Today’s objectives

 

  1. Take stock: Russia’s status as “energy superpower”
  2. Consider: how gas can be used as a geopolitical instrument
  3. Discuss: lessons from Russia’s coercive gas diplomacy

Overview

 

Oil and natural gas fields, 2017

Russia is world’s 3rd largest energy producer and consumer
(data from DOE’s Energy Information Administration, 2021)

Total Energy Production
Ranking Country quadrillion Btu
1 China 135.0
2 United States 98.3
3 Russia 64.1
4 Saudi Arabia 26.6
5 Canada 23.4


Total Energy Consumption
Ranking Country quadrillion Btu
1 China 165.2
2 United States 97.9
3 Russia 34.2
4 India 32.0
5 Japan 18.1

Oil
(2021 data)

  1. Reserves
    1. 8th largest reserves
      (80 billion barrels)
  2. Production
    1. 2nd largest producer
      (12 million barrels/day)
  3. Consumption
    1. 4th largest consumer
      (3.7 million barrels/day)
  4. Exports
    1. 2nd largest exporter
      (5.2 million barrels/day)
    2. 82% tanker, 18% pipeline
    3. 2022:
      • 42% to EU
      • 36% to China
      • 12% to India


Petroleum production
Ranking Country 1000 barrels/day
1 United States 20,301
2 Saudi Arabia 12,144
3 Russia 10,938
4 Canada 5,694
5 China 5,119
Crude oil exports
Ranking Country 1000 barrels/day
2 Saudi Arabia 7,341
1 Russia 5,196
4 Iraq 3,976
1 Canada 3,177
5 UAE 2,427

Natural gas
(2021 data)

  1. Reserves
    1. world’s largest reserves
      (1,688 trillion cubic feet)
  2. Production
    1. 2nd largest producer
      (25 Tcf/year)
    2. 71% consumed domestically
  3. Consumption
    1. 2nd largest consumer
      (15.8 Tcf/year)
  4. Exports
    1. world’s largest exporter
      (8.9 Tcf/year)
    2. 85% pipeline, 15% LNG
    3. 2021: 61% to EU (5.4 Tcf)
      2022: 16% to EU (1.4 Tcf)


Natural gas production
Ranking Country Tcf
1 United States 34.5
2 Russia 24.8
3 Iran 8.8
4 China 7.5
5 Canada 6.4
Natural gas exports
Ranking Country Tcf
1 Russia 8.9
2 United States 6.7
3 Qatar 4.4
4 Norway 3.9
5 Australia 3.7

Natural Gas as Foreign Policy Instrument

 

Natural gas pipelines, 2023

Russia’s major natural gas export pipelines (2021 data)
Pipeline Capacity Length Origin Markets Transit
Yamal-Europe 1.2 Tcf 2,552 mi W Siberia Poland, Belarus
Germany,
N Europe
Blue Stream 0.6 Tcf 754 mi W Siberia Turkey Black Sea
Nord Stream 1.9 Tcf 761 mi W Siberia Germany, Baltic Sea
N Europe
Nord Stream 2 1.9 Tcf 761 mi W Siberia Germany, Baltic Sea
N Europe
Soyuz, Brotherhood 1.1 Tcf 2,800 mi W Siberia, Europe Ukraine
C Asia
TurkStream 1.1 Tcf 580 mi W Siberia Turkey, Black Sea
SE Europe
Europe total 7.8 Tcf
Sakh.-Khab.-Vlad. 0.2 Tcf 1,118 mi Sakhalin NE China,
Vladivostok LNG
Power of Siberia 2.2 Tcf 5,040 mi E Siberia NE China
Asia total 2.4 Tcf

Gas and Geopolitics

 

How Russian gas is different from oil

  1. Infrastructure
    1. only ways to transport gas are pipelines & liquefied natural gas
    2. both very expensive to build (investments tied to long-term, state-sanctioned contracts)
    3. storage facilities also costly
      (vulnerable to disruptions)
  2. Markets
    1. can’t buy gas on spot markets
      (harder to diversify sources)
    2. no global “market price” for gas
      (seller can dictate price)
    3. gas can be sold direct to customer
      (Gazprom \(=\) local energy utility)
  3. Ownership
    1. no private gas production, sales (Gazprom is state monopoly)


 

Option 1

Option 2

 

How did Europe get hooked on Russian gas?

  1. Diversification from Middle East
    1. 1973 oil crisis price shocks
    2. USSR seen as potentially more reliable supplier
    3. assumption: USSR to be “one of several” alternatives
  2. Search for alternative fuel sources
    1. reduce reliance on coal & oil
      (natural gas is relatively clean-burning fossil fuel)
    2. phase out nuclear (Germany)
  3. Russian efforts vs. competition
    1. lobbying vs. S Caucasus pipeline (NABUCCO)
    2. efforts to destabilize alt transit routes (Georgia)
    3. price discounts


Exports to region, 2021
Region Tcf
1 Europe 7.36
2 Asia 1.12
3 Rest of world 0.38
Exports to country, 2021
Country Tcf
1 Germany 1.70
2 Turkey 0.95
3 Italy 0.92
4 Belarus 0.70
5 France 0.62
6 China 0.56
7 Poland 0.37
8 Japan 0.32
9 United Kingdom 0.17
10 South Korea 0.14

 

How is Europe quitting Russia? (2022)

  1. Supply shocks
    1. oil:
      • ban on seaborne oil imports
      • global oil price cap (G7)
    2. gas:
      • Nord Stream 2 suspended
      • Nord Stream 1 disabled
  2. Switch to LNG
    1. 77% increase in LNG imports
      (mostly from US, but also Russia)
    2. build new LNG terminals
  3. Conserve
    1. fill storage tanks (82 pct in 2023)
    2. reduce consumption
  4. Get lucky
    1. mild winter 2022-2023

Russia gas share of Europe’s energy:
40% (2021) \(\to\) 10% (2022)


 

 

 

Storage tanks

Case Study: Ukraine 2006 Gas Crisis

Russia’s coercive gas diplomacy

  1. Set prices
    1. sell at “below-market rates”
    2. wait for low rates to become baseline for destination country’s economy, industry
    3. threaten to raise rates to extract policy concessions
  2. Collect/cancel debts
    1. ignore under/non-payments
    2. then offer to cancel debt in exchange for concessions (e.g. pipeline equity stake)
  3. Control local gas distribution
    1. contacts include shares of local, transit pipelines
    2. direct sales to customers


 

 

“property of V.P.”

Background to 2006 crisis

  1. Pre-2005
    1. 80% of Russia’s NG exports transit through Ukraine
    2. existing agreement: Ukraine pays $50/tcm until 2009 (lower than Russian domestic customers)
  2. 2005
    1. Yushchenko elected president, sets course for EU/NATO
    2. Gazprom request price hike to $160-$230/tcm (almost 5-fold)
    3. Putin offers loan to help Kyiv pay
    4. Yushchenko rejects offer
  3. January 2006
    1. Gazprom cuts volume of gas
      (new \(=\) old \(-\) Ukraine’s share)
    2. Ukraine withdraws same amount as before, cutting gas to Europe


 

 

 

Viktor Yushchenko

Hordiyiv vuzol

The Deal

  1. Sketchy middleman to the rescue
    1. GazpromExport sells to Naftohaz Ukrainy through intermediary: RosUkrEnergo (RUE)
    2. RUE buys
      • Russian gas at $230/tcm
      • Turkmen gas at $60/tcm
    3. RUE sells to Ukraine at $95/tcm
    4. RUE becomes sole importer of Russian gas to Ukraine
  2. Who is RosUkrEnergo?
    1. Swiss-registered company
    2. co-owned by Dmytro Firtash
  3. Criticism
    1. numbers don’t add up
      (need 80/20 Turkmen/Russia mix just to break even at this price)
    2. complete lack of transparency


 

 

 

Man in the middle

A trusted brand

Discussion:

  1. How did these corrupt deals help Russia geopolitically? What is the “theory of cause and effect”?
  2. How successful was Russia’s coercive gas diplomacy in achieving its intended political effects? (i.e. keeping countries in Russia’s orbit)
  3. Why didn’t Russia play similar game with countries in Western/Central Europe?
  4. Is this still a viable strategy as Russian exports pivot to China?

NEXT MEETING

 

Information, Hybrid and Cyber Warfare (Tu, Nov. 14)

  • How has Russia leveraged new technologies of warfare?
  • Can these new technologies prove decisive on the battlefield?