Crimea crisis: a boon or a bad for Asian gas buyers?

A boon: Russia's urgent need to diversify its market away from Europe and pivot to Asia, may accelerate the finalization of the Russia-China pipeline deal with Gazprom more willing to compromise on pricing. The Vladivostok LNG project could also benefit from more pricing flexibility from Gazprom.


A bad: However, the worsening of the Ukraine-Russia crisis, and potential escalation of the sanctions could go as far as ban on supply of high-tech equipment and service companies contracts. With those type of sanctions in place, offshore production and LNG plant construction would be made impossible. This situation would lead to a forced pause in Putin's eastward LNG focus strategy.

The Ukraine-Russia crisis: a view point from Asian gas buyers

Russia's reputation as a reliable gas supplier is at risk not only in Europe but also in Asia. As the geopolitical crisis in Ukraine escalates, there are significant risks that Russia's Gazprom could cut pipeline gas supplies to Ukraine which will in turn impact the EU gas market as Ukraine is likely to siphon some of the gas dedicated to its European neighbors. For Europe, Russia's use of gas as a weapon is not new, and previous crisis in 2006 and 2009 have already encouraged European buyers to diversify their gas supplies away from Russia, but for Asia this ongoing crisis puts a new light on the dubious reliability of Russian gas exports. On Russia's side, the Eastern diversification of its demand away from Europe to Asia has become a survival and desperate necessity in the context of Europe's uncertain gas demand, challenging EC regulatory framework and continuous pricing renegotiations. While the only gas exports from Russia to Asia are currently limited to LNG cargoes from Gazprom's Sakhalin 2 project (and the reliability of those exports have never been questioned), several other export projects dedicated to the Asia Pacific market which are in the planning stage could be further delayed (Gazprom-CNPC gas pipeline, Gazprom's Vladivostock LNG, Novatek's Yamal LNG, Rosneft-Exxon LNG project). The question is whether the crisis will create limited damage to Gazprom's reputation only or to Russia as a whole. In the context of Russia's internal competition between the country's different gas players, Gazprom could be a real loser while Novatek and Rosneft could see it as a win. This crisis could also reinforce the viability of some Russian LNG projects while hurt the rationale for pipeline routes to Asia as pipeline trade is more depending on the well-being of bilateral relations and more subject to politics and geopolitics.