Vice President of Analysis Peter Zeihan examines the potential dividends of bringing French energy giant Total on board in Russia to harness Yamal’s natural gas reserves.

Editor’s Note: Transcripts are generated using speech-recognition technology. Therefore, STRATFOR cannot guarantee their complete accuracy.

In the language of the natives of the Yamal Peninsula of Russia, Yamal means “end of the world,” and it’s easy to see why: the location is remote, barren and either swampy or frozen, based on the season. But this is where the Russian energy industry is going to be made or broken and today the Russians experienced a bit of a coup. Yamal is the world’s single largest concentration of natural gas. By itself, the Yamal Peninsula has more natural gas than any other country in the world — in fact, probably more than the entirety of the western hemisphere. Very, very conservatively, it has 40 trillion cubic meters of reserves, and fully developed, it would have sufficient output by itself to fully supply the needs of the entire European Union for at least a generation. The challenges to the Russians are extreme. All of the preexisting fields from the Soviet era are already in terminal decline, and all of the new fields brought on since the Soviet decline are already past their production peak. Russia is already in a position where it cannot both meet its export contracts to Europe and supply its domestic needs. It has to import additional volumes of Central Asian natural gas for that. If those production declines are not arrested forcefully and soon, the Russians will not be able to cover the difference. Best-case scenario, the Russians probably only have about a decade before this becomes a national catastrophe. Unless, of course, Yamal can enter the picture. Yamal is one of the world’s most difficult operating environments: it’s Artic, it’s swampy, there’s very little daylight during the winter — but that’s actually when you have to do most of your work. You can’t drill in swamplands; you have to wait for them to freeze. And then in the Arctic night, in the Arctic winter, that’s when you do most of your drilling. Additionally, work on the Yamal peninsula is extraordinarily expensive. In addition to the difficult working environment, the fact that there’s not a local labor force, the fields are over 3,000 kilometers from their nearest potential market in Poland. That makes this one of the most expensive projects ever undertaken by any government at any time. It’s $200 billion easily, just to get the project rolling. Part of the reason for this extreme expense is in the nature of natural gas itself — it’s, well, a gas. Gas is difficult to transport in an economically viable manner. You can only really take it from point A to B in an actual pipe linking the source to the market, with no stops in between. It’s one of the most expensive ways to move product of any type, and in the case of Yamal, it’s a very, very long pipe indeed. And that’s just for the first one. To take full advantage of the sheer volumes of natural gas in Yamal, Russia is going to need at least another five. The solution to this cost problem is something called LNG: liquefied natural gas. What LNG facilities do is cool natural gas to negative 200-odd degrees so it becomes a liquid. At that point it can be poured into a specially designed tanker and taken to any part of the world that happens to have an LNG receiving facility. Yamal in many ways was custom designed for LNG. LNG's low cost of transport obviates the need for expensive pipeline, certainly ones that are 3000 km long. Additionally, the frigid nature of the Yamal Peninsula drastically lessens the cost of the condenser units that will turn natural gas into liquefied natural gas. What has prevented the LNG solution from being applied to the Yamal Peninsula’s problems has been that Russian firms simply don't have sufficient expertise and the technology to go for it themselves. And the firms that they have brought in from abroad to help them out have even less – that is, until this week. On Wednesday, France's Total, the world's fourth-largest energy company, was accepted into the Yamal LNG consortium. Unlike every firm that the Russians have sought out to this point, Total actually has the financial and technological resources that are applicable to the project. Now this doesn't solve all of Yamal Peninsula’s problems, or even the LNG portion of it. Because the seas around Yamal freeze every winter, that means that the Russians are going to need to come up with one of two solutions. One, either a massive storage facility, so they can store natural gas during the winter and ship it out like mad during the summer, or they’re going to need nuclear-powered icebreakers to allow LNG tankers to service this facility year round. Either way, there’s plenty of expense down the road. But for the first time in a decade, all of the pieces are in place for moving the project forward, and that raises the distinct possibility that the Russian investment dollar is going to be stretched a lot further in exploiting the potential riches of the Yamal Peninsula.