Spotlight on Geopolitics

While the financial crisis has wiped out two thirds of Russian tycoons’ equity value, plunging oil and gas prices are projected to diminish Russia’s income from energy sales by more than 20 billion euros in 2009 alone. Undaunted, the giant gas supplier Gazprom intends to push ahead with plans to build Russia’s most expensive gas project ever, the South Stream pipeline.

The price tag for the project is 24 billion euros, with 4 billion to be spent for building the underwater pipeline connecting Russia with Southeast Europe, thus bypassing Ukraine. Another 20 billion euros will be necessary to build two surface pipelines: one connecting Bulgaria (or Turkey) with Austria (1.300 km), the other going to Greece’s Adriatic coast (900 km). When operational, the pipeline could carry 31 billion cubic metres of natural gas to Russia’s Western customers, hard hit by this winter’s supply hiccups. (Source: Pravda)

In addition to this, Russia has signed yesterday in Beijing its largest-ever oil supply deal with China. Under the agreement, China Development Bank will lend Rosneft, Russia’s biggest oil exporter, and Transneft, its pipeline monopoly, a total of 19.8 billion euros. In exchange, Russia will supply China with 300.000 barrels of oil per day, for the next 20 years. The bulk of the money will go to Rosneft and is intended to refinance its operations. To underline the importance of the deal for Russia, the presidents of the two companies were accompanied to Beijing by the Russian deputy premier, Igor Sechin and the energy minister. (Source: The Standard, Hong Kong)

The oil is going to be delivered to China through the new Tayshet – Skovorodino pipeline, scheduled to become operational in December 2009. Until 2010, Transneft will be building a 70 km stretch of pipeline connecting it to the Chinese border. (Source: Courrier International). The deal is seen by some analysts as a new strategy for Russia to diversify its customer base and to bring into production its Siberian oil fields.

Considered together, the two oil and gas developments are intended to further consolidate Russia’s position as the world’s number one supplier of gas, and its second-largest supplier of oil, after Saudi Arabia.

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