Russia, Saudi Arabia Boost Economic Ties With Energy Memorandum

The geopolitics of the Middle East have changed dramatically over the past seven years, since the Arab Spring and Syrian civil war. But not all is war and politics.

Major energy deals between Saudi Arabia, the world’s largest oil exporter, and Russia – the largest producer outside the Organization of Petroleum Exporting Countries (OPEC) – are also reshaping alliances in the region, and a high-level visit to Riyadh by senior Russian officials last week helped bring Russo-Saudi ties into focus.

On Monday, the Saudi Arabian National Oil Company known as Aramco and Russia's Novatek signed a Memorandum of Understanding to collaborate on projects in the natural gas sector, according to a press release posted to the Russian company’s website.

"We see a wide array of exciting and mutually beneficial energy opportunities to cooperate with Saudi Arabia,” said NOVATEK’s Chairman of Management Board Leonid Mikhelson, according to the release.

The two sides envision cooperation in the realms of liquefied natural gas (LNG) supplies, the development of LNG markets, exploration and production, as well as research and technology development.

“NOVATEK’s strategy envisages rapidly growing our LNG production and attracting international partners, and, accordingly, we welcome the interest of such a globally important company as Saudi Aramco to jointly collaborate with us in gas markets,” Mikhelson added.

The Kremlin’s energy strategy through 2035 focuses on increasing Russia’s global share of the LNG market up to 15 percent, through launching new international as well as domestic projects. A Yamal-LNG project, for example, in which Novatek has more than half the shares, will produce around 16.5 million metric tons per year of new LNG resources.

Meanwhile, Saudi Aramco has noted several times its intention to double its gas production, from 12 billion cubic feet to 23 billion cubic feet per a day, within ten years.

In November, officials from Saudi Arabia expressed an interest in Russia’s Arctic LNG-2 project, which Novatek is expected to kick off by 2023. Resources in northwest Siberia are expected to produce 18.3 metric tons per year of LNG. Novatek plans to spend about $47.6 billion on Arctic LNG projects by 2030, helping Russia to increase its position as a global supplier.

Although Saudi Aramco has had conversations with energy representatives in the United States about taking a stake in Tellurian Inc., the Houston-based liquefied natural gas developer, working on an Arctic LNG project with Russia is viewed as more preferable to Saudi Arabia rather than acquiring and importing LNG from the U.S.

Alexander Sobko, an analyst at the Skolkovo Business School Energy Center, told RIA Novosti that it is too early to speak about the complete exclusion of the U.S. from the game, however, saying Russia could offer Saudi Arabia more favorable conditions for LNG supplies given the low cost of gas production.

The partnership between Saudi Arabia and Russia saw a sharp impetus since landmark Saudi king Salman bin Abdulaziz al Saud’s visit to Moscow from October 5 – 7 last year, which was lauded as the “geopolitical shift of the century” by some foreign relations experts.