A January 2016 report by Anca Elena Mihalache of Wikistrat, a cloud-sourced global strategic consultancy, argues that Russia's doesn't have too much choice.
There are pressures from all sides. The China alternative requires the building of massive pipelines and other infrastructure. The European route is subject to Western sanctions and EU tightening legislation. Supply of LNG is facing increasing competition. Meanwhile, global energy prices are collapsing.
The report offers the following takeaways -
- "Russia is not going to make a clear-cut choice between East and West, because it can’t. Moscow must hold onto its European market share and is ultimately willing to comply with legislation – but it won’t do so without putting up a fight.
- The Asian market and LNG projects give Gazprom breathing space in the event that Europe’s demand is not strong enough or it sets too many obstacles; however, competition in terms of LNG is fierce, and prices may fall substantially if supply increases or demand softens.
- Russia will maintain reduced production of natural gas as long as demand is low.
- The future size of Russia’s European market share – as well as the likely destination of Russian gas – will become apparent once a definitive deal is reached on one (or several) pipeline routes: (a) Nord Stream II (bypassing Ukraine to deliver gas directly to German (b) A resurrected Turkish Stream (which was cancelled in December) or (c) Maintaining the Ukrainian route (the cheaper but politically troublesome option)
- Europe’s push for diversification will open the door for LNG imports. Western Europe already imports large volumes. Additional facilities
in Eastern Europe, such as in Lithuania’s Klaipeda, are bound to open new, albeit small markets. In time, as interconnectors are built,
markets could grow – especially if Europe is willing to pay slightly more for LNG than it does now for gas that is transmitted by pipeline.
- The requirement of third-party access, along with the inter-connectors to be built in Europe, will give companies that want to invest in
upstream activity affordable access to large markets.
- Predictable EU legislation will create a more fair business environment and do away with monopolistic practices.
- EU funding could be available for some natural gas infrastructure