• 2 hours LNG Glut To Continue Into 2020s, IEA Says
  • 4 hours Oil Nears $52 With Record OPEC Deal Compliance
  • 7 hours Saudi Aramco CEO Affirms IPO On Track For H2 2018
  • 9 hours Canadia Ltd. Returns To Sudan For First Time Since Oil Price Crash
  • 10 hours Syrian Rebel Group Takes Over Oil Field From IS
  • 3 days PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 3 days Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 3 days Syrian Rebels Relinquish Control Of Major Gas Field
  • 3 days Schlumberger Warns Of Moderating Investment In North America
  • 3 days Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 3 days Energy Regulators Look To Guard Grid From Cyberattacks
  • 3 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 3 days New Video Game Targets Oil Infrastructure
  • 3 days Shell Restarts Bonny Light Exports
  • 3 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 4 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 4 days British Utility Companies Brace For Major Reforms
  • 4 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 4 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 4 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 4 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 4 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 4 days Rosneft Signs $400M Deal With Kurdistan
  • 4 days Kinder Morgan Warns About Trans Mountain Delays
  • 5 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 5 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 5 days Russia, Saudis Team Up To Boost Fracking Tech
  • 5 days Conflicting News Spurs Doubt On Aramco IPO
  • 5 days Exxon Starts Production At New Refinery In Texas
  • 5 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 6 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 6 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 6 days China To Take 5% Of Rosneft’s Output In New Deal
  • 6 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 6 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 6 days VW Fails To Secure Critical Commodity For EVs
  • 6 days Enbridge Pipeline Expansion Finally Approved
  • 6 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 6 days OPEC Oil Deal Compliance Falls To 86%
  • 7 days U.S. Oil Production To Increase in November As Rig Count Falls

Breaking News:

LNG Glut To Continue Into 2020s, IEA Says

Alt Text

The U.S. LNG Boom Could Be About To Stall

United States LNG has seen…

Alt Text

Controversial Azeri Pipeline Receives $500M Funding

The European Bank of Reconstruction…

RFE/RL staff

RFE/RL staff

RFE/RL journalists report the news in 21 countries where a free press is banned by the government or not fully established. We provide what many…

More Info

Russia Threatened by Shift in Global Energy Markets

Russia Threatened by Shift in Global Energy Markets

A shiny new liquefied natural gas (LNG) terminal is set to open in the Polish port of Swinoujscie next year.

Three-thousand kilometers to the east, Chinese President Xi Jinping leap-frogged across Central Asia in September signing billions of dollars of energy deals with producing countries such as Turkmenistan, Uzbekistan, and Kazakhstan -- as well as with the crucial transit country Kyrgyzstan.

These two developments at either end of an energy network that has been firmly anchored by Moscow for decades are sure signs of a shifting global energy environment that threatens the core of Russia's economic and geopolitical might.

The long-time business model of Russian state energy companies like Gazprom and Rosneft -- which essentially boils down to dictating terms both to isolated energy producers in the Caspian region and to captive consumers in Europe -- is falling apart at both ends.

"There are a number of different shifts that are making the next 10 to 20 years in the global energy environment look very different from the last 10 to 20 years," says Alexandros Petersen, an adviser on European energy-security issues at the Woodrow Wilson Center in Washington, who believes that major changes could be afoot for Russia

To be sure, Russia remains a huge global energy player. It seesaws back and forth with Saudi Arabia as the world's largest oil producer, and it has the largest natural-gas reserves on the planet. It provides about 30 percent of Europe's natural-gas needs.

However, that position is looking far less stable than it once did.

"Over the last 20 years, Russia has to a very significant extent lived off the Soviet legacy of oil and gas investment in western Siberia," says John Lough, an associate fellow with the Russia and Eurasia Program at Chatham House in London. "Those years of relatively cheap exploitation of those resources are coming to an end."

The U.S. Energy Department reported earlier this month that the United States -- with a huge surge in production based on high-tech extraction methods to harvest oil and gas from shale-rock formations -- will surpass Russia as the world's leading combined oil-and-gas producer in 2013.

Related article: Saudi Arabia to Use Shale Gas for Domestic Power Generation

Breaking Russia's Grip

U.S. imports of natural gas have fallen by one-third and oil imports have dropped 15 percent, leaving vast supplies on world markets for other consumers -- including Russia's key customers in Europe.

The development of LNG technology, which allows natural gas to be shipped by rail and tanker ships, has contributed greatly to breaking the grip of Russia's Soviet-era pipeline system.

In addition, producer Azerbaijan has aggressively established its own ties to customers in Europe and has virtually freed itself from dependence on Moscow to bring its oil and gas to market.

At the other end of the network, China is the big customer, but it has the resources and technology to develop its own supply networks.

Although Beijing has struck some impressive deals with Russia and could be a key player in developing Russian energy resources in eastern Siberia, the Far East, and the Arctic, China deals with Russia as just another energy supplier rather than as the only game in town.

"China has stolen a march on the Russians in Central Asia -- no question about that," says Lough. "The speed at which it has been able to develop its relationships with the Central Asian governments and, on the basis of that, put in place infrastructure, has been impressive."

The changes are already having a palpable impact on Russia, where the energy sector accounts for around 30 percent of GDP and at least half of the government's revenues. Gazprom's profits declined 15 percent in 2012 and exports to Europe fell by 8 percent.

Russia's overall economic growth was just 1.2 percent in the second quarter of this year, below the government's projected 1.9 percent. Meanwhile, Russian government spending has ballooned in recent years.

In 2005, the government projected oil prices of $55 a barrel in order to balance the budget. Now, former Finance Minister Aleksei Kudrin says the figure is around $117. Oil prices are currently hovering around $100 per barrel.

The situation is not impossible for Russia, despite inevitable comparisons between the current situation and the role that changing global energy markets in the 1980s played in bringing about the collapse of the Soviet Union.

Lucrative Opportunities

Such comparisons may be premature and, in fact, the growing energy demand in China and the rest of South and Southeast Asia could offer lucrative opportunities -- if Moscow is ready to take advantage of them.

First, analysts say the Kremlin must decide if it really wants to continue using Gazprom as a geopolitical weapon against its neighbors, a practice that has considerable economic costs.

For instance, the tiny breakaway Moldovan region of Transdniester -- which is propped up by Moscow as a form of leverage over Chisinau -- has racked up more than $3 billion in unpaid debts to Gazprom over the last two decades.

According to Petersen, if the Kremlin can break away from this mindset, it can approach the energy sector from a new and more businesslike perspective.

"If the Kremlin sees Gazprom as a genuinely commercial venture, if it wants to make money, then certainly it would make a lot of sense not just to break Gazprom up but to allow competition from [state-controlled oil giant] Rosneft and other players as well," he says.

Related article: Shell Claims Global Liquid Fuel Demand will Peak in 2035

In Peterson's view, this should apply to "both managing the internal natural-gas system, which is in dire need of upgrade within the country, but also in terms of exports, because that would in theory, at least, create efficiencies across the board."

Tough Choices

In the past, Russia has left huge quantities of money on the table in its energy sector, both through enormous inefficiencies that Gazprom must cover through subsidized domestic gas prices and through corruption.

Transparency International ranks Gazprom as one of the most opaque and corrupt companies in the world, noting in a 2012 assessment of the world's 105 largest companies that Gazprom was the only one to score zero in terms of effective anticorruption measures.

The Peterson Institute for International Economics in Washington estimates that Gazprom loses $40 billion a year to corruption and waste -- as much as 40 percent of its total revenues.

These are resources that must be harnessed if Russia is to successfully reorient its energy-export system toward Asia; develop the resources of eastern Siberia, the Far East, and the Arctic -- and become a global LNG force.

In addition, Chatham House's Lough says Moscow must do much more to attract foreign investment and expertise.

"The new resources, these new frontier areas, are very inhospitable," he says. "There's very little, if any, infrastructure in them and the cost of developing resources there is somewhat greater than in western Siberia. It is also, in some cases, technologically much more complex, which is why Russia therefore needs foreign partners and access to the best international experience."

Accomplishing all these tasks under the pressure of the shifting global energy environment will require some tough political choices for Russia's leadership, including a dramatic trimming back of the crony capitalism that has characterized the post-Soviet period and a more cooperative international posture.

But the price of not making these choices could be a sharp decline in the government's ability to subsidize impoverished and volatile regions in the North Caucasus, to continue expanding and upgrading its defense capabilities, and to maintain the social subsidies that much of the population continues to depend on.

By. Robert Coalson

Originally published on: RFERL

Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News