Russia is not what you think. Most discussion about its energy influence has focused on oil and gas, particularly gas, and Russia and is routinely described, as a petro-state. But this is only partly accurate, writes Scott L Montgomery, Lecturer at the University of Washington. According to Montgomery, Russia has been building an altogether new kind of energy state, one with more global influence than even OPEC. This has profound implications for the world.
A fundamental reason is Russian prominence in multiple energy domains, especially oil, gas, coal and nuclear power.
This multi-pronged energy strategy – from fossil fuels to a reinvigorated nuclear power program – has geopolitical and economic implications that stretch from its neighbors in Europe to developing countries around the world.
Full steam ahead on oil and gas
Let us begin with Russian oil and gas. For several years now, the country has been the world’s largest exporter of hydrocarbons (oil and gas combined). Despite many predictions that this would never last, including those from the Russian Academy of Sciences, it shows no sign of changing.
An important point is that this includes not only crude oil and natural gas but also refined petroleum products (gasoline, diesel, jet fuel, etc.), which are exported to Europe and Asia. Russia has been the leading exporter in this key category for nearly a decade and supplies more than all of OPEC combined (only the U.S. comes close, due to its shale oil expansion).
European nations depend on Russia for an average of 30 percent of their hydrocarbons, especially gas
The collapse in oil prices, combined with sanctions on the oil/gas industry because of aggression in Ukraine, has been very hard on the Russian economy and has postponed many new oil/gas projects. At the same time, use of advanced recovery technologies has given Russia the ability to offset decline in older fields, while new production from the East Siberian Basin and Sakhalin Island has helped support a slow but continued rise in output.
There remain the vast resources in Russia’s Arctic to be explored, plus future potential in the Caspian Sea, North Caucasus, and parts of East Siberia and Sakhalin. This does not include the enormous shale oil/gas potential in the West Siberian Basin.
Like it or not, we must accept that the country is far richer in hydrocarbon resources than previously thought. Though prices for both oil and gas have fallen considerably since 2014, Russia has little choice but to continue producing at high rates given the importance of these exports to its economy and government income.
Thus, the long-term outlook for Russian hydrocarbons remains both uncertain and strong at the same time – there are vast resources waiting for a better price before they’re drilled. This is especially true for natural gas, which the country is now estimated to possess in immense volumes.
But here’s what’s not widely understood: Russia’s current export clients are in Europe, yet they are increasingly in East Asia, specifically China, Japan, and South Korea. European nations depend on Russia for an average of 30 percent of their hydrocarbons, especially gas. Nearly half these nations (including Germany) are in the range of 40 percent to 100 percent.
Russian oil and gas have become vital commodities in a majority of the world’s most advanced economies
Official claims that such dependence will be cut and vaporized have proven hollow, countered by the reality of increased imports. Europe’s weak economic situation has forced it to choose cheaper pipeline gas from Russia over more expensive LNG (liquefied natural gas) from abroad.
East Asia, we might say, is at an earlier but still significant stage of dependence (Japan, world’s largest LNG importer, now gets 10 percent of its total from Russia), but has been eager for new deals. In this region of needy hydrocarbon importers, Russia bestrides the energy landscape as a supply colossus with a helping hand and large promises.
The upshot is this: Russian oil and gas have become vital commodities in a majority of the world’s most advanced economies. If the forecasts of the International Energy Agency and other such organizations run true, the demand for natural gas will surge over the next few decades, due both to the growing need for more electricity and, in the wake of COP21, expanded use of low-carbon fuels. It would be a circumstance much favored by the Great Bear. Even so, this is only half the story.
King coal and nuclear
To this we should add Russia’s huge coal reserves, second only to those in the U.S. Its exports here, too, though well below those of oil/gas in value and significance, have also been steadily rising.
Since 2000, they have tripled from about 45 million tons to more than 150 tons, third in the world after Indonesia and Australia. As with oil and gas, these exports go to Europe and East Asia, but in this case the volume going to China, Japan and South Korea is over 40 percent and growing. Where import demand in China has fallen, it has been rising in India, South Korea, Turkey and a number of countries in Southeast Asia.
The importance of Russia as a provider of both nuclear technology and fuel will only grow, giving Moscow a robust presence in many parts of the developing world that the Soviet Union never achieved
It is worth pointing out that Russia is geographically positioned very well to deliver its exports both by sea and rail to major customers west and east. Lower coal prices therefore have partly aided the Russian industry in competitiveness.
This brings us to the nuclear domain. In addition to Rosnet and Gazprom, Moscow’s state-run oil/gas firms, there is its nuclear entity, Rosatom. Since 2010, Rosatom has signed contracts and cooperative agreements with more than two dozen nations to build first-time nuclear power plants, supply fuel for them, and operate them too.
These nations are not the world’s wealthiest, most of which already have nuclear programs. Rather, they include Vietnam, Myanmar, Indonesia, Bangladesh, Armenia, Turkey, Jordan, Saudi Arabia and Egypt, among others, none of whom are yet members of the nuclear power (NP) club.
Developing countries are interested in nuclear power for several big reasons: soaring electricity demand, desire for zero-carbon generation and concerns about energy security. It is now clear, in other words, that while NP may stagnate or decline in western nations, it will expand greatly in the developing world.
In March of this year, the World Nuclear Association reported 65 reactors under construction and 173 more on order or planned. A majority of these were in China, India and Russia itself.
But beyond these numbers, which will more than replace all reactors that might be retired over the next few decades, there were 337 more new reactors proposed. These are divided among 50 nations (31 presently have nuclear power programs) and include most of those noted above having contracts or agreements with Russia. But there are others in Africa, Southeast Asia and South America who have expressed interest and might well join the new nuclear era later on.
The point is that Russia has proven itself able to compete for a large share of this new, expanding global market. Globalizing NP has given Russia the opportunity to compete successfully against firms from Japan, South Korea, France, the U.S. and soon China and the U.K. as well.
Putin’s Russia presents the world with a new species of energy state, historically speaking, one with potential influence far beyond economics
Russia’s success here is far from monolithic. Saudi Arabia, for instance, has plans to build 16 reactors by 2035 and has entertained proposalsfrom Russia, Japan and South Korea for both large-scale plants and small modular reactors. Turkey now has plans in place for a minimum of three reactors, the first to be built by Rosatom, the second by a Franco-Japanese consortium, the third by a group from China.
Nonetheless, the importance of Russia as a provider of both nuclear technology and fuel will only grow, giving Moscow a robust presence in many parts of the developing world that the Soviet Union never achieved.
New nuclear empire?
Many, even most, of the energy relationships discussed have a primary commercial intent. It isn’t clear how many of those regarding oil and gas may play out in the long run, particularly if the low-price environment remains in place.
But for the time being, and probably for the next decade at minimum, Putin’s Russia presents the world with a new species of energy state, historically speaking, one with potential influence far beyond economics.
What the long-term meaning of this influence might be is not yet clear, but must be considered in cool-headed terms. Talk about a Russian “nuclear empire” is premature and probably unhelpful.
Yet we can’t ignore the possibility that some form of influence will be wielded, if not with the aggression of Moscow’s use of natural gas as a tool in its conflicts with Ukraine and, more recently, Turkey, then perhaps more quietly. Either way, Russia must be understood as a state whose interests and reach extend far beyond its near abroad.
Editor’s Note
Scott L. Montgomery is an author, energy consultant, and affiliate faculty member in the Henry M. Jackson School of International Studies, University of Washington, Seattle. He is the author of Powers that Be:Â Global Energy for the 21st Century and Beyond (2010) and Shape of the New:Â Four Ideas that Built the Modern World (2015, with Daniel Chirot), and is currently working on a book about global nuclear power in the 21st century, with co-author Thomas Graham. Montgomery has 25 years’ experience as a geoscientist in the energy industry and writes and lectures frequently about energy issues.
This article was first published on The Conversation and is republished here with permission from the publisher and author.
[adrotate group=”9″]
lm says
Just another reason for wider use of renewable energy in Europe. To decrease independence on russian energy. Who doubts about it, just look on gas price in europeam countries with high share of russian gas on overalk consumption,
S. Herb says
But one can just as well argue that the interdependence of Russia and Europe via the gas exports is and can be a stabilizing political factor. I certainly had that impression during the nastier phases of the Ukraine conflict. And another author here has noted that LNG is considerably more CO2 intensive than piped gas. So it seems to me a more mixed situation that the author portrays.
David Dodds says
Just a comment on the bio-based/renewables point; Russia contains about 50% of the global boreal forest (with the remaining 20% in Scandanavia and 30% between Canada & the US). But they appear to be saddled with an immutable Soviet-style agricultural apparatus (plus corruption generally) that prevents any useful long-term planning on renewable feedstock.
one.second says
They bought their “nuclear success” at great cost with very generous financing deals, which loose them money compared to their own refinancing costs. When oil and gas prices were high, this didn’t matter that much because of their geopolitical interests, but I am highly sceptical that they will reap economic benefits from this and it is questionable how long they can comepte with renewables and emerging storage technologies, which will be clearly the winner on economics alone. They will shatter the fossil fuel industry too. So what will remain for Russia? They should worry a lot.
Jerry Nolan says
I get the impression that Mr. Montgomery’s article was meant simply to inform, but in this climate of a new Cold War it stirs the competitive juices to imagine a threat from Russia. I personally do not see a Russian threat. The Russians, on the other hand, see NATO moving closer to its borders in violation of an agreement between Reagan and Gorbachev that NATO would not expand toward Russia. U.S. militarists are now stating that Russia is the greatest threat to the United States. It thus becomes easy to understand why Russia should feel threatened and bolster its defenses.
Both Russia and the U.S. have enormous supplies of fossil fuels that they want to market to the world and international competition for markets has often precipitated bad relations between nations. The U.S. wants to get into the European market for gas and oil, but LNG from the U.S. cannot compete in price with piped gas from Russia. Nevertheless, the U.S. has five LNG export ports under construction and ten more planned. Most of the world saw the regime change in Kiev as a U.S. sponsored coup. The Russians certainly saw it as a U.S. sponsored coup. The details of this point of view are beyond the scope of this discussion and can easily be found with a search for “Victoria Nuland Ukraine”. I had a hard time trying to make sense of the U.S. policy in Ukraine, until the people of the Crimea voted to reunite with Russia. Crimea has historically always been a part of Russia until Khrushchev illegally gave it to Ukraine. Crimea is also the home of the Russian Black Sea Fleet, so when the Kiev regime changed from pro Russia to pro U.S., it was predictable that Russia would invite Crimea to vote itself back to Russia. I think that the U.S. Dept. of State also expected this as they pursued regime change in Ukraine. The prediction was accurate. Once the Crimea was reunited with Russia, the U.S. could paint Russia as an aggressor seeking to rebuild the old Soviet empire.
The U.S. now had its justification to demonize Putin and Russia, impose sanctions on Russia, and make U.S. oil and gas look more attractive to potential customers in western Europe and other parts of the world that dislike Russian aggression. It’s too early to tell how successful the U.S. plan will be. The U.S. successfully engineered the blockage of construction of the South Stream Pipeline, but it looks like attempts to block the construction of Turk Stream are failing as are attempts to block the construction of Nord Stream 2 between Russia and Germany.
As far as nuclear power goes, Russia has only minimal competition from the U.S. as the fossil fuel industry brought nuclear to a halt with the creation of the NRC in 1975. Russia’s foreign nuclear portfolio exceeds $300 billion and is far greater than its competitors such as China, France, and South Korea.