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Russia and Saudi Arabia are strengthening their cooperation in the hydrocarbon market. Just recently there occurred an event that is important for the Russian oil and gas complex, and shall

reinforce Russia’s positions in the international market: Novatek and Saudi Aramco (the state oil company of Saudi Arabia) entered into agreement of cooperation.

My business predictions from some time ago turned out to be correct: the energy giant Saudi Aramco wants to do much more than simply purchasing a Russian LNG from Arctic deposits – it will become an active partner in the Arctic LNG-2 project by way of acquiring a company's share.

The scheme of Novatek and Saudi Aramco partnership, apparently, will be built by analogy with Yamal LNG, where Novatek retains the control stock of shares (50.1%), France’s Total owns 20%, and the CNPC and SRF companies from China own 29.9%.

Arctic LNG-2 is to include Total and Saudi Aramco – instead of the Chinese companies. Novatek names the optimal share of investors to be in the range of 30-40%; however, the company is ready to sell the share stock of up to 50% minus 1 share, which will allow Novatek to stay in control.

Such format of cooperation appears to be the most effective in the prevailing conditions; therefore, I assume there will be more such deals that we'll hear about later this year.

Hydrocarbon Union of Russia and Saudi Arabia: Benefits of the Parties

The Saudi Aramco company sets itself up for being a most important partner with regard to the project and strives to participate in all processes involved – from gas production to marketing strategies. Thus, Saudi Arabia demonstrates its interest, primarily, in Russian experience of energy and political domination, as well as in Russia's competence and developed projects that allow the country to successfully implement modern large-scale projects. The recent launch of Yamal LNG (performed in most difficult climatic and foreign economic conditions) impressed not only the Energy Minister of Saudi Arabia who was present at the opening ceremony, but also all players in the world market.

Saudi Arabia is also interested in strengthening the partnership in the military and technical spheres. Russia's achievements in the nuclear power industry and successful modern projects implemented in our defense sphere impress the Middle Eastern audience with their reliability and ease of operation; besides, they are priced quite attractively compared to their counterparts from other countries.

The investment participation of Saudi Aramco – a most powerful player in the global oil market – also brings Russia a number of advantages in terms of developing own large-scale projects. To mention but one thing, such participation allows us to gain additional access to modern mining and mineral exploration technologies. Dozens of projects are currently under development as part of the import substitution policy, but their final launch will take several years. Therefore, it is important to ensure the industry doesn't "fall backwards" in terms of the technical equipment quality.

The first time that Saudi Aramco revealed its interest in Novatek projects was the beginning of October 2017. The prospects and opportunities for cooperation were discussed during the first visit of the King of Saudi Arabia to Moscow. So, in less than six months, the countries moved to decisive actions - the discussion of timing for launching the second stage of Arctic LNG construction that is to start next year. Novatek's experience, competence and possibilities make it possible to start the production of LNG already in 2022 - 2023.

Vladimir Putin and Salman bin Abdulaziz Al Saud, King of Saudi Arabia, intend to increase coordination in the global hydrocarbon markets. The government meetings and negotiations at the highest level have brought their results: the investment activity of Saudi Aramco in the Russian hydrocarbon market has grown significantly over a short period of time. And if we look at what Saudi Arabia is interested in, besides Arctic LNG-2, we may conclude that their intentions are serious, and they'll stay here for quite a while.

Saudi Aramco is expanding its presence in Russian oil and LNG projects. Thus, the Russian Direct Investment Fund (RDIF) and Saudi Aramco are working on a platform for investments in Eurasia Drilling ("Eurasia" Drilling Company) – the largest independent drilling company in Russia. Besides, it is expected that the RDIF and Saudi Aramco will soon complete the investment deal with SIBUR, Eurasia Drilling and Novomet.

The achieved level of mutual understanding and interaction between Saudi Arabia and Russia - the two largest oil producers in the world - is a real breakthrough in the Saudi-Russian relations.

The mutual interest in strengthening and developing cooperation is reinforced by joint work and by the successful agreement on reduction of oil production attained within the OPEC + framework. The harmonious protection of common interests contributes to the countries' integration and the growth of trust between Russia and Saudi Arabia.

The parties agreed on establishing partnership at various levels. We can expect that Russia and Saudi Arabia will continue increasing their cooperation on a wide range of issues, because the two countries not only share common interests, but also have something to offer each other.

About the author: Igor Yusufov is a Russian politician who used to be the Energy Minister of the Russian Federation (in 2001-2004) and the special representative of the President of the Russian Federation for international energy cooperation (in 2004-2011). He is also a businessman, a philanthropist, and the owner of Corporation Energy.