Russia plays energy card
By Vladimir Radyuhin
As global energy demand soars, President Vladimir Putin wants to use oil and gas exports as instruments to speed up Russia's economic revival and enhance its geopolitical weight.
RUSSIA HAS embarked on a new geopolitical game, playing its energy card to reclaim global clout. Its vast energy reserves and control over the markets in the former Soviet Union are to be leveraged to turn Russia into a superpower.
As global energy demand soars, the Russian President, Vladimir Putin, wants to position Russia as a key broker in the international market and use oil and gas exports as instruments to speed up the country's economic revival and enhance its geopolitical weight.
After dropping nearly 50 per cent from the Soviet era peak, Russia's oil output has soared again to exceed 450 million tonnes (together with gas condensates) by the end of the current year making it the world's second largest producer, behind only Saudi Arabia.
Total oil reserves are a state secret in Russia, but the former Energy Minister, Yuri Shafranik, estimates that Russia may have 44 billion tonnes of oil, more than Saudi Arabia does. Russia currently exports over 6.5 million barrels a day, taking crude oil and product together, and plans to boost exports to about 9 million barrels a day by the end of the decade — roughly equal to Saudi Arabia's current exports.
Russia is also the number one producer of natural gas in the world and has the biggest share — 32 per cent — of global reserves. Taken together, oil and gas make Russia the biggest energy producer in the world, and moreover, one of the few countries whose reserves are not shrinking yet. With the situation in West Asia destabilised in the wake of the Iraq war, the United States and other top oil-consuming nations have turned their eyes to Russia and energy-rich ex-Soviet republics.
The U.S. made big inroads into what Moscow considers its legitimate backyard during the chaotic rule of Russia's first post-Soviet President, Boris Yeltsin. Mounting an aggressive drive for control over Central Asia and Caspian oil and gas flows, Washington has pushed through the construction of a $3.6 billion Baku-Tbilisi-Ceyhan (BTC) oil pipeline from Azerbaijan's coast on the Caspian Sea via neighbouring Georgia to Turkey's Mediterranean port of Ceyhan and is canvassing for building a gas pipeline to run parallel. These pipes should bring oil and gas from Azerbaijan, Kazakhstan and other Central Asian states to Western markets bypassing Russia. American and other Western energy giants control 60 per cent of oil extraction in Azerbaijan and 40 per cent in Kazakhstan.
Washington also came close to gaining a foothold in Russia's energy sector, privatised during the biggest selloff in world history in the 1990s. Following the purchase by British Petroleum of a 50 per cent stake in the Russian oil major, TNK, ExxonMobil and ChevronTexaco came vying for a controlling 44 per cent share in Russia's biggest private oil company, Yukos. If the deal had come through, the West would have won control over one-third of Russia's total oil output and could have gained access to Russian export pipelines, which are currently controlled by the state. The idea was to mould Russia into an alternative supplier of oil free from OPEC-like state controls.
Mr. Putin wrecked these plans. The arrest of the Yukos head, Mikhail Khodorkovsky, last October on charges of fraud and tax evasion disrupted the company's sale to the U.S. oil majors and sent a clear message to Washington: the Kremlin is reasserting control over the strategic heights of the Russian economy. In a further display of new tough rules, Moscow in January annulled the results of a 1993 tender for a Sakhalin-3 oil field in the Far East won by the U.S. giants, ExxonMobil and ChevronTexaco, citing the companies' failure to develop the field.
Mr. Putin's proactive policy in ex-Soviet Central Asia helped Moscow consolidate its hold over oil and gas flows from the energy-rich region. Last year, Russia's natural gas monopoly, Gazprom, sealed a mega deal with Turkmenistan to buy up to 50 billion cubic metres — practically all of Turkmenistan's gas exports — in the next 25 years. Earlier this month, Russia's LUKOil major signed a $930-million contract to develop a 250-billion-cubic-metre gas field in Bukhara, Uzbekistan, while the Gazprom natural gas giant is finalising a $1.5-billion 45-year deal to exploit fields on the Ustyurt plateau, western Uzbekistan.
A fierce struggle is unfolding for oil and gas exports from Kazakhstan, a land-locked Central Asian nation, which sits on the second biggest hydrocarbon reserves among the former Soviet states. Despite U.S. pressure, Kazakhstan may not give enough oil to the Baku-Tbilisi-Ceyhan pipeline to make it commercially viable, as BTC transit tariffs are going to be twice as high as Russia's. Earlier this year, Kazakhstan's President, Nursultan Nazarbayev, said that he regarded Russia as a "priority transit route for Kazakh oil," while Russia has offered to expand its pipeline capacity to take the bulk of Kazakh oil exports.
Last month, Kazakhstan signed a long-negotiated agreement with China to build by the end of 2005 a 1,240-km-long pipeline to carry 10 million tonnes of oil a year to Xinjiang province. President Nazarbayev invited Russia to pump its oil to China through the new pipeline, whose capacity is eventually set to double. Kazakhstan will also benefit from Russian oil companies' growing interest in exporting oil to Iran through Kazakhstan. Under swap deals, crude is delivered to refineries in northern Iran, while Iranian oil is shipped from Persian Gulf terminals to Russia's and Kazakhstan's customers in Asia. Potentially, Iran could take up to 25 million tonnes of oil from Russia and Kazakhstan annually.
Russian experts are convinced that Kazakhstan's long-term commitment to use Russian, Chinese and Iranian routes for its oil exports will make the U.S.-pushed BTC pipeline a money-losing project, as it will not be able to attract more than 28 million tonnes of crude, far short of its rated capacity of 50 million tonnes a year.
Russia's energy deals with Central Asian states have come a long way towards creating a "Eurasian Energy Union" proposed by Mr. Putin two years ago to control volumes and the direction of energy exports from Central Asia. The Union brings a double benefit to Russia, helping it meet growing energy needs in Europe and China and eliminating competition from the Central Asian energy producers in international markets.
Having tamed Russian oil tycoons and brought Central Asian energy sources under Moscow's control, Mr. Putin has made Russia with its booming oil and gas industry a truly global player that displaced Saudi Arabia as the main guarantor of global energy stability. It was Russia's oil output growth at 10 per cent a year that has helped offset China's booming demand for energy imports. At the recent G-8 summit in the U.S., Mr. Putin offered to use Russia's oil and gas reserves to promote global energy security and reduce the West's independence on energy supplies from potentially unstable regions.
In return, Mr. Putin wants his Western partners to facilitate Russia's admission to the World Trade Organisation, recognise its strategic interests in the former Soviet Union, and give Russia technologies and investment it needs to diversify its economy. There are indications he will get what he wants. In May the European Union cleared Russia's WTO entry, waiving its demands to Moscow to raise domestic gas prices to world level, dismantle Gazprom's monopoly on natural gas exports, and allow private gas and oil pipelines on the Russian territory.
The U.S. also appears willing to deal with Russia on Mr. Putin's terms. Barely a few months ago, Washington was warning Moscow that its assertiveness in the former Soviet zone and the tightening of state control over the economy could put at stake cooperation between the two countries. However, the U.S. Energy Secretary, Spencer Abraham, was in Moscow a couple of months ago to urge Russia to boost oil and gas supplies to the U.S. and discuss investment in the Russian energy sector.
Moscow made it clear that the U.S. would have to compete with China, Japan and South Korea for Russian oil and gas. China has offered to finance the construction of a $2.5-billion, 2,400-km oil pipeline from Angarsk near Baikal Lake to the northeastern Chinese city of Daqing with a rated capacity of 30 million tonnes of crude a year. Japan raised the stakes, pledging to cover the $5-billion cost of constructing a 4,000-km 50-million-tonne pipeline from Baikal to Russia's Pacific coast and provide another $2 billion to develop untapped oilfields in eastern Siberia.
Meanwhile, the U.S. is lobbying for the construction of a $4.5-billion, 50-million-tonne pipeline from Surgut in Western Siberia to Murmansk on the Barents Sea, from where oil will be shipped to the U.S. No doubt, Mr. Putin will choose the highest bidder, both in terms of economic and geopolitical benefits.
India was wise enough to secure a $1.7-billion slice of the Russian hydrocarbons pie off the Sakhalin Island back in 2001. Despite the current rush, India can tap on more Russian oil and gas riches taking advantage of its status as Russia's most trusted strategic partner.
By Vladimir Radyuhin
As global energy demand soars, President Vladimir Putin wants to use oil and gas exports as instruments to speed up Russia's economic revival and enhance its geopolitical weight.
RUSSIA HAS embarked on a new geopolitical game, playing its energy card to reclaim global clout. Its vast energy reserves and control over the markets in the former Soviet Union are to be leveraged to turn Russia into a superpower.
As global energy demand soars, the Russian President, Vladimir Putin, wants to position Russia as a key broker in the international market and use oil and gas exports as instruments to speed up the country's economic revival and enhance its geopolitical weight.
After dropping nearly 50 per cent from the Soviet era peak, Russia's oil output has soared again to exceed 450 million tonnes (together with gas condensates) by the end of the current year making it the world's second largest producer, behind only Saudi Arabia.
Total oil reserves are a state secret in Russia, but the former Energy Minister, Yuri Shafranik, estimates that Russia may have 44 billion tonnes of oil, more than Saudi Arabia does. Russia currently exports over 6.5 million barrels a day, taking crude oil and product together, and plans to boost exports to about 9 million barrels a day by the end of the decade — roughly equal to Saudi Arabia's current exports.
Russia is also the number one producer of natural gas in the world and has the biggest share — 32 per cent — of global reserves. Taken together, oil and gas make Russia the biggest energy producer in the world, and moreover, one of the few countries whose reserves are not shrinking yet. With the situation in West Asia destabilised in the wake of the Iraq war, the United States and other top oil-consuming nations have turned their eyes to Russia and energy-rich ex-Soviet republics.
The U.S. made big inroads into what Moscow considers its legitimate backyard during the chaotic rule of Russia's first post-Soviet President, Boris Yeltsin. Mounting an aggressive drive for control over Central Asia and Caspian oil and gas flows, Washington has pushed through the construction of a $3.6 billion Baku-Tbilisi-Ceyhan (BTC) oil pipeline from Azerbaijan's coast on the Caspian Sea via neighbouring Georgia to Turkey's Mediterranean port of Ceyhan and is canvassing for building a gas pipeline to run parallel. These pipes should bring oil and gas from Azerbaijan, Kazakhstan and other Central Asian states to Western markets bypassing Russia. American and other Western energy giants control 60 per cent of oil extraction in Azerbaijan and 40 per cent in Kazakhstan.
Washington also came close to gaining a foothold in Russia's energy sector, privatised during the biggest selloff in world history in the 1990s. Following the purchase by British Petroleum of a 50 per cent stake in the Russian oil major, TNK, ExxonMobil and ChevronTexaco came vying for a controlling 44 per cent share in Russia's biggest private oil company, Yukos. If the deal had come through, the West would have won control over one-third of Russia's total oil output and could have gained access to Russian export pipelines, which are currently controlled by the state. The idea was to mould Russia into an alternative supplier of oil free from OPEC-like state controls.
Mr. Putin wrecked these plans. The arrest of the Yukos head, Mikhail Khodorkovsky, last October on charges of fraud and tax evasion disrupted the company's sale to the U.S. oil majors and sent a clear message to Washington: the Kremlin is reasserting control over the strategic heights of the Russian economy. In a further display of new tough rules, Moscow in January annulled the results of a 1993 tender for a Sakhalin-3 oil field in the Far East won by the U.S. giants, ExxonMobil and ChevronTexaco, citing the companies' failure to develop the field.
Mr. Putin's proactive policy in ex-Soviet Central Asia helped Moscow consolidate its hold over oil and gas flows from the energy-rich region. Last year, Russia's natural gas monopoly, Gazprom, sealed a mega deal with Turkmenistan to buy up to 50 billion cubic metres — practically all of Turkmenistan's gas exports — in the next 25 years. Earlier this month, Russia's LUKOil major signed a $930-million contract to develop a 250-billion-cubic-metre gas field in Bukhara, Uzbekistan, while the Gazprom natural gas giant is finalising a $1.5-billion 45-year deal to exploit fields on the Ustyurt plateau, western Uzbekistan.
A fierce struggle is unfolding for oil and gas exports from Kazakhstan, a land-locked Central Asian nation, which sits on the second biggest hydrocarbon reserves among the former Soviet states. Despite U.S. pressure, Kazakhstan may not give enough oil to the Baku-Tbilisi-Ceyhan pipeline to make it commercially viable, as BTC transit tariffs are going to be twice as high as Russia's. Earlier this year, Kazakhstan's President, Nursultan Nazarbayev, said that he regarded Russia as a "priority transit route for Kazakh oil," while Russia has offered to expand its pipeline capacity to take the bulk of Kazakh oil exports.
Last month, Kazakhstan signed a long-negotiated agreement with China to build by the end of 2005 a 1,240-km-long pipeline to carry 10 million tonnes of oil a year to Xinjiang province. President Nazarbayev invited Russia to pump its oil to China through the new pipeline, whose capacity is eventually set to double. Kazakhstan will also benefit from Russian oil companies' growing interest in exporting oil to Iran through Kazakhstan. Under swap deals, crude is delivered to refineries in northern Iran, while Iranian oil is shipped from Persian Gulf terminals to Russia's and Kazakhstan's customers in Asia. Potentially, Iran could take up to 25 million tonnes of oil from Russia and Kazakhstan annually.
Russian experts are convinced that Kazakhstan's long-term commitment to use Russian, Chinese and Iranian routes for its oil exports will make the U.S.-pushed BTC pipeline a money-losing project, as it will not be able to attract more than 28 million tonnes of crude, far short of its rated capacity of 50 million tonnes a year.
Russia's energy deals with Central Asian states have come a long way towards creating a "Eurasian Energy Union" proposed by Mr. Putin two years ago to control volumes and the direction of energy exports from Central Asia. The Union brings a double benefit to Russia, helping it meet growing energy needs in Europe and China and eliminating competition from the Central Asian energy producers in international markets.
Having tamed Russian oil tycoons and brought Central Asian energy sources under Moscow's control, Mr. Putin has made Russia with its booming oil and gas industry a truly global player that displaced Saudi Arabia as the main guarantor of global energy stability. It was Russia's oil output growth at 10 per cent a year that has helped offset China's booming demand for energy imports. At the recent G-8 summit in the U.S., Mr. Putin offered to use Russia's oil and gas reserves to promote global energy security and reduce the West's independence on energy supplies from potentially unstable regions.
In return, Mr. Putin wants his Western partners to facilitate Russia's admission to the World Trade Organisation, recognise its strategic interests in the former Soviet Union, and give Russia technologies and investment it needs to diversify its economy. There are indications he will get what he wants. In May the European Union cleared Russia's WTO entry, waiving its demands to Moscow to raise domestic gas prices to world level, dismantle Gazprom's monopoly on natural gas exports, and allow private gas and oil pipelines on the Russian territory.
The U.S. also appears willing to deal with Russia on Mr. Putin's terms. Barely a few months ago, Washington was warning Moscow that its assertiveness in the former Soviet zone and the tightening of state control over the economy could put at stake cooperation between the two countries. However, the U.S. Energy Secretary, Spencer Abraham, was in Moscow a couple of months ago to urge Russia to boost oil and gas supplies to the U.S. and discuss investment in the Russian energy sector.
Moscow made it clear that the U.S. would have to compete with China, Japan and South Korea for Russian oil and gas. China has offered to finance the construction of a $2.5-billion, 2,400-km oil pipeline from Angarsk near Baikal Lake to the northeastern Chinese city of Daqing with a rated capacity of 30 million tonnes of crude a year. Japan raised the stakes, pledging to cover the $5-billion cost of constructing a 4,000-km 50-million-tonne pipeline from Baikal to Russia's Pacific coast and provide another $2 billion to develop untapped oilfields in eastern Siberia.
Meanwhile, the U.S. is lobbying for the construction of a $4.5-billion, 50-million-tonne pipeline from Surgut in Western Siberia to Murmansk on the Barents Sea, from where oil will be shipped to the U.S. No doubt, Mr. Putin will choose the highest bidder, both in terms of economic and geopolitical benefits.
India was wise enough to secure a $1.7-billion slice of the Russian hydrocarbons pie off the Sakhalin Island back in 2001. Despite the current rush, India can tap on more Russian oil and gas riches taking advantage of its status as Russia's most trusted strategic partner.
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