Fears that Russian gas exports will be sent to other markets such as China instead of Europe are overstated, said Julian Lee, senior energy analyst at the Centre for Global Energy Studies, speaking Feb. 14 at the International Petroleum Week conference in London.
“Europe and Russia share [an] oil-related gas pricing philosophy that China doesn’t have,” he said about the security of European gas supplies. “In China, gas would compete with coal, and there is a big gulf between what China will pay and what Russia wants to charge for its gas.”
China is seeking Russian gas, and Russia has proposed building two 30-40 billion cu m/year gas pipelines from Western Siberia to China that could be commissioned from 2011. However, progress on the initiative has been just talk so far, Lee said.
“I think the worries about gas going to China are overstated,” he emphasized, pointing out that Sakhalin LNG has been contracted by Japanese and Korean buyers, not China.
Lee said Europe was a very important market for Russia and was its biggest customer; Europe imports about 25% of its gas from there.
The current form of the Energy Charter Treaty, an international agreement that aims to protect foreign energy investments, has caused a standoff between Russia and the European Union. Russia, arguing that the treaty does not serve its interests, has refused to ratify it because the gas giant is uncomfortable with the Transit Protocol, a related document that facilitates the transit of hydrocarbons. Lee told OGJ that the Energy Charter Treaty needs to be revamped because it was based upon a bygone era when the West assumed that countries within the Commonwealth of Independent States were in need of investment to develop energy infrastructure. “The world has moved on from that position,” Lee said. “Russia is not in need of Western companies and technology, because these can be brought in with service companies, and Russia is awash with petrodollars. The Energy Charter Treaty needs to be more balanced with its needs.”
