I won't venture to call my Foolish colleague David Lee Smith a fortune teller. Or to insinuate that he has some secret access to the connivings going on within Russian President Putin's administration. But soothsayer or closet Cardinal of the Kremlin though he may not be, his warnings that Russia's local oil firms are increasingly pushing around their Western counterparts seem right on the nose. According to a Reuters story reprinted last week in The Moscow Times, it appears that ExxonMobil (NYSE:XOM) is following in the unwilling footsteps of both Royal Dutch Shell (NYSE:RDS-A) (NYSE:RDS-B) and BP (NYSE:BP).

The bear facts
On the surface, the story looks innocuous enough. On Tuesday of last week, Gazprom released a statement to the effect that gas produced from ExxonMobil's Sakhalin-1 project is needed to supply domestic customers in Russia and should not be exported to -- you guessed it, BP -- China. According to Gazprom, it has already sold "nearly all the gas from [its own] Sakhalin-2 project." Therefore, "the gas from Sakhalin-1 can be the only source for domestic supplies until at least 2015."

Simple, right? Russians need gas. Exxon is producing it right here at home. So why export it to China?

Two reasons
Actually, there are two real good reasons why Exxon should export the gas -- first and foremost, because it promised to do so. In 2004, Exxon reached a preliminary agreement to supply 8 billion cubic meters of Sakhalin-1 natural gas annually to China, once production reaches that level. Second -- and this one is right from Exxon's corporate mouthpiece -- "Our main principle is economic profitability. So far, we consider the Chinese direction to be the most attractive from the economic point of view."

What's the diff?
Which raises the question: What's the difference? Why does Exxon care who buys its gas, so long as the customers pay up? As the Bard would say, there's the rub: All customers are not created equal, at least not in Russia. Consider just a few price quotes on how much Gazprom charges various customers, in various states of favor and disfavor to its majority owners in the Kremlin:

  • Neighboring Belarus, which less than a decade ago was in talks with Putin's predecessor to merge its country with Russia, pays $100, and Gazprom wants that price hiked to between $125 and $150 next year.
  • Armenia pays $110.
  • Moldova pays $170.
  • Westward-leaning Ukraine, which was paying $55 per year last year, antes up $130 today (soon to rise to $180).
  • Georgia, where it's been raining Russian missiles lately, gets charged $235.
  • Western Europe pays anywhere from $280 to $320.

Meanwhile, back in the dead of the Russian winter last year, domestic customers were paying just $45. And no, I did not misplace a zero. $45. Four, five, period. Incidentally, I've posited those paltry prices as a key motivator for ConocoPhillips (NYSE:COP) partner LUKOIL's (OTC BB: LUKOY.PK) expansion of its business into the West.

Now, I don't know offhand how much Exxon promised to sell its Sakhalin-1 production to the Chinese for, but I'll bet you a pretty pile of rubles that the asking price was closer to $300 than to $45.

Name your price. No, wait. We'll name it.
In theory, Exxon should be perfectly free to do just that. To compare prices on offer in Russia, and next door in China, and choose the price that looks -- how did Exxon put it?  -- "most attractive from the economic point of view." And as a matter of fact, and law, Exxon can do just that. Savvy international operator that it is, before agreeing to poke holes in and around Sakhalin Island, Exxon negotiated a production sharing agreement (PSA) with the Russian government. Under the terms of the agreement, Exxon was guaranteed the right to sell to whom it chose, at the best price on offer.

Yet now comes Gazprom, channeling a Kremlin-originated message that basically boils down to "Kontrakti -- k chorty." Or, loosely translated, "It's our gas you're digging up, and you'll sell it to whomever we tell you to (i.e., us), and at whatever price they (i.e., we) are willing to pay."

So the question of the day becomes, is this just so much economic saber-rattling by a Kremlin pawn? Or as Dave put so presciently put it three months ago: "Will Exxon suffer the same fate as Shell -- and, likely, BP?"

Stay tuned.

For clues to the answer, read: