HOW IMPORTANT IS RUSSIA IN THE

GEOPOLITICS OF ENERGY?

Grace, Leah & Devki

WHAT IS GEOPOLITICS?

The study of the relationships between a nation, and the rest of the world. Each nation has a sphere of influence it can

exert over surrounding nations in terms of areas such as trade, economic aid, military

intervention etc.

HISTORY OF ENERGY• On 12th December 2009, Russia overtook Saudi Arabia

as top exporter• Russia produced almost 10 million barrels of oil a day

in August 2009 according to International Energy Agency figures

• Russia has now begun to have uneasy relationships with their oil producing countries as it is now profiting from OPEC production costs.

• The main beneficiary has been Vladimir Putin, who has claimed credit for delivering increased prosperity to Russia's 142 million citizens. However, some may argue that the winners have been Russia's oil-connected elite, who now enjoy lavish lifestyles.

• Russia, however, has been badly battered by the global economic crisis, with GDP shrinking by more than 10% in the first half of 2009.

RUSSIA AND ENERGY FACTS

• Russia is rich in natural energy resources

• It has the largest known natural gas reserve in the world along with second largest coal reserve and eighth largest oil reserve

• Russia is the worlds leading net energy exporter and a major supplier to the European Union

• Russia is largely undeveloped in terms of renewable energy but has geothermal stations used for heating and electricity in the north and east

THE DRUZHBA PIPELINE

• The Druzhba Pipeline is the longest oil pipeline in the world, carrying oil from southeast Russia into Belarus, Hungary, Ukraine, Poland, Slovakia, the Czech Republic and Germany.

• It is operated by Transneft in Russia, Gomeltransneft Druzhba in Belarus, UkrTransNafta in Ukraine, PERN in Poland, Transpetrol in Slovakia, Mero in the Czech Republic and MOL in Hungary.

• The word “Druzhba” means friendship, as the pipeline was initially intended to supply energy to many of the poorer countries in the former Soviet bloc. Currently, the Druzhba Pipeline has a capacity of 1.2 to 1.4 million barrels per day, but work is in progress to increase this in the section between Belarus and Poland.

POLICIES AFFECTING ENERGY SUPPLY

• Russia also avoided reducing oil sales as a way of supporting higher prices- it has advised OPEC that it is supportive of high market prices for oil

• However Russia’s approach had been to sell whatever volumes of oil it required for domestic needs at whatever price prevails at the moment.

• In September 2008 there was a shift in oil policy when Russia said it wished to become more involved in global markets by using its position as a leading oil producer and exporter to influences prices.

RUSSIA/WEST DISPUTE• There have been tensions

between Russia and the West in terms of equal partnership in future trade agreements

• Russia has accused the West of applying double standards relating to market principles pointing out that it has been supplying gas below world market levels

RUSSIA/UKRAINE DISPUTE

• There have been political conflicts, tense relations and mutual distrust between Russia and Ukraine in addition to the economic aspect which includes Russia’s demand for higher gas prices and the issue of “unpaid gas” by Ukraine

• Russia disrupted the supply of gas to Ukraine claiming it as a “political decision" even though they would suffer economic losses and serious damage to their reputation as a reliable supplier

Was that politics or economics?

• Gazprom used to be a Russian ministry before becoming a private company, and it remains very closely connected to the state - Russian President Dmitry Medvedev is a former chairman of the company.

• Critics say that Russia is using its energy resources as a political weapon to pressure European and former Soviet countries to adopt favourable stances towards Moscow.

How was Europe's gas supply affected?

• Gazprom controls about a third of the world's gas reserves and it is responsible for a quarter of Europe's supplies.

• After a similar row in 2006, when Gazprom shut down its pipelines across Ukraine, Ukraine built up reserves to cover its needs for several months, and most other EU countries did the same.

• In 2009, gas supplies were completely halted from 7 January, after Russia accused Ukraine of siphoning off gas meant for European customers, leaving more than a dozen countries without their expected supplies of Russian gas.

• Some, like Bulgaria, Serbia and Bosnia, are almost completely dependent on supplies via Ukraine and so were left with major shortages, during a very cold spell in Europe.

• A deal outlining that supplies across the Ukraine would be monitored by EU and Russian observers collapsed as they failed to agree.

• In the meantime European countries had to shut down industrial plants and domestic heating systems, find alternative sources of gas or switch energy plants to oil. Schools were shut and people had to revert to using log fires to heat their homes.

How was Europe's gas supply affected?

• The EU has major concerns about security of supply and is moving ahead with a pipeline plan of its own. Nabucco will bring gas from Central Asia and the Caspian across Turkey into the European Union. But it will have only enough capacity to provide a small proportion, perhaps 5%, of Europe's needs.

• So Europe needs Gazprom, and that is why European companies and their governments have actively embraced the two projects. Austria is likely to serve as a hub for both. EU officials say that even during the Cold War the Russian gas supply was stable, so it is better to rely on Gazprom than potentially unstable sources such as Turkmenistan and Uzbekistan.

IS GROWTH IN RUSSIAN OIL PRODUCTION AND EXPORTS

SUSTAINABLE?• The increase in Russian export levels over the past

several years have helped allow the marketplace to absorb high demand growth (esp. China, USA and India)

• Downward fluctuation in these supplies would give greater responsibility to OPEC as they would have to adjust the supply in order to match the demand

• Failure to do so would lead to higher prices• Higher export duties, fluctuating oil prices and the

attraction of high market prices has led Russian companies to develop more producing fields