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Russia targeting Asia for crude exports

A recent report from Business Monitor International (BMI) has revealed that while Russian oil production is likely to drop over the next five years, it will be able to deal with this decline and the effects of sanctions by diversifying exports and focusing on new markets; specifically China, Japan and South Korea.

This could prove to be the best move for Russian businesses, as the Asian market could provide the solutions Russia needs in both the short and long term. However, there are still plenty of obstacles to be overcome.

If BMI is correct, Russian oil production will drop this year and continue doing so until 2020. However, if it is able to secure a place in the east Asian market, it might not take too large an economic hit.


A growing market

Asia is expected to become the biggest oil consumer in the world this year, overtaking the Americas, with imports in 2014 reaching around 592 million metric tons. Yet despite the close proximity with Russia, most of the region's oil imports come from elsewhere.

However, Russia is working to change this. The country's oil businesses increased their exports to China, Japan and South Korea by 25 per cent in 2014 - to a total of 51 million tons - meaning 8.7 per cent of oil imports in the region came from Russia. This is up from 7.2 per cent in 2013.


Competing with the Middle East

Of course, Russia is not the only country exporting to east Asia. The region gets most of its oil imports from the Middle East, especially Saudi Arabia who provided 26 per cent of all exports to China, Japan and South Korea in 2013.

However, last year this fell to 24 per cent, as exports to the region dropped from 146 million tons to 142 million. Kuwait and Qatar also lost market share to Russia last year.

The solution some Middle Eastern businesses are opting for is to drop their oil prices, offering east Asian customers large discounts in a bid to compete with Russia. Some analysts have warned that this will keep oil prices low overall, which would be bad in the long run.

However, even heavy discounts might not increase Saudi Arabia's market share, as the Asian countries are aiming to avoid relying on a single country for so much of their oil supply. Victor Shum, president of IHS Inc., told Bloomberg: "Asian customers want to diversify supplies and Russia has the crude so it’s a win-win situation."


Infrastructure development

The $55 billion Power of Siberia pipeline in eastern Russia, carrying Siberian gas to China, will be a major part of its focus eastwards for future gas supplies and progress is well underway on the project.
Gazprom and the China National Petroleum Corp agreed a route for the pipeline under the Amur River (which marks part of the border between the two countries) in February, and Gazprom chief Alexey Miller reported last month that work is in "full swing", with over 100,000 tonnes of pipes delivered and construction of transmission and processing facilities underway.

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