Moscow expands its oil market share in Asia

Russian President Vladimir Putin's India visit and signing of several energy sector deals with India on December 11 2014 have been considered as significant steps to reshape the world energy business. The latest agreements include, among others, the Russian help to India for  building  10 more nuclear reactors and state-owned Rosneft's (Russian company) agreement to supply 10 million tonnes (approximately 72 million barrels) of oil per year to India.
The Russian assistance will help to substantially meet India's growing needs for energy (India is the fourth largest energy consumer in the world and it imports three quarter of its consumed crude oil. Currently, it imports approximately 4 million barrels of oil per day). On the other hand, India could secure a better market deal with Russia as the Russian side required to seal energy supply deals with India in an attempt to diversify its market.
President Putin earlier stated that his country was looking to export more Russian oil and gas to Asia because of the problems with the European market. In last six months, Russia signed major gas supply deals with China and Turkey.
It also announced cancellation of the major 'South Stream' pipeline project targeted for supplying 63 billion cubic meters of gas export annually to southern European market. The long-term petroleum (oil and gas) export deals with China and India have been illustrated by some of the analysts as Russia's tilt to Asia.
It is interesting enough to observe that Russia (also the second largest petroleum exporter) has been taking the opportunity to secure its increasing market shares for energy supply in Asia. This will have impacts on the global energy market within a few years once the infrastructure is built, specially the pipelines connecting Siberian gas fields with Chinese market.
Currently, 62 per cent of Indian petroleum imports come from the Middle Eastern countries; and Russian oil supply has only 0.5 per cent share in the Indian petroleum market.
For Russia, securing alternative market for its major export commodity is important (approximately oil and gas sectors account for 70 per cent exports and roughly 50 per cent revenue contribution in the Russian Federal budget). And getting access to Chinese and Indian markets would serve Russia as alternative petroleum supply lines. Also, the western sanction-hit Russia agreed to trade off long-term energy supply deals with its Asian partners with better price for the buyers.
All these government-to-government energy sector contracts (China-Russia and India-Russia energy supply deals) may make future contracts difficult for potential energy exporting companies.
Russia's resource-driven economy has been facing trouble. Due to the steady fall of petroleum price in the world market (since June last crude oil price dropped from $115 to below $60 per barrel) has been threatening the Russian petroleum production companies to reduce its production.
Some of the new projects in the eastern Siberia and on the Arctic continental shelf may face investment shortages and the low petroleum price will make them economically unattractive.
The hydraulic fracturing technology enabled the United States to attain petroleum production close to Saudi Arabia (nearly 9 million barrels a day).
But the 45 per cent drop in petroleum price in last five and half months threatens the US petroleum production as the cost of production is significantly high.
Some of the OPEC members (12 OPEC member-countries produce approximately 30 million barrels of oil a day) have been uncomfortable with the depressed oil and gas market prices too.
But Saudi Arabia along with its Gulf allies (Saudi Arabia alone produces approximately 10 billion barrels of oil a day) refused to reduce production of oil  in the OPEC's last meeting on November 27 2014 in Vienna furthering crude oil price downfall.
Despite difficulties, the OPEC members so far agree to sacrifice revenue loss and continue to pump in the world market surplus petroleum with the hope that the high cost petroleum producers (specially the US shale oil produces with the help of the 'expensive' hydraulic fracturing technology) will be driven out from the market in a prolonged depressed petroleum market.
Once the expectation will be met, OPEC countries hope for the bullish petroleum market back again. Also, Saudi Arabia and its Gulf allies fear that OPEC's petroleum production reduction may help petroleum price stabilisation but the benefit mainly will be bagged by Russia and Iran, the major Saudi competitor in petroleum export market.
In addition, artificial control of petroleum supply, if it helps price enhancement, will attract more investment in technology development both for difficult petroleum reservoir development as well as for energy efficient technology development. From the sellers' perspective, none of these developments will help petroleum-exporting countries to secure fat and sustained profits.
Saudi Arabia specially can afford to absorb low revenues from oil export at this stage as its production costs are significantly low (less than $10 per barrel compared to Russian production cost of $ 70 plus per barrel of produced oil). On the other hand, it has a huge revenue surplus and reserve cash in hand. In this backdrop, the depressed market is considered by OPEC members (mainly Saudi Arabia and its Gulf allies) as an opportunity to establish control over petroleum export market.
Russia, on the contrary, is trying to sacrifice some losses but becoming active in sealing market shares with long-term energy supply deals. Russian companies with a long-term vision are keen to enter the emerging Asian energy market with special attention where traditional suppliers are the Middle Eastern countries.

The writer is a mining engineer rights on energy and environment issues.
 mushfiq41@yahoo.com