Russia has enormous reserves of oil and gas, and it knows how to use them for economic gain and geopolitical leverage. But with Western sanctions targeting the country’s unconventional reserves and its massive conventional reserves maturing, Russia’s role as one of the world’s top hydrocarbon exporters is in serious doubt. To shore up its position, Moscow will need to tap more expensive plays in far-flung places, one example being Siberia’s Yamal peninsula, the site of a massive liquified natural gas project led by French major Total.But Total is having trouble coming up with the $27 billion necessary to construct the LNG project that lies within the Arctic Circle, in part due to those Western sanctions. Now, as the WSJ reports, Total is hoping Chinese investors will come to the project’s rescue:
While the LNG project itself wasn’t targeted by sanctions, any big Russian project faces heightened scrutiny these days by U.S. and European banks. [The involvement of Gennady Timchenko, target of Western sanctions and large Novatek shareholder,] wouldn’t necessarily make U.S. dollar funding illegal, but would intensify the scrutiny. Mr. Timchenko sold off his large stake in global trading giant Gunvor Group Ltd. just before he was cited for U.S. sanctions last year. […]Total has previously signaled its plans to meet some of the big costs of the project through fundraising from Chinese banks. But the size of the funding goal disclosed by Chief Executive Patrick Pouyanné in an interview could make the Yamal project the largest reported private corporate deal involving Chinese banks. The biggest deal of that nature so far is a $12 billion syndicated loan to Daimler AG in 2013, in which two of the 34 banks were Chinese.
Just as Moscow’s relationship with the West has soured in the wake of its aggression against Ukrainian, it has strengthened ties to the east, namely in China. Putin signed one massive gas deal with Beijing late last year and intends to ink another sometime in the coming months, but simply buying Russia’s product isn’t the only thing China can assist with—it can also help finance a troubled industry.Of course, the Chinese don’t have the necessary expertise to tap Russia’s unconventional reserves (many of which lie in that same Yamal peninsula); Beijing is struggling to extract its own shale gas. That technology is still largely an American commodity, and one that can be wielded strategically in the coming years as Russia’s need to join the fracking game intensifies.