When it comes to climate change and the need to update and innovate in the face of changing weather patterns, Russian President Vladmir Putin’s strategy is simple: deny, deny, deny. While other fossil-fuel dependent economies scramble to diversify or race to build up clean energy infrastructure in a bid to put themselves at the forefront of the coming renewable revolution, Russia has taken the opposite approach: the world’s largest nation is sitting tight and waiting to be the last man standing in a shrinking fossil fuels market. While Russia, with its massive land area and enviable geopolitical positioning, is extremely resource-rich, its oil is more costly to extract than other oil superpowers. Nevertheless, Putin is trying to outlast them all as they are forced to transition away from the oil due to falling prices and political pressure. The world is still decades away from weaning itself off fossil fuels and there will potentially be even more money to be made as the competition begins to fall away. The calculation Russia needs to make is when will its oil industry move from being a profit driver to a burden as demand plateaus and then falls.
While the potential for profit is undeniably in oil markets, when it comes to the clean energy transition, Russia is being left behind. They are being left behind in terms of infrastructure, innovation, and a dogmatic attachment to business as usual. “Putin and other Russian leaders have periodically flirted with outright climate change denial,” Bloomberg reports. “Scientists have estimated that melting permafrost could cost Russia $84 billion in infrastructure damage by mid-century while releasing vast quantities of greenhouse gases. Carbon Action Tracker, a non-profit, gives Russia’s climate policies a bottom grade of ‘critically insufficient.’”
While Russia will soon be feeling the pain from the side effects of climate change, there will also be a silver lining to all that northern ice-melt for the world’s largest country. The receding ice caps will unveil a veritable treasure trove of oil, gas, and minerals never before accessible - not to mention an extremely valuable set of new sea lanes to ease access for trade. The tradeoffs for this new natural capital, however, are so costly in terms of devastating ecological externalities that almost all of the world’s biggest banks won’t touch it.
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In the meantime, Russia has doubled down on natural gas. “In recent years, the Kremlin has bet the country’s economic and geopolitical future on natural gas,” Bloomberg reports, “building new pipelines to China, Turkey, and Germany, while aiming to take a quarter of the global LNG market, up from zero in 2008 and around 8% today.” Within the vast expanses of Russia, where entire regions are reliant on fossil fuel for their entire economy, the prevailing belief is that natural gas is the future, and will always be cheaper domestically than renewable alternatives. “What’s the alternative? Russia can’t be an exporter of clean energy, that path isn’t open for us,” Konstantin Simonov, director of the Moscow consultancy National Energy Security Fund, told Bloomberg. “We can’t just swap fossil fuel production for clean energy production, because we don’t have any technology of our own.”
While renewable energy is still an emerging sector, with plenty of potential opportunities for Russia to stake its claim in the global clean energy game, it’s clear that the Kremlin has a long way to go in terms of ideological politicking for that to become possible.
By Haley Zaremba for Oilprice.com
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Natural gas is cleaner than oil and hurray for the Russians for not being as ignorant as many EU countries.
If you compare the primary energy consumption of China, the United States, Russia and the EU you will find that Russia is the least pollutant among them. Coal which is the worst offender only accounts for 12% of Russia’s primary energy consumption according to the 2020 BP Statistical Review of World Energy compared with 58% for China, 15% for the EU and 14% for the United States.
The second biggest pollutant is oil. Oil accounts for 21% of Russian primary energy consumption compared with 40% for the US, 36% for the EU, 21% for Russia and 20% for China.
When it comes to natural gas which is the least pollutant among the hydrocarbons and which is the pivot for global energy transition, it accounts for 54% of Russian primary energy consumption compared with 31% for the US, 23% for the EU and 7% for China.
As for nuclear energy whose contribution along with natural gas is quintessential for the success of global energy transition, it accounts for 6% of Russia’s primary energy consumption compared with 10% for the EU, 9% for the US and 3% for China.
The obvious conclusion is that Russia doesn’t need energy transition as badly as the other economic blocs. That is why it hasn’t bothered to develop technologies for energy transition. Russia who sent the first man into space is more than capable of developing such mundane renewable energy technologies whenever its needs them.
Furthermore, Russia is the envy of the world being the world’s superpower of energy. This is of paramount geopolitical and economic importance. This so because the global economy will continue to run on oil and gas well into the future. Therefore, it can outlast all energy producers of the world.
Sometimes you tend to make unsubstantiated claims like the one that melting permafrost could cost Russia $84 billion in infrastructure damage by mid-century while releasing vast quantities of greenhouse gases. Could you explain first why the melting of the permafrost could cost Russia so many billions of dollars and second how would it release much greenhouse gases?
In fact, the melting of the permafrost opens huge economic opportunities for Russia which will become the food garden of the world given its huge area. Moreover, it is already providing Russia with a shorter route (Northern Sea Route (NSR) across Russia’s Arctic) to ship its Arctic oil and LNG as well its wheat and agricultural produce to China, the EU and the world at large at highly competitive prices.
For your information, the lifting cost of a barrel of oil for Russia’s oil giant Rosneft at $2.5 a barrel is even cheaper than Saudi Aramco’s $2.8. That was one of the major reasons that Saudi Arabia couldn’t win an oil price war against Russia.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London