muster the necessary capital to complete most of them amidst Russia’s low oil revenue, budget deficits, and falling GDP.

Instead, the raft of announcements, postponements, and cancellations in June and July of 2015 suggest that Russia is groping for a viable gas export strategy. Read the full comprehensive report here.

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