Title: Understanding Russias International Energy Politics
1Understanding Russias International Energy
Politics
- Vladimir MilovColumbia UniversityNew York,
October 30th, 2007
2What drives Russias tough behavior on the
international energy arena?
SUBJECTIVE MOTIFS
OBJECTIVE MOTIFS
3Understanding Russias motivation the case of
gas supply disruption to Ukraine in January 2006
- Experts are divided on the issue in two camps
- One camp argues that the disruption was driven
solely by economic factors - Others insist that it was plainly political
- In fact, neither of these polarized opinion camps
provide a good complex explanation of the
situation - In fact, the incident was a complicated mix of
economic and political motivations (see previous
slide)
4Russia-EU growing philosophy gap
- Commercial energy ties between Russia and the EU
develop fairly intensively - However, policy model gap is becoming seriously
worrying - Two different policy philosophies EUs movement
towards broader competition (both in economy and
politics) strongly contradicts with Russian
leaning towards greater monopolization in
politics and markets - Although certain European monopolies tend to
support Gazprom (E.ON, ENI, etc.), this may as
well change by entering European downstream,
Gazprom becomes their direct competitor, and some
of these companies potential acquisition targets
5Russias relations with energy transit countries
- Russia is fundamentally dependent on energy
transit and will always be - New transit countries simply replace old ones
now Ukraine, Belarus, Poland, Turkey, tomorrow
Bulgaria, Germany, Finland/Estonia - 3 of 5 already signed contracts for gas supplies
via Nord Stream are providing gas supplies to
countries other than Germany it makes Germany
just another transit country, the other version
of Ukraine - Economics of bypassing pipelines (Blue Stream,
Nord Stream) are utterly controversial - Russia needs not bypasses, but a stable and
effective international legal regime for transit - Denial to ratify ECT backfires
6Nord Stream will it ever be build?
Map Nord Stream AG
- After Estonian rejection, will Finland agree the
construction of Nord Streams subsea section in
its EEZ? - How much the pipeline construction will cost?
(Recent estimates show that the total
construction costs of the on-surface and subsea
sections altogether make up USD 13bn, will
possibly increase to USD 15bn or more.)
7Chinese dimension
- Construction of the Eastern Siberian oil pipeline
is underway however, the economics of the
project remain highly controversial - Development of the Altai gas pipeline project
had apparently stalled after a disagreement on
gas supply prices
8Does the Chinese gas market make a good
alternative to the European market from the
commercial point of view?
Source BP Statistical Review of World Energy
Why go?
9Central Asia broader diversity a question of time
Map Petroleum Economist
- Kazakhstan-China oil pipeline already built
- Turkmenistan-China gas pipeline the most
realistic alternative for Turkmen gas
10Turkmen gas more and more expensive for Russia
Monetized equivalent of a price used in
barter transactions As suggested by Turkmen
President G.Berdymukhammedov in September 2007
11Russian upstream challenges
- Oil and gas upstream is brought to stagnation
amid greater state interference - Brownfield growth potential exhausted
- No experience (and even culture) of offshore
development - Protectionist political mainstream and regulatory
regime are unfavorable for long-term greenfield
investments - Private sector nearly demolished but state
companies are burdened with intolerable debts - What next???
12Whats the price paid for re-nationalization of
oil assets?
Debt to revenue ratio by Russian and
international oil gas companies, end of 2006,
Source companies financial statements
13Shtokman partnership is it going to work?
- If one tries to analyze Shtokman case, he should
really pay attention to the lessons of
Prirazlomnoye field development - Gazproms lobbying of inefficient solutions
(large platform in an icy area) and hunger for
complete control made BHP Billiton withdraw from
the project - So may be the case for Total and StatoilHydro
- Whats a special purpose company? No rights, no
involvement in decision making only financial
and technological donorship
Map StatoilHydro
14Conclusions
- Russian monopoly philosophy may generate
tactical advantages, but will inevitably lead to
a long-term failure - The state had dismantled the efficient
development model in the energy sector
(privatization and opening to foreign capital),
but is not offering any viable alternative - Because of Russias monopolistic bias,
relations with vital energy partners continue to
deteriorate - Upstream outlook for oil gas production is not
at all bright - A superpower?