is russia becoming an “energy superpower”? robert s. kravchuk professor and chair, department of...

Is Russia Becoming an

“Energy Superpower”?

Robert S. KravchukProfessor and Chair, Department of Political Science & Public Administration

University of North Carolina - Charlotteand

Research Fellow, Center for Slavic, Eurasian & East European StudiesThe University of North Carolina - Chapel Hill

World View: Understanding Russia and Its NeighborsUniversity of North Carolina at Chapel Hill

Chapel Hill, North CarolinaMarch 24, 2011

What is an “Energy Superpower”?

• Many possible concepts• NOT the usual notion of

“superpower” (military force projection connota-tions)

• Actually refers to the possible influence over:– Price of energy products– Policies of customers– Influence over world

markets for other products

March 24, 2011 2Russia as an Energy Superpower?

Existing and Potential Energy Superpowers - 2011

• Recognized Energy Superpowers:– Saudi Arabia – Est. oil production of 9.7 billion barrels

daily; world’s largest conventional oil reserves– Russian Federation – Est. oil production of 10.03

barrels daily; world’s largest natural gas reserves

• Potential Energy Superpowers:– Venezuela – Investment of $100B to match Saudi production;– Iran – oil: 2nd largest reserves; 4th largest producer; 5th largest

exporter;– Canada – Ambiguous Status; produces 25% of world’s uranium;– Australia – Also ambiguous; 22% of world’s uranium reserves;


Oil and Gas Reserves and Production

CountryOil Reserves

(Billionsbbls oil)

Gas Reserves(Trillions ofcubic feet)

Oil Production(Thousand bbls

per day)

Gas Production(Billions cubic

feet per day)

RussianFederation

21-29(Reported 74.2; >60% Depleted)

1,567.1 10,032(1987 was peak

production)

527.5

United States

28.4 244.7 7,196 593.4

North Sea Region*

11.1 125.9 4,055 246.4

Saudi Arabia

264.6 279.7 9,713 77.5

World 1,333.1 6,621.2 79,948 2,987.0

*Denmark, Germany, Netherlands, Norway and United Kingdom.Source: BP Statistical Review of World Energy, June 2010. (Data are for 2009). Dr. Mamdouh Salameh, The World Bank, October 2010.


The Post-Soviet Russian Economy Has Rebounded Since the 1990s


Owing to Favorable Energy Prices


Russian Economy

• Strong, Steady Economic Growth Has Been the Recent Trend, Fueled by Energy Products:

• Energy is Extractive Industry, an Inherently LOW Value-Added Business

• It is Not Clear How Russian Energy Can Help with Industrial Diversification into High-Tech Products


Russia Itself is Vulnerable• Russia’s domestic energy portfolio does not

include many renewable sources:– 42% natural gas;– 19% hydroelectric;– 18% nuclear;– 13% geothermal.

• Its Economy and Budget are Highly Sensitive to World Energy Prices;

• Gazprom provides 25% of Moscow’s tax revenue – placing the government at risk;


Russian Vulnerability, cont.• Oil production increased from 6.54 to

10.032 mbd from 2000-09 -- this is not a sustainable level

• Russian oil production has peaked, and is beginning a slow, steady decline;

• Russia probably cannot meet its target output level of 11.32 mbd by 2015;

• Its Even More Ambitious Plans for 2020-2030 are Out-of-the-Question.

March 24, 2011 Russia as an Energy Superpower?

9

Russian Vulnerability, cont.

• Moscow has largely taken control of the energy sector – militates against further investment;

• International Energy Agency estimates $550-700 billion new investment is needed by 2020:– That calls for $7 billion a year more than the

$2 billion it now spends (replacement mode);– Domestic lenders cannot provide this capital;


10

Economic Factors in Energy Policy

• Central Asian republics threaten Russia’s dominant position as European supplier;

• In order to develop new fields, Moscow would have to release its hold on the energy sector:– Encourage private investment;– Perhaps involving foreign partners.

• But Moscow frowns on foreign equity participation.


Economic Factors - Gazprom

• Failure to implement structural reforms has preserved Gazprom’s gas monopoly;

• Moscow owns 51% of Gazprom;

• Gazprom supplies 30% of Europe’s gas;

• But Gazprom is inefficient…

• E.g., U.S. gas production exceeded Russia’s for the first time in 2009, despite much lower U.S. reserves;



• Gazprom has enormous reserves that it cannot tap!– Aggressive contracting has produced more customers

than output– Barely able to supply the Russian market (550 bcm)

• For years, Gazprom has been purchasing gas from Turkmenistan at low prices ($65

per tcm) to sell to Europe at higher prices ($250 per tcm).


13


• Russian has not opened any new gas fields since 1991;

• Fresh investment in exploration and development is badly needed;

• But a perverse development is that Gazprom has been investing $billions:– in non-gas sector assets; and,– at rates that have exceed its gas investments.


14

Moscow Views Its Energy Supplies in Global-Strategy Terms

• That is, it seems unlikely that Russia is seeking to fulfill economic objectives

Reserves &Pipelines


The Political Economy of Energy• Nearly 100% of Russian Energy Exports go to

Europe; Who is the More Vulnerable?


The Kremlin’s Primary Attention is on Its Closest Neighbors: the so-called “Near Abroad,” and NATO


Russian Attitudes: Deeply Wounded

• Slighted by the West After the Collapse of Communism:– No Marshall-style Rescue Plan– Western Markets Not Very Welcoming

• Its Sensibilities Ignored in Western Policy– Condescending Policy Advice– Recent Recognition of Kosovo Independence

• Humiliated by the NATO Expansion Eastwards


Nato Enlargement: A National Insult


Long-Run Russian Foreign Policy Goals

• Worldwide Respect for Russian Strength

• De Facto Recovery of Russian Influence in the Region & Around the Globe

• Re-establishment of Much of the Former Soviet Empire

• Achieving Technological Parity with the Western Industrialized Countries


Short-Run Policy Objectives• Western Recognition of Russian Hegemony

over the “Near Abroad” (Mostly, Republics of the Former Soviet Union)

• Creation of Fissures in the Western Alliance; NATO, especially

• Employ Oil Revenues as a Tool to Enhance Russian Security, Project Power– In the “Near Abroad;” (Ukraine, particularly)– Vis-à-vis NATO


Russian Invasion of Georgia 2008


Russia’s Georgia Incursion Was About Ukraine, NATO & Gas…

• Subtext: Halting Further NATO Expansion

• Until 2008, Borders of the Former Soviet Republics were “Sacrosanct”

• Putin-Medvedev have Expressed Grave Concerns about Ukrainian NATO Membership

• NATO Membership Would Place Ukraine Permanently Beyond Moscow’s Reach


To Reestablish Regional Dominance,Ukraine is “the Real Prize”


Ukraine: Fast Facts

• 233,090 square miles, largest in Europe

• 46 million Est. 2009 population

• Ethnicity: 78% Ukrainian; 20% Russian (concentrated in the East)


Russia & Ukraine: Fraternal Rivalry• A Complex Relationship

– Russia Traces Its Roots to Kievan Rus– Russians View Ukrainians as “Little Russians”– Some Contend That It is “In the Genes”

• In More Practical Terms, Russia Seeks the Restoration of Its Empire

• Fmr. Secretary of State Henry Kissinger:– Russia without Ukraine is a Manageable

Nation-state– Russia with Ukraine is an Unmanageable

EmpireMarch 24, 2011 26Russia as an Energy

Superpower?

Russian & Ukrainian History and Culture are Intertwined


History and Culture, Cont.


Russia and Germany: The Ukrainian-Polish “Squeeze Play”2008: Germany Agrees to Block

Ukraine’s NATO Accession • There is no doubt that Russia played the “energy card” in talks with Germany.

• Poland and Ukraine are positively terrified of Russia.

• They conduct joint military exercises in preparation for the day they call upon their “mutual aid.”


But Some Dispute the Notion of a Russian “Energy Superpower”

“The ‘energy superpower’ is an illusion with no basis in reality. Perhaps most dangerously, it doesn’t recognize the mutual dependence between Russia and energy consumers … There will come a day when European gas companies demand elimination of the take-or-pay conditions in their Russian contracts. This will threaten Gazprom’s ability to borrow. Putin’s attempt to increase Russian influence could backfire in the long run.”

____________________________Vladimir Milov, Institute for Energy Policy, “How Sustainable is Russia’s Future as an Energy Superpower?” Remarks delivered at a meeting of the Carnegie Endowment for International Peace, March 16, 2006.


“… Feet of Clay …”• Russia can strategically employ oil & gas only by

restricting their availability;• It can achieve this most directly by under-

investing in development of new fields;• This scholar agrees with Mamdouh Salameh of

The World Bank:“Far from emerging as an energy superpower,

Russia is, instead, emerging as an energy giant standing on feet of clay. In fact, energy supplies could prove to be Russia’s Achilles’ heel.”


is russia becoming an “energy superpower”? robert s. kravchuk professor and chair, department of...

Documents

russian energy

recognized energy superpowers

favorable energy prices

world energy prices

saudi production iran

peak production

steady decline russia

nd largest reserves