Building on ties forged through OPEC-coordinated oil production cuts, Russian President Vladimir Putin is set to visit Saudi Arabia and the UAE next week to further his country's energy collaboration with the Gulf.
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But beyond the budgetary gains and geopolitical advantages through its participation in the OPEC/non-OPEC supply accord of the last three years, Russia will be seeking to monetize its Gulf relationships with hard investment cash, particularly in Saudi Arabia.
"Moscow has enjoyed the amount of sway it has gained over OPEC+ policy and oil markets in general through bilateral discussions with Saudi Arabia," said Scott Modell, managing director of consultancy Rapidan Energy Group. "But Putin's primary focus will be on Riyadh's willingness to move forward with investments in Russia, Putin's true test of whether the kingdom wants a deeper strategic relationship with Russia."
Joint technology development -- at a time when the Russian oil sector's access to Western technology is limited due to US sanctions -- and LNG investment will be priority cooperation targets for Russia, said Daragh McDowell, head of Europe and Central Asia for risk consultancy Verisk Maplecroft.
"We are unlikely to see any 'gamechanging' new announcements, but we do expect a continuation of the reciprocal investment in each country's energy sectors that has been occurring over the past three years," McDowell said.
Putin is scheduled to meet with Saudi King Salman bin Abdulaziz in Riyadh on Monday, before he travels to the UAE on Tuesday, according to the Kremlin.
The president's visit reciprocates King Salman's trip to Moscow in 2017, the first state visit by a Saudi monarch to the Russian capital, after OPEC, Russia and nine other allies signed a landmark crude oil production cut agreement in late 2016 aimed at reversing a two-year slump in prices.
Since then, there have been frequent meetings between Putin and Saudi Crown Prince Mohammed bin Salman, as well as the two countries' energy ministers.
To date, the bilateral energy talks have had mixed success.
Analysts continue to see promising opportunities for new deals on oil and gas exploration and services, LNG, petrochemicals and new technology. However, some rumored deals have collapsed, including negotiations over Saudi involvement in Novatek's Arctic LNG 2 project, and Lukoil's decision to quit Luksar, its joint venture with Aramco.
CONVERGENT INTERESTS, DIVERGENT OPINIONS
Other potentially contentious areas include competition for oil market share -- especially in Asia -- and oil price preferences. While Russia is comfortable with current prices, and has a budget built on a $40/b price assumption, OPEC kingpin Saudi Arabia would prefer a level closer to $80/b to cover government spending.
This could become more of an issue, with Saudi Arabia trying to drum up foreign investor interest in its much hyped public share sale of state oil giant in Aramco, which the Saudi crown prince wants to be valued at $2 trillion.
Any disagreements over these issues are unlikely to derail Russia's continued involvement with the OPEC/non-OPEC production cut deal, however, analysts said.
Even with differing fiscal breakeven oil prices, Saudi Arabia and Russia, as the two largest producers in the coalition, will want to maintain their influence on the market, said Bassam Fattouh, director of the Oxford Institute for Energy Studies.
Russia is the world's second largest oil producer, behind the US, with Saudi Arabia ranking third. "The relationship will continue to be relevant for the oil market both in terms of management of physical supplies but also in terms of shaping market sentiment," Fattouh said. The current OPEC/non-OPEC deal binds the 24-country coalition to 1.2 million b/d in output cuts through March. Ministers will meet again December 5-6 in Vienna to discuss the agreement. OPEC Secretary General Mohammed Barkindo said that while he was in Moscow earlier last week, he had received assurances from Putin of Russia's commitment to OPEC cooperation, even though the country has not always complied with its quota under the supply cut deal. The annual OPEC-Russia Energy Dialogue is scheduled for Friday in Vienna. "Russia is the bridge that binds OPEC and non-OPEC," Barkindo told reporters Thursday at an industry conference in London. Russian energy minister Alexander Novak's close relationship with his previous Saudi counterpart Khalid al-Falih was seen as a key reason why two of the world's leading oil producers overcame concerns about competition for market share to agree to cooperate on production cuts. Falih was replaced last month by Prince Abdulaziz bin Salman, a veteran Saudi energy bureaucrat and the first royal to serve as the kingdom's energy minister. So far the Russian-Saudi relationship seems unaffected by the recent ministerial change. In the run-up to Putin's trip, the Saudi Council of Ministers said its energy ministry would discuss an unspecified cooperation protocol with Russia, and Russia's sovereign wealth fund, the Russian Direct Investment Fund (RDIF), announced the opening of its first overseas office in Saudi Arabia. The fund is in talks with Saudi Aramco to invest in some $3 billion worth of various projects.
TALKS WITH THE UAE
The OPEC/non-OPEC deal has also facilitated an increase in dialog between Russia and the UAE. Last year the two countries signed a strategic partnership agreement, and Gazprom Neft, RDIF and Mubadala Petroleum set up a joint venture to develop oil fields in the Tomsk and Omsk regions of Siberia.
The partners have also indicated that they are interested in cooperating on other projects in the Middle East, including upstream exploration and LNG development.
Russia and the UAE are also both members of the Gas Exporting Countries Forum.
UAE state news agency WAM said Putin would hold talks with Abu Dhabi Crown Prince Mohamed bin Zayed on Tuesday.
--Rosemary Griffin, firstname.lastname@example.org
--Dania Saadi, dania.el.saadi@spglobal
--Edited by Alisdair Bowles, email@example.com