Should the West view Kremlin’s new energy ties as a bitter necessity?

OPINION: Should the West welcome, rather than attempt to disrupt, Russia’s plan to supply discounted oil and gas to countries that need affordable energy to grow their rapidly evolving economies?

This may appear controversial, because Russia is building energy ties with countries that are not taking part in sanctions imposed on it in response to the invasion of Ukraine last year, but it may be necessary to avoid greater political and financial volatility.

Soon after the invasion, Russia coined the term “unfriendly countries” for the US, European states, Canada, Japan and other nations that joined international sanctions against it.

As a result, “friendly countries” are seen as a more promising market, Russian Deputy Energy Minister Pavel Sorokin told the St Petersburg International Economic Forum last week.

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He said countries “friendly to Russia” are home to about 6.5 billion people and per-capita energy consumption is expected to increase in the next 10 to 15 years, thus presenting marketing opportunities for Russian oil and liquefied natural gas exports.

Meanwhile, the population in “unfriendly” countries — put by Sorokin at 1.8 billion people — is set to fall, together with their fossil fuel use, he said.

Gas consumption in India, China, Pakistan and other “friendly” nations will topple that of “unfriendly countries”, by 2040, Sorokin predicts.

Russia is already a major oil supplier to China and India and earlier this month shipped its first cargo of discounted oil to Pakistan, which is struggling with growth in domestic demand and dealing with massive public and corporate foreign debt.

Lack of transparency

However, high transport costs to these more remote regions, together with the lack of transparency over pricing of Russian oil exports deliveries for authorities, will shave off any excess profits from such sales that the Kremlin could take from producers to finance the war.

Sorokin played down the higher transport costs coupled with lengthy delivery of more than 30 days.

Speaking at the forum, Russian President Vladimir Putin promised further state support and concessions to Russian energy and other exporters, as the country “will remain a major player on the global market”.

While discounted Russian oil supplies are already flowing via recently established routes, the country also hopes to significantly boost its LNG deliveries, with priority to “friendly” countries.

Novatek executive chairman Leonid Mikhelson told the forum the company envisages growing market opportunities in Asia as gas demand in Europe declines.

Novatek is Russia’s largest independent gas producer and a shareholder in the nation’s largest LNG project, Yamal LNG. Russia hopes to bring online Arctic LNG 2 and Obsky LNG before 2030.

Mikhelson added that based on its vast gas reserves, Russia should aim to at least double its share of global LNG supplies, which currently stand at 9%.

Russia’s plans will keep its oil and gas producers healthy, which is in the long-term interests of the West seeking global stability.

In the end, it may also help the Russian energy industry bear the bulk of the reparations the country will eventually have to pay for its war in Ukraine, should it come to that.

(This is an Upstream opinion article.)