In gas they trust

Novatek wins big in Russian energy deal-a-palooza

Rosneft's $270-billion deal to supply crude oil to China stole the spotlight at a big confab in St Petersburg on June 21. But upstart gas producer Novatek's smaller deal to ship liquefied natural gas to the mainland may have been the bigger news to emerge from "the Russian Davos". Gazprom's export monopoly looks truly over.

Shortly after the Novatek deal was announced, Russian President Vladimir Putin signaled an easing of restrictions on cross-border shipments of liquefied natural gas. It's the moment Novatek, the lead partner in a big LNG project in Russia's far north, has been waiting for. In return for a long-term supply of gas from Yamal LNG, China's CNPC will take a 20 per cent stake in the project and help organise financing from Chinese banks. The entry of a strategic Chinese investor should remove any lingering doubts about whether Yamal will go ahead. Novatek's shares jumped three per cent on the news. The question now is whether - or rather, when - the Russian government will realise it must also bring an end to Gazprom's monopoly on all gas exports, pipelines as well as LNG.

Rosneft's stock price closed just one per cent higher after it announced its big Chinese supply deal. The numbers are eye-popping, but may just be a lot of hype. Russia would receive money upfront from China - $70 billion, according to Putin - in return for supplying 300,000 more barrels of oil per day over 25 years. That's a lot of oil, but for Rosneft, which will probably have to divert supplies from existing customers to honor the contract, the deal may only amount to a restructuring of debt.

Rosneft, which is pursuing opportunities in LNG as well, also has good reason to celebrate Putin's embrace of looser export controls. Full liberalisation of Russian exports may be a way off, but Gazprom, which notably failed to announce any breakthrough in its own talks with China, has rarely looked so isolated.