Summary
Russia, world's largest natural gas producer, has invited international majors to help it obtain 20% of the natural gas market. Experts say it could be 2020 before new production comes on stream. Russia's priority project, Shtokman offshore field in the Barents Sea is scheduled to begin deliveries in 2014. Many experts question Gazprom's financial and technical ability to make it happen in a time of worldwide recession. Vitaly Yermakov of CERA in Moscow cited uncertainty about gas projects.
Analysis
The short answer is that at this stage of the tepid economic recovery, crude oil looks to be a better bet than natural gas. In the U.S., too many shale gas avails have driven the market down to between $4 and $5/million btu. This is turn, has weakened the liquefied natural gas netbacks internationally. This surplus of various types of natural gas looks to prevail for several years. The result is that Russia intends to focus on crude oil projects for which it can find ready markets in the Far East because of new pipelines running down to China. Crude oil prices have leveled out at between $75-$80/bbl and look to stay that way for a while and perhaps even increase further as the combination of mature field decline and improving gasoline consumption tightens the spread between supply and demand. So far investment in crude oil projects have held up and the large number of new fields and major old oil field redevelopments already budgeted for 2010 suggests Russia could see further production gains next year. TNK-BP, Rosneft and Lukoil have all announced projects for next year and beyond. This trend will likely prevail until equilibrium returns to the natural gas market which is not expected much before 2015.
