Late senator John McCain once said that “Russia is a gas station masquerading as a country.” There was some truth in his statement after the disintegration of the Soviet Union and the collapse of the economy. The hydrocarbon wealth of the world’s largest country prevented a total economic meltdown and provided a financial lifeline.
Moscow has funneled some of the income from oil and gas exports into rebuilding the economy and improving its international standing. Although Russia might not be the superpower it once was during the Cold War, it is still a major power again that needs to be reckoned with.
Despite the country’s relative resurrection, its energy industry is still the single most important sector which is crucial for maintaining the state’s influence both domestically and abroad. Therefore, Moscow remains strongly involved in its oil and gas sector and invests significant funds to remain an energy superpower. Consequentially, measures to mitigate climate change are a nuisance for its oil and gas producers.
Although a warmer climate does create some advantages and opportunities for Russia, such as the ice-free and navigable North Pole and an increase of fertile agrarian pastures, it also creates risks for the country’s energy sector. Historically, most of the oil and gas was produced in areas with mild climates such as the Caspian sea. But as old fields got depleted, production slowly moved to the north. Currently, most of the oil and gas are produced in the frozen landmass of northern Russia.
The soil in these areas freezes and thaws as the season changes. Long winters and short summers were maintaining a solid foundation for the oil and gas industry to thrive, the so-called permafrost. However, with climate change temperatures are rising and the thaw season is prolonging which is destabilizing the foundation on which infrastructure is constructed. According to a recent report by the IPCC, "the permafrost is undergoing a rapid change which is threatening the structural stability and functional capacity of infrastructure." Related: The New Sweet Spot In The Permian Boom
Some 45 percent of Russia’s oil and gas industry is located in areas with the highest hazard zones. Therefore, Moscow recently made the extraordinary decision to ratify the Paris Climate Agreement. Counterintuitive as it may seem, Moscow's resolution is a calculated step to mitigate the most extreme negative effects of climate change to hold on to its economic lifeline, the energy sector.
Despite the seemingly apocalyptic outlook of Russia’s oil and gas industry, the country’s newest infrastructure projects are designed to cope with the thawing of the permafrost. The flagship Yamal LNG project sits atop 65,000 piles which are driven up to 28 meters into the permafrost to maintain stability. The piles are constructed with a so-called thermosyphon system, which uses refrigeration technology to keep the soil frozen.
Projects like Yamal are designed with certain assumptions and predictions on the extent of the degradation of the permafrost. However, the Arctic soil could destabilize even further under a high emissions scenario, which is especially threatening to old infrastructure that was constructed in a period when climate change was not taken seriously.
According to the Arctic Council’s ‘Arctic Monitoring and Assessment Program', Russia’s northern region is destabilizing at a rapid pace. The soil can no longer bear the same loads comparable to the 1980s. Although new technologies have increased the longevity of oil and gas projects, costs will increase regardless of how far north a project is developed.
Production in the Arctic already requires larger than average investments due to the extreme polar climate. Warming weather patterns will further increase costs that have an impact on the profitability of projects and therefore Russia’s standing as an energy superpower.
Hence, Moscow must mitigate the warming of the planet to maximize energy production and maintain political and economic power in a fast-changing world.
By Vanand Meliksetian For Oilprice.com
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The author seems to take seriously far-fetched assumptions that climate change will cause the thawing of the permafrost where 45% of Russia’s oil and gas industry is located.
Despite such projections, Russia is pouring huge investments and state-of-the-art technologies into the Arctic where it is reported to have more than $8 trillion worth of untapped oil and gas. Projects like Yamal LNG and the Arctic 2 LNG are built with the very latest technologies to withstand all weather conditions including far-fetched assumptions that may or may not materialize.
Still, a warmer climate does create some advantages and opportunities for Russia, such as the ice-free and navigable North Pole and an increase of fertile agrarian pastures.
Moreover, a coupling of the World’s largest economy (China) with the superpower of energy (Russia) could only deepen energy cooperation between the two countries further particularly in the Russian Arctic.
This growing energy cooperation could be extended to the development of nuclear and wind energy in the Arctic underpinned by China’s expertise in renewable energy technologies and Russia’s extensive expertise and experience in nuclear technology.
Russia has been the largest recipient of Chinese investments under China’s Belt & Road Initiative. Chinese investments have helped finance Yamal LNG and Arctic 2 LNG projects. Moreover, two Chinese companies are investing 10% each in Arctic LNG 2 which is expected on line in 2023.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London