Putin re-energises Russia’s Mid-East Gulf ties
The deals thus far are mostly modest, but the Russian president’s Gulf visit laid the ground for wider cooperation
Vladimir Putin’s state visits in October to Saudi Arabia and the United Arab Emirates (UAE) left a trail of energy deals in their wake. And while many of the agreement are tentative or small-scale at present, they clearly represent the increased Russian appetite to up its profile in the region.
In Saudi Arabia, it was largely a case of reinvigorating earlier cooperation pledges. During King Salman’s visit to Moscow in 2017, state-owned Saudi Aramco, the Saudi Public Investment Fund and the Russian Direct Investment Fund (RDIF) agreed to create a platform for investment in Russia’s energy services sector—widely interpreted as a quid pro quo for Moscow’s support for Saudi-led global oil production cuts. Progress on that and wider pledges of enhanced commercial collaboration has been meagre.
The highest-profile tie-up, envisaging Aramco buying into the $21bn Arctic LNG 2 project in western Siberia, has failed to materialise. During Putin’s October visit, the state oil company instead inked nine deals, the bulk of which concerned Russian equipment and services suppliers agreeing to establish in-Kingdom operations. Eight were in the form only of memoranda of understanding (MoUs)—the exception being a sales and purchase agreement for Aramco and the two state investment funds to acquire a 30.67pc stake in Novomet, a Russian oilfield equipment manufacturer.
Russia and Saudi Arabia’s scope for joint energy investment is limited by their competing strategic priorities
Petrochemicals represents a richer collaboration seam. Sabic, a Saudi state-controlled firm in the process of being swallowed by Aramco, signed an MoU with the RDIF and ESN Group, a Russian private equity company, to develop a 2mn-t/yr methanol plant in Amur in south-east Russia. The deal lines up with the Saudi firm’s international expansion strategy of establishing production sites close either to feedstock sources or major markets—in this case, proximity to China and its buoyant methanol-to-olefins sector.
A deal mooted for more than two years for Russian petchems firm Sibur to set up a synthetic rubber plant as part of a joint venture, at the Jubail downstream hub in Saudi Arabia’s Eastern Province, is another previous cooperation opportunity where signs of concrete progress have been scant. But Putin, in an interview ahead of his trip, cited the project as an example of co-investment success, at least confirming that the plan remains live.
Russia and Saudi Arabia’s scope for joint energy investment is limited by their competing, rather than complementary, strategic priorities as the world’s leading crude oil exporters: to increase production of, and create downstream demand for, their core product. However, like the UAE, the kingdom faces a growing shortage of natural gas, putting a brake on further development of the NGL-based local petrochemicals industry and forcing Sabic to look abroad for growth.
UAE’s gas focus
Even more than Aramco, Abu Dhabi’s Adnoc has put upstream gas at the forefront of investment plans, and the potential for UAE cooperation with Russia, one of the world’s largest gas producers, was evident in a mid-October deal for Russia’s Lukoil to acquire a 5pc stake in the Ghasha ultra-sour gas concession. Covering a vast area off Abu Dhabi’s north-west coast, the acreage encompasses fields central to the aim of returning the emirate to gas self-sufficiency by 2025, and thereafter to a net exporting position.
Contracting is well under way on projects to develop the Ghasha, Hail and Dalma sour gas fields, and to exploit the gas cap and deep gas, respectively, at the Umm Shaif and Nasr oil fields. Typically, Adnoc makes 40pc of shares in joint ventures available to foreign shareholders, and stakes in Ghasha amounting to this threshold were acquired early last year by Italy’s Eni, Austria’s OMV and Germany’s Wintershall Dea.
The Lukoil purchase—the first by a Russian firm in Abu Dhabi’s upstream—does thus risk the appearance of politically-driven afterthought. But Adnoc, in choosing Lukoil, played strongly on the Russian firm’s offshore gas expertise. A framework agreement was also signed with state-controlled gas heavyweight Gazprom, said likewise to envisage cooperation in the exploration and production of Abu Dhabi’s sour gas reserves.