RUSSIAN OIL AND GAS

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					                                                                                 russian oil and gas




RUSSIAN OIL AND GAS
impacts on global supplies to 2020
Marina Kim

• In the past few years the Russian Federa-                    Economic growth in the Russian Federation
tion has become an important player in world                is projected to slow to about 4 per cent a year to
energy markets. Since 2000 it has been ag-                  the end of the current decade and then to average
gressively increasing oil output to become                  3.4 per cent a year during the 2010s (IEA
the world’s largest crude oil producer and                  2004a). This is less optimistic than the Russian
the second largest oil exporter. The Russian                Government’s projections of the average rate of
Federation has the seventh largest proven oil               economic growth of 5–6 per cent a year over the
reserves in the world. It is also the world’s               period 2005–08, which is, nonetheless, a slow-
leading producer and exporter of natural gas                down from the average growth rate of 6.8 per
and is expected to maintain its dominant posi-              cent a year over the period 2000–04.
tion in the longer term, backed by abundant                    The projected future deceleration of economic
reserves.                                                   growth results primarily from assumptions about
                                                            falling world energy prices, in particular oil
• The Russian Federation’s energy supplies
                                                            prices, and export infrastructure constraints. The
have major implications for world energy
                                                            higher bound of the economic growth projec-
supply security, particularly while the Middle
                                                            tions represents gains from the diversification
East remains an area of heightened political
                                                            of the Russian economy away from energy and
uncertainty and investment risk. Major Asia
                                                            other commodity exports and from further insti-
Pacific energy importers, in particular, are al-
                                                            tutional reforms (MEDT 2005a).
ready competing for Russian oil and gas in
                                                               The projected slowdown in economic devel-
their pursuit of supply diversification.
                                                            opment in the medium to long term can also be
                                                            attributed to the assumed slowing of growth in
Economic overview                                           industrial production, as the share of service
After the disintegration of the Soviet Union in             activities in the economy increases, and the
1991, the Russian Federation went through a per-            expected aging and contraction of the Russian
iod of deep economic recession. By 1999 the feder-          population, leading to a decline in the workforce
ation’s economy had largely recovered, enabling             and productive potential (IEA 2004a).
the start of robust economic growth, further stimu-
lated by the expansion of natural resource exports
in response to strong world demand. Since 1999              Oil and gas in the Russian economy
the Russian Federation has recorded its sixth               Oil and gas is a major sector of the Russian eco-
successive year of economic growth (table 1),               nomy that plays a key role in providing state bud-
reflecting robust domestic consumer spending,                get revenues and maintaining positive balance
and growth in investments and exports.                      of payments. The sector accounted for 27 per
• Marina Kim • +61 2 6272 2238 • mkim@abare.gov.au          cent of gross domestic product (MEDT 2005b)

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                                                                Russia’s oil fields and pipelines




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                                                            1   Map from World Energy Outlook 2004, supplied by courtesy of the International Energy Agency, OECD, Paris
                                                                                                                                                                           russian oil and gas




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                                                                                                      russian oil and gas


      Key economic indicators
1     Russian Federation
                                            1997                      1998       1999       2000       2001       2002   2003   2004
  Gross domestic product (nominal)
  – in national currency   billion roubles 2 343                     2 630      4 823      7 306      8 944 10 834 13 285 16 543
  – in US dollars                    US$b     405                      271        196        260        307    346    433    572
  Growth in real GDP                    %      1.4                    –5.3         6.4      10.0         5.1    4.7    7.3    7.1
  Population                       million 147.3                     146.9      146.3      145.6      144.8 144.1 143.4       na
  Energy consumption                 Mtoe a 596.8                    582.9      604.2      615.2      622.7 619.0       na    na
a Million tonnes of oil equivalent. na Not available. Sources: IMF (a,b); IEA (2003); World Bank (2004); IET (2005).



and 54 per cent of total exports in 2003 (IMF                            are included, the estimate rises to 116 billion
2004a). The oil and gas sector is often referred                         barrels, with West Siberia accounting for about
to as the locomotive of the Russian economy                              74 per cent and the rest split among Volga–Urals/
because of its significant contribution to the                            Precaspian, Timan–Pechora, East Siberia and
growth in industrial output after the financial                           the Far East regions (IEA 2004a; map 1).
crisis of 1998.                                                             Possible reserves, which are in addition to the
    Diversification of the Russian economy is                             abovementioned 116 billion barrels and which
likely to reduce the oil and gas sector’s share                          are likely to be even less profitable for production,
of gross domestic product, as other economic                             are estimated at approximately 30 billion barrels,
sectors grow. Further expansion of the sector                            while undiscovered resources are estimated
may also be hindered by insufficient explora-                             at 90 billion barrels. Although still dominant,
tion for natural resources, export infrastructure                        West Siberia’s share in the location of possible
constraints, and lack of new product develop-                            reserves and undiscovered resources is expected
ment, such as liquefied natural gas (LNG) and                             to decline, while East Siberia’s share is expected
petroleum products. Nonetheless, maintaining a                           to increase significantly. These possible reserves
rapid rate of economic growth remains depen-                             and undiscovered resources are not expected to
dent on strong exports of natural resources,                             come into production until the second decade of
mainly hydrocarbons and metals.                                          the century. The potential impact of their devel-
    The Russian Government’s target of doubling                          opment on Russia’s production profile is highly
average GDP per person by 2010 (within a                                 uncertain and heavily dependent on the capacity
decade of the election of President Putin in 2000)                       to convert them to proven plus probable reserves
is also likely to provide an additional stimulus to                      and on the rate of development (Lambert and
maintain a high level of energy exports at least in                      Woollen 2004).
the short to medium term.
                                                                         Oil production
Oil reserves                                                             In 1987 the Russian Federation (excludes former
At the end of 2003 the Russian Federation had the                        Soviet republics) produced 11.5 million barrels
seventh largest proven oil reserves in the world                         of oil a day, the highest oil production in one
and the largest among non-OPEC producers (BP                             country in the history of the oil industry (MIE
2004). Various sources estimate Russian proven                           2004). Oil production then declined sharply,
oil reserves at 60–69 billion barrels (IEA 2004a),                       partly as a result of depressed domestic and inter-
equivalent to around a quarter of Saudi Arabian                          national demand, reaching its lowest level in the
proven oil reserves, the largest in the world.                           second half of the 1990s (table 2). Since 2000,
Russian reserves are expected to last for 22 years                       oil output, driven mainly by private oil compa-
based on current production (BP 2004).                                   nies (box 1), has risen substantially in response
   When probable reserves, which have a smal-                            to higher world oil prices and growing external
ler probability of being produced profitably,                             oil demand (IET 2001, 2004, 2005; figure A).
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                                                                                 Crude oil and refined products industry
   World oil prices have been relatively high
since 1999, driving increases in investments
and oil output in the Russian Federation. By
                                                                          A      Russian Federation

2004, Russian oil production was 50 per cent                                                                            Production
                                                                          8
above its 1999 level. A new oil price spike in
2004 and 2005 has caused significant uncer-
tainty about future world oil price dynamics.                             6
However, it is expected that the high prices                                                                   Non-CIS export
reached in 2004 and 2005 will not be sustained.                           4
                                                                                                                             Domestic
By 2010, real oil prices are forecast to decline                                                                             consumption
from their present high levels (IEA 2004a;                                2
Burg, Haine and Maurer 2005) and reach levels                                                                                 CIS export
similar to those at the beginning of the current                          mbd
decade — levels that were nonetheless suffi-                                    1992     1994     1996      1998     2000      2002      2004
cient to drive the recent expansion in Russian
oil production (table 3). After 2010, world oil
prices are projected to increase gradually in                            that has already occurred since 1999 is expected
real terms (IEA 2004a).                                                  to dampen growth in upstream investment and
   Russian oil production is projected to                                production capacity in the medium term. Addi-
continue to grow to 2020, although at a slower                           tional downward pressure will be exerted by the
rate than over the period 1999–2003. The                                 current tax system in the oil sector in the Russian
projected easing in world oil prices from their                          Federation (box 2).
recent highs, along with the rapid expansion


        Production, consumption and exports of crude oil and products, and natural gas
2       Russian Federation
                          1992     1993     1994    1995      1996     1997     1998      1999     2000     2001     2002    2003 2004
  Oil                     mbd       mbd     mbd      mbd      mbd       mbd      mbd      mbd       mbd      mbd     mbd      mbd     mbd
  Production               8.02     7.11    6.38     6.16     6.05      6.14     6.09     6.12      6.49     6.99     7.62    8.46    9.21 a
  Exports of crude
   oil and products b      3.63     3.41    3.56     3.40     3.67      3.77     3.83     3.84      4.14     4.63     5.28    6.06    6.74 a
  – to non-CIS c           1.84     2.31    2.63     2.80     3.22      3.37     3.40     3.40      3.73     4.12     4.57    5.24    5.85 a
  – to CIS                 1.80     1.10    0.93     0.59     0.45      0.38     0.44     0.44      0.41     0.51     0.71    0.81    0.89 a
  Domestic
   consumption             4.65     3.95    3.04     3.02     2.64      2.65     2.51     2.42      2.47     2.47     2.48    2.61    2.63 a
                        US$/bbl US$/bbl US$/bbl US$/bbl US$/bbl US$/bbl US$/bbl US$/bbl US$/bbl US$/bbl US$/bbl US$/bbl US$/bbl
  Real world oil
   price d               21.48    18.47 17.61 18.48          21.49    19.67 12.64        18.24    27.50 22.16 22.02 24.66 30.43
  Gas                     bcm      bcm bcm bcm                bcm      bcm      bcm       bcm      bcm      bcm      bcm bcm bcm
  Production             641.0    618.4 607.2 595.4 601.1             571.1 591.0        590.7 584.2 581.5 594.5 620.3 634.0 a
  Exports                194.4    174.4 184.3 192.2 198.5             200.9 200.6        205.4 193.8 180.9 185.5 189.3 200.8 a
  – to non-CIS            87.9     95.9 109.3 121.9 128.0             120.9 125.0        131.1 133.8 131.9 134.2 142.0 144.4 a
  – to CIS               106.5     78.5 75.0 70.3    70.5              80.0 75.6          74.3  60.0 48.9 51.3 47.3 56.4 a
  Domestic
   consumption           453.6    450.0 426.9 407.1          407.2    374.7 393.4        389.4    394.5 404.7 416.2 439.8 442.0 a
a Estimates. b Totals may not add up as a result of rounding. c Commonwealth of Independent States (CIS) refers to Azerbaijan, Armenia, Belarus,
Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russian Federation, Tajikistan, Turkmenistan, Uzbekistan and Ukraine. d Real trade weighted crude
oil prices (in constant 2000 US$). mbd = million barrels a day; bbl = barrels; bcm = billion cubic metres.
Sources: IET (2001, 2004, 2005); ABARE’s estimates based on US Energy Information Administration data.



364                                                                       australiancommodities • vol. 12 no. 2 • june quarter 2005
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   Box 1: Corporate structure of the Russian oil and gas sector

   The oil sector in the Russian Federation currently            company owns and operates a national network of
   comprises eleven vertically integrated oil compa-             high-pressure interregional gas pipelines and has
   nies that produce more than 90 per cent of Russia’s           a monopoly over Russian gas exports to non-CIS
   crude oil (table below). There are also a number of           countries.
   project operators under production sharing agree-                 Oil companies and independent gas producers
   ments and about 150 small scale oil producers.                account for about 14 per cent of total indigenous
   However, their share in total Russian crude oil               gas production, almost a quarter of which is
   output has been steadily declining as a result of             flared. This is largely attributed to unprofitable gas
   less favorable business conditions than for oil               processing and sales conditions for these producers
   majors. The state retains major shares in Rosneft             compared to Gazprom. In most cases, these other
   and Gazprom, while other companies have been                  producers will have to sell gas to Gazprom, or
   gradually privatised since the start of the 1990s.            Gazprom has to provide pipeline access to deliver
      At the end of 2004, the oil sector went through            gas to non-Gazprom buyers. Nonetheless, in the
   significant restructuring after Yukos’s main                   government’s Energy Strategy it is expected that
   producing asset, Yuganskneftegaz, was sold at                 the share of non-Gazprom gas in production will
   auction. Yuganskneftegaz, with a production                   reach 20 per cent by 2020 (Government of the
   capacity of 1 million barrels of oil a day, became            Russian Federation 2003). While one of the poten-
   part of the state owned Rosneft, which brings the             tial sources of non-Gazprom gas is imports from
   share of state owned companies in total oil produc-           neighboring central Asian countries, it is highly
   tion to 18.6 per cent.                                        uncertain whether these supplies will occur as
       The gas sector is dominated by Gazprom,                   planned. The limited throughput capacity of the
   the largest gas producing company in the world.               pipeline linking central Asian gas reserves with
   Gazprom holds licences to fields containing more               Gazprom’s network, together with the associ-
   than 55 per cent of Russia’s proven gas reserves,             ated political issues, raise serious concerns about
   provides about 20 per cent of state budget revenues,          stability of supplies. If so, the only way to ramp up
   produces 86 per cent of Russia’s gas and supplies             supplies of non-Gazprom gas would be to improve
   it to generate around 50 per cent of electricity              pipeline access and gas sales conditions for inde-
   in the Russian Federation (OECD 2004). The                    pendent producers and oil companies.


   Corporate structure of oil and gas production in the Russian Federation, end of 2004

                                                                  Share in                                 Share in
                                       Oil production         total output      Gas production         total output
                                                    mbd                 %                   bcm                  %
   Russian Federation                               9.21            100.0                633.95              100.0
   Lukoil                                           1.69             18.3                  5.02                0.8
   Rosneft + Yuganskneftegaz                        1.47             16.0                 10.80                1.7
   TNK–BP                                           1.41             15.3                  8.00                1.3
   Surgutneftegaz                                   1.20             13.0                 14.31                2.3
   Sibneft                                          0.68              7.4                  1.95                0.3
   Yukos – Yuganskneftegaz                          0.68              7.4                  2.01                0.3
   Tatneft                                          0.50              5.5                  0.74                0.1
   Slavneft                                         0.44              4.8                  0.92                0.1
   Bashneft                                         0.24              2.6                  0.36                0.1
   Gazprom                                          0.24              2.6                544.42               85.9
   RussNeft                                         0.13              1.4                  0.77                0.1
   Other producers                                  0.52              5.6                 44.65                7.0
   mbd = million barrels a day; bcm = billion cubic metres.
   Source: IET (2005).



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       Average world real oil prices
3      In 2000 US dollars
                                                                    lihood of more rapid expansion in Russian oil
                                                                    output.
                                                                       These IEA projections are more optimistic
                   2001        2003        2010 z      2020 z
                                                                    than those of the Russian Government in the
                US$/bbl     US$/bbl     US$/bbl     US$/bbl         Energy Strategy of the Russian Federation for
 ABARE a              22          25          21          na        the Period up to 2020 (the Energy Strategy),
 IEA b                na          27          22          26        the main official document that sets out priori-
a Trade weighted crude oil prices. b IEA crude oil import prices.   ties and goals for Russian energy sector devel-
z Projections.
Sources: IEA (2004a); Burg et al. (2005) (projections reported in
                                                                    opment for the period to 2020. However, in the
constant 2005 US$ have been converted to constant 2000 US$).        past, both official and private projections have
                                                                    consistently underestimated the scale of Russian
                                                                    oil production. Importantly, the Energy Strategy
   Oil production in the Russian Federation is                      was developed before the strong rise in world oil
projected to reach 10.4 million barrels a day in                    prices in 2004 and 2005 in response to a combi-
2010 and 10.7 million barrels a day in 2020 (IEA                    nation of sound underlying market fundamen-
2004a; table 4). If, contrary to current expecta-                   tals and significant concerns about the security
tions, high world oil prices were to be sustained                   of global oil supply (Burg et al. 2005). These
for a long period, there would be a greater like-                   factors have driven Russian oil production and
                                                                    exports to the 2010 levels earlier than projected
                                                                    in the Strategy.

    Box 2: Tax regime in the oil sector                             Gas reserves
    in the Russian Federation
                                                                    The Russian Federation is extremely well en-
   In 2002, a new tax on minerals production                        dowed with natural gas reserves. At the end of
   (equivalent to a royalty) was introduced as                      2003, Russia’s proven gas reserves amounted
   part of tax reform in the oil sector. It replaced                to 47 trillion cubic metres, the largest share of
   a number of earlier oil production related taxes                 total proven gas reserves in the world (26.7 per
   and deductions and simplified the overall
                                                                    cent). These are expected to last for more than
   tax system. The reform has established the
   maximum rate of oil export tax, depending                        eighty years at the current rate of production.
   on the world oil price. Under the new regime,                    The country also has an estimated 33 trillion
   if the world price for crude Russian Urals oil                   cubic metres of undiscovered gas resources
   rose by US$1 above US$25 a barrel, the state                     (IEA 2004a).
   budget received 68.5 cents of the extra dollar                      Three quarters of Russia’s gas reserves and a
   through the tax on minerals production, export                   similar share of current production are located
   duty and profit tax.                                              in West Siberia, mostly in the Nadym–Pur–Taz
       The tax regime in the oil sector underwent                   region, followed by the European part of the
   additional significant changes in 2004, leading                   Russian Federation (to the west of the Ural
   to an increased tax burden on the sector, partic-                Mountains), East Siberia and the Far East (IEA
   ularly on oil exports. The new, more progres-
                                                                    2004a; map 2).
   sive, scale of taxation is aimed at withdrawing
   extra profit from oil exporters when world oil                       In 2002, 80 per cent of gas was produced at
   prices are high. Under the most recent scale,                    fields with declining production (Government
   deductions in favor of the state budget rose                     of the Russian Federation 2003), which means
   above 70 cents of an extra dollar if world prices                that significant new capacity will need to come
   for Russian Urals oil exceed US$25 a barrel.                     on stream over the next two decades to maintain
   Some sources estimate these deductions at 90                     current rates of production. The Energy Strategy
   per cent of extra profit.                                         projects that West Siberia will remain the main
   Sources: IET (2003a); IEA (2005).                                gas producing region until 2020, although its
                                                                    share in total gas production will decline.

366                                                                 australiancommodities • vol. 12 no. 2 • june quarter 2005
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                                                                                 Natural gas industry
   The development of gas fields in East Siberia,
the Far East, the European part of the Russian
Federation (including the Arctic Sea shelf) and
                                                                        B        Russian Federation

                                                                                                                 Production
Yamal Peninsula are expected to become a                                600
priority in the next decade (Government of the
                                                                        500
Russian Federation 2003). The rate of devel-                                                                 Domestic
                                                                                                             consumption
opment of new gas fields will be significantly                            400
affected by the ability to raise the required
                                                                        300
amount of investments (as discussed later).
                                                                        200
                                                                                                       Non-CIS export
Gas production                                                          100
                                                                                                                       CIS export
Over the period 1992–2004, the Russian Federa-                          bcm
tion remained the world’s largest gas producer,                           1992      1994      1996    1998    2000     2002   2004
accounting for more than a fifth of world gas
production (IEA 2004b). As with oil, gas
production declined after the disintegration of                       and power generation (IEA 2004a). The less
the Soviet Union. However, the reductions were                        optimistic projections of future gas output in the
not as great as those for oil (IET 2001; 2004;                        Energy Strategy can be attributed to concerns
2005; figure B). Gas output fell to its lowest                         over declining output from the major producing
level of 571 billion cubic metres in 1997 before                      fields in West Siberia and the limited capacity to
rising to 634 billion cubic metres in 2004 (table                     incur significant investments required to main-
2). Unlike oil, changes in gas production have                        tain and further boost gas production.
been driven mainly by domestic consumption,
with low regulated domestic gas prices favoring
the uptake of gas against other fuels.                                Investment in the oil and gas sector
    Gas output is expected to expand further in the                   Investment in oil exploration and production has
period to 2020, backed by abundant gas reserves.                      increased in the Russian Federation since the
It is projected to reach 655 billion cubic metres                     start of the current decade (table 5). Between
in 2010 and 801 billion cubic metres in 2020                          2000 and 2003, oil sector investments made
(table 4). Most of the incremental gas produc-                        up around 35 per cent of total industry invest-
tion is likely to be consumed domestically, as                        ments in the Russian Federation (OECD 2004)
the country continues to rely heavily on gas as a                     and led to marked acceleration in oil produc-
primary energy source and the main fuel for heat                      tion and exports. The robust growth in oil output


       Projected growth of oil and gas production and exports to 2020
4      Russian Federation
                                             2004                        2010                                   2020
                                                               IEA Energy Strategy                     IEA Energy Strategy
 Oil                                          mbd              mbd                     mbd             mbd                    mbd
  Production                                    9.2            10.4                 8.9–9.8            10.7            9.0 – 10.4
  Exports of crude oil and products             6.7             7.3                 6.1–6.8             7.0              6.1–7.0
 Gas                                          bcm              bcm                     bcm             bcm                    bcm
  Production                                   634              655                555–665              801              680–730
  Exports                                      201              182 a              250–265              249 a            275–280
a Net exports. mbd = million barrels a day; bcm = billion cubic metres.
Sources: IEA (2004a); Government of the Russian Federation (2003); IET (2005).


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                                                                Russia’s gas reserves and infrastructure




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                                                            2   Map from World Energy Outlook 2004, supplied by courtesy of the International Energy Agency, OECD, Paris
                                                                                                                                                                           russian oil and gas




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                                                                  Investment in oil exploration and
occurred partly as a result of bringing under-
utilised or idle standing facilities into produc-
tion, and there is still potential for greater and
                                                            5     production Russian Federation
                                                                                 Investment           Change from 1998
more efficient utilisation of existing facilities.
However, in the longer term it will be necessary                                       US$m                         %
to increase capital investment in new projects to            1998                       2 795                     100
sustain high rates of production.                            1999                       1 821                      68
                                                             2000                       4 143                     148
   The size of investment in natural gas explo-              2001                       6 018                     215
ration and production is largely determined by               2002                       4 679                     167
Gazprom, the dominant player in the domestic                 2003 a                     4 690                     168
gas market (box 1). The company needs to                    a January–October. Source: OECD (2004).
make significant investments if it is to maintain
current levels of gas production in the medium to
long term, as production from mature gas fields                 The total level of capital investment in the
declines and infrastructure degrades.                       Russian Federation, amounting to around 18
   The development cost of new large gas fields,             per cent of GDP, is still considered low relative
all of which are located in the harsh Arctic zone,          to other fast developing economies in eastern
is estimated at US$35–40 billion, excluding                 Europe and Asia, and relative to the average
necessary gas infrastructure (OECD 2004). Esti-             level of investment in OECD countries of about
mated reserves of the new gas fields are signifi-             22 per cent (table 6).
cant. For example, Yamal Peninsula reserves
are estimated at 5.8 trillion cubic metres of gas           Concerns over exploration rates for
(Government of the Russian Federation 2003).
The high cost of development and lack of new                natural resources
infrastructure may be one of the reasons why                The Russian Government views insufficient
Gazprom prefers investing in new smaller fields              exploration of natural resources and a growing
in the vicinity of working giant fields in West              share of oil and gas fields that are costly to
Siberia to be able to use the existing pipeline             explore and less attractive for investment as a
system (IEA 2004a).                                         threat to national energy and economic security
   Another issue is that the low regulated                  (Government of the Russian Federation 2003).
domestic gas prices make it practically impos-              For example, after an increase of 33 per cent
sible to raise the required capital for invest-             over 2000 and 2001, exploration oil drilling fell
ment, as three quarters of Gazprom’s gas is used            by 40 per cent in 2002 and by a further 11 per
domestically.                                               cent and 18 per cent in 2003 and 2004 respec-


       Capital investment to GDP ratio in selected countries
6
                            1995         1996       1997         1998          1999        2000          2001    2002
                               %            %          %             %            %             %          %        %
 Russian Federation          21.1         20.0       18.3         16.2          14.4        16.9         18.9     17.9
 OECD                        21.0         21.7       22.3         22.8          22.5        22.5         22.0     21.0
 Japan                       27.7         28.3       27.9         26.8          26.2        26.2         25.6     24.1
 United States               18.2         18.7       19.1         19.8          20.3        20.5         19.7     18.6
 Hungary                     20.0         21.4       22.2         23.6          23.9        24.1         23.6     22.3
 Poland                      18.6         20.7       23.5         25.1          25.5        23.9         20.9     19.1
 Korea, Rep. of              36.7         36.8       35.1         29.8          27.8        28.4         27.0     26.8
 China                       40.7         33.8       33.4         35.7          36.4        36.8         38.8     42.2
Source: OECD (2004).


australiancommodities • vol. 12 no. 2 • june quarter 2005                                                          369
      russian oil and gas


tively. Similarly, the number of new oil wells put   started to rise slowly in response to the strong
into operation grew by 85 per cent over 2000 and     economic recovery and reached 619 Mtoe in
2001 before falling by 22 per cent in 2002, 5 per    2002 (table 7). While this was considerably less
cent in 2003 and 1 per cent in 2004 (IET 2003b,      than in 1992, the Russian Federation remained
2004, 2005).                                         the third largest energy consumer in the world
   The Ministry of Natural Resources has devel-      after the United States and China (IEA 2003).
oped a long term program for the development of          During the period 1992–2002, the share of
natural resources for the period 2005–20. It calls   oil in the primary fuel mix declined from 29
for total investment of almost US$90 billion in      to 21 per cent as a result of reduced industrial
exploration over fifteen years, with US$9 billion     consumption and lower use of fuel oil in power
from the budget and the rest from the mine oper-     generation. However, the share of natural gas
ators. The 2005 budget provides only US$277          rose from 47 per cent in 1992 to over 52 per cent
million for natural resources exploration, which     in 2002, maintaining its dominance in both the
needs to be raised to US$756 million a year by       primary fuel mix and heat and power generation
2020 (MNR 2005). It is uncertain whether the         (IEA 2004a).
government will be able to significantly increase         Total primary energy consumption in the
the exploration budget and whether this initia-      Russian Federation is projected to grow by 1.7
tive will stimulate increased investment from        per cent a year until the end of the current decade
private investors.                                   and then by 1.2 per cent a year in the 2010s as
   High world oil prices and the current tax         economic growth slows. By 2020 the share of oil
system are the most commonly cited reasons           in the primary fuel mix is expected to be main-
for declining investment in oil exploration          tained at 21 per cent, while the share of gas is
(IEA 2004a; Mironov and Berezinskaya 2004;           projected to increase to 54 per cent as a result of
Tutushkin, Levinsky and Bushueva 2004).              the higher uptake of gas in power generation and
When oil prices are high, companies concentrate      the underlying growth in demand for electricity
on production and exports rather than building       (IEA 2004a; table 7).
up reserves. The current tax regime and                  In contrast, the Energy Strategy projects a
macroeconomic conditions also seem to favor          decrease in the share of natural gas in the fuel
short term projects and increased production         mix to below 50 per cent by 2020, and increases
from working fields.                                  in the shares of coal, oil, nuclear and hydropower
   At present, companies do not have the right       (Government of the Russian Federation 2003).
of first refusal on reserves that they discover.      The government’s desire to reduce the share
That is, they do not have preference above           of natural gas in the primary fuel mix reflects
others to obtain the right to extract the oil they   concerns over excessive dependence on gas,
have found. This is an additional disincentive       which is viewed as an energy security risk.
to exploration. Another potential reason for the
current decline in exploration activity is that
Russian oil companies view their reserves to         Oil exports
production ratio as relatively high and therefore    External demand for Russian crude oil has been
do not see the need for making large investments     steadily recovering after the downturn at the
in exploration.                                      start of the 1990s (figure A). Some of the factors
                                                     responsible for the earlier decline included the
                                                     loss of subsidised former Soviet buyers, the
Domestic consumption                                 depletion of large oil fields as a result of overpro-
Russia’s economic recession at the start of the      duction during Soviet times, and the reorganisa-
1990s resulted in a sharp contraction in domestic    tion of the oil sector (EIA 2005).
primary energy consumption. After reaching a            Exports of crude oil and refined products
trough of 583 Mtoe in 1998, domestic primary         from the Russian Federation have almost
energy consumption in the Russian Federation         doubled from the historical low of 3.4 million

370                                                  australiancommodities • vol. 12 no. 2 • june quarter 2005
                                                                                                      russian oil and gas


      Total domestic primary energy consumption,
7      Russian Federation

                             1992                               2002                           2010                      2020
                     Mtoe            %                Mtoe              %              Mtoe             %         Mtoe          %
  Coal                 132        17.0                  107           17.2               118         16.7          125      15.6
  Oil                  221        28.5                  128           20.7               149         21.0          171      21.3
  Gas                  364        46.9                  326           52.6               371         52.4          433      54.0
  Nuclear               32         4.1                   37            6.0                45          6.4           47       5.9
  Hydro                 15         1.9                   14            2.3                16          2.3           17       2.1
  Other                 12         1.6                    7            1.1                 9          1.3           10       1.2
 Total                 776       100.0                  619          100.0               708       100.0           802     100.0
Mtoe = million tonnes of oil equivalent. Source: IEA (2004a).



barrels a day in 1995 to 6.7 million barrels a day                       period compared with relatively low domestic
in 2004, making the country the second largest                           oil demand.
oil exporter in the world (table 8).                                        Exports of crude oil and refined products are
   Non-CIS countries (countries other than for-                          projected to grow further to 7.3 million barrels
mer members of the Soviet Union including                                a day in 2010 and then to decline slightly to 7.0
Latvia, Lithuania and Estonia) accounted for                             million barrels a day in 2020 (table 4). Growth
most of the increase in exports, with their share                        in domestic consumption, projected to be slower
growing from 51 per cent in 1992 to 87 per cent                          than growth in production in the first decade,
in 2004 (table 2).                                                       will outstrip the pace of production in the second
   As well as exports increasing in absolute terms,                      decade, leaving reduced domestic supply of oil
the proportion of total oil production exported                          available for export (IEA 2004a).
has also increased markedly. The proportion of
exports in the form of crude oil and refined prod-
ucts in total oil production has grown steadily,                         Gas exports
from 51 per cent in 1995 to more than 71 per                             The volume and share of gas exports in total gas
cent in 2004 (IET 2001, 2005). Exports were                              production have remained relatively unchanged
the main driver of oil sector growth over this                           since the start of the 1990s. Being sensitive to the

       Top ten world exporters of oil and natural gas, 2003
8
  Rank       Oil exporters                      Oil exports      a           Natural gas exporters                 Gas exports b
                                                          mbd                                                               bcm
 1           Saudi Arabia                                  8.3               Russian Federation                            189.3
 2           Russian Federation                            5.8               Canada                                        102.2
 3           Norway                                        3.0               Norway                                         71.0
 4           Iran                                          2.5               Algeria                                        63.6
 5           Venezuela                                     2.3               Netherlands                                    48.3
 6           United Arab Emirates                          2.3               Turkmenistan                                   42.8
 7           Kuwait                                        2.0               Indonesia                                      41.4
 8           Nigeria                                       1.9               Austria                                        26.6
 9           Mexico                                        1.8               Malaysia                                       24.6
 10          Libya                                         1.3               United States                                  19.6
             World                                        45.8               World                                         783.5
a Net exports. b Exports include pipeline gas and LNG. mbd = million barrels a day. bcm = billion cubic metres.
Sources: EIA (2004); BP (2004); IEA (2004c); IET (2005).


australiancommodities • vol. 12 no. 2 • june quarter 2005                                                                       371
      russian oil and gas


level of domestic gas consumption, exports were                Crude oil export destinations, 2003
sustained over the period 1992–2004 (figure B),
at around 30 per cent of total gas production.
                                                       C      CIS
                                                                  Germany
However, the main focus of export supplies has         Other central Europe
switched to non-CIS countries, whose share grew                         Italy
from 45 per cent of total gas exports in 1992 to a                   Poland
                                                                     France
high of 72 per cent in 2004 (table 2).                         Netherlands
   Net gas exports are projected to increase further           Scandinavia
to 249 billion cubic metres in 2020, maintaining                      Spain
                                                                     Greece
their share at 31 per cent of total gas production     Other western Europe
(IEA 2004a). In contrast, the Energy Strategy                 United States
projects higher export supplies of gas, with the                     Turkey
                                                                      China
share of exports reaching 38–40 per cent of total                     Japan
gas production in 2020. Larger amounts of gas                         Other
are expected to become available for export as a                             %          5        10        15        20
result of a projected decline in the share of gas
in the primary fuel mix, accentuating the coun-
try’s position as the world’s leading exporter of      of Russian gas exports until 2020, the share of
natural gas (table 8). Increased export earnings       gas exports to the Asia Pacific region is expected
could also help finance investments in the devel-       to reach 15 per cent by 2020 from nil at present
opment of gas reserves (IEA 2002).                     (Government of the Russian Federation 2003).
                                                          The Russian Federation has long been
                                                       exploring ways to export oil and gas to the
Export markets                                         Asia Pacific, where China, Japan and Korea
At present more than 90 per cent of Russian            are the primary markets. This intent is strongly
oil exports are destined for Europe, including         backed by reciprocal interest from large energy
CIS countries (EIA 2005; figure C). However,            importers in the region, who seek to diversify
supplies of Russian oil to Europe are unlikely to      their supply sources outside the Middle East and
expand significantly over the next ten to fifteen        ensure regional energy security.
years. This reflects the partial redirection in oil
exports to other markets, such as the Asia Pacific
                                                              Top ten recipients of Russian natural gas
in order to take advantage of oil price differential
and the European market’s preference for higher        9      exports, 2003 a
quality Middle Eastern oil.                              Rank       Country                                 Imports
   By 2020, the share of oil exports destined                                                                    bcm
for Europe is projected to decline to 60 per cent
                                                         1          Germany                                      37.3
(MIE 2004), while the share going to the Asia            2          Italy                                        19.4
Pacific region is projected to reach 30 per cent          3          Belarus                                      19.0
from about 3 per cent in 2003.                           4          Turkey                                       12.6
   Europe and the CIS are also the main markets          5          Hungary                                      11.0
for Russian gas exports (table 9). Currently,            6          France                                       10.6
                                                         7          Poland                                        7.2
Russian gas provides almost a quarter of OECD            8          Czech Republic                                7.0
Europe’s total gas needs (IEA 2004a), with               9          Romania                                       5.8
gas supplied mainly on the basis of long term            10         Finland                                       5.0
contracts (up to 25 years) on ‘take or pay’ condi-                  Total of above countries                    134.9
tions. Sales volumes under existing contracts                       Total all markets                           189.3
amount to 2 trillion cubic metres of natural
                                                       a Data are provisional for the OECD and are estimates for the non-
gas (Gazprom 2004a). Although European gas             OECD countries. bcm = billion cubic metres.
demand is expected to remain the primary driver        Source: IEA (2004b).


372                                                    australiancommodities • vol. 12 no. 2 • june quarter 2005
                                                                                 russian oil and gas


   The IEA has recently urged China, Japan and              via pipelines in 2003, either cross-border or to
Korea to work together with the Russian Federa-             sea terminals (OECD 2004). Higher oil prices
tion to develop Siberian oil and gas resources, as          in recent years have made rail and barge trans-
these are projected to become a major source of             port viable economic alternatives despite their
energy supplies to Asia (Hardy 2004). A major               higher costs relative to that of pipelines. The gas
deal for supply of Siberian oil to the Asia Pacific          pipeline system, the longest in the world (over
region has recently been finalised by Rosneft, the           150 000 kilometres), also serves as the main
new owner of Yuganskneftegaz, with expected                 transport mode for delivering Russian gas to
exports of approximately 1 million barrels of oil           external markets.
to China until 2010, via railroad.                             With oil production and exports increasing,
   The Sakhalin Island projects have resulted in a          limited oil transport capacity has emerged as one
major development of oil and gas resources in the           of the key constraints to further export expan-
Russian Far East. Sakhalin-1 and Sakhalin-2 have            sion. Declining demand from eastern Europe
been implemented by a consortium of Russian                 and CIS countries has resulted in oil exports
and foreign companies on the basis of production            being redirected to other international markets,
sharing agreements which are discussed later.               mainly western and northern Europe. Major
The planned Sakhalin-3 oil and gas project is very          bottlenecks are occurring at the ports and in the
large and incorporates three smaller projects that          pipelines supplying those markets, especially on
are comparable with Sakhalin-1 and Sakhalin-2.              the Black Sea.
Sakhalin-4 and Sakhalin-5 are also in the pre-                 Development of oil export pipeline infrastruc-
paratory stages. The combined output of these               ture has been identified as one of the priority
projects will significantly exceed projected local           tasks of the Russian Government, with the Baltic
and regional energy needs, with large volumes               Pipeline System, East Siberia – Pacific Ocean
becoming available for export to neighboring                and West Siberia – Barents Sea routes being of
countries and elsewhere.                                    key importance (table 10).
   North America is another important pros-
pective market for Russian oil and gas. The                 Exports to Europe
promotion of oil and gas exports to the United              Russian crude oil flows to Europe through the
States is the focus of US–Russian energy                    Druzhba pipeline system and via Russian oil
cooperation (White House 2005). However, the                ports on the Baltic and Black Seas (map 1).
initiatives underlying this energy cooperation              The Druzhba pipeline with a capacity of 1.3
so far seem to lack significant support from the             million barrels a day, was built in Soviet times
parties involved. Additional factors associated             and remains the main artery for Russian crude
with slow progress in this export direction are             oil exports to eastern Europe. The Latvian Baltic
the geographic remoteness of the market, and                port of Ventspils was the main outlet for Russian
the United States being a large regional gas                crude oil destined for northern European markets
producer itself. However, recent shortages in               until Transneft, the state operator of the national
supply of natural gas in the region, followed by            oil pipeline system, built its own Baltic terminal
a significant price hike, could stimulate progress           at Primorsk, on the Gulf of Finland, as part of its
on gas projects for exports to north America.               Baltic Pipeline System (BPS) in late 2001. The
                                                            recently approved expansion of BPS capacity to
                                                            1.2 million barrels a day is one of Transneft’s
Development of oil and gas export                           major projects and is expected to be completed
infrastructure                                              by late 2005 – early 2006.
                                                               The Russian Black Sea ports of Novoros-
The Russian Federation has an extensive system              siysk and Tuapse, as well as the Ukrainian port
of oil and gas pipelines, reflecting the inland              of Odessa, are used to reach western European
location of major oil and gas reserves. More                markets (IEA 2002). Black Sea ports are running
than 80 per cent of Russian oil was exported                at full capacity, and there is little additional

australiancommodities • vol. 12 no. 2 • june quarter 2005                                                  373
      russian oil and gas


           Major existing and proposed oil pipelines and sea terminal capacities for export and
10         transit of oil from the Russian Federation to non-CIS destinations
                                                                        2003             2005          2010           2015          2020
                                                                         mbd              mbd           mbd            mbd           mbd
 Transport system
 Baltic Pipeline System (BPS) – sea port of Primorsk                     0.60             1.20          1.20           1.20          1.20
 Other north western sea ports                                           0.12             0.30          0.30           0.30          0.30
 Druzhba pipeline                                                        1.27             1.33          1.33           1.33          1.33
 Transneft a pipeline system – Black Sea ports                           1.26             1.26          1.26           1.26          1.26
 Caspian Pipeline Consortium (CPC) b                                      0.4             0.56           1.4            1.4           1.4
 East Siberia (Taishet) – Pacific Ocean                                                                   0.6              1           1.6
 West Siberia – Timan-Pechora – Barents Sea                                                                               1           1.6
 Total                                                                   3.64             4.65          6.09           7.49          8.69
a Monopoly state operator of the Russian trunk pipeline system. b CPC connects Kazakhstan’s Tengiz oil field with the sea terminal near Russian
port of Novorossiysk. mbd = million barrels a day.
Source: MIE (2004).



throughput potential. Congestion is also occur-                          greater security of alternative gas supplies can
ring because of bad weather conditions and                               be ensured.
bottlenecks on the Turkish Straits.
    Two major proposals were developed to                                Exports to Asia Pacific markets
bypass the Turkish Straits — building an oil                             One of the major proposed projects for supplying
pipeline across the Turkish territory to the                             Russian oil to the Asia Pacific region is the
Aegean coast (Trans-Frakian Kiyiköy–Ibrikhaba                            construction of a 1.6 million barrels a day pipe-
route) or building one through Bulgaria and                              line from East Siberia ending near the Russian
Greece (Burgas–Alexandrupolis route). Neither                            Pacific port of Nakhodka, enabling shipments to
project has made much progress since they were                           Japan, Korea, China and the United States (map
proposed several years ago (Transneft 2004;                              1). The pipeline’s construction faces several major
Krutikhin 2005), perhaps because of the poten-                           difficulties, including high pipeline construction
tial decline in the attractiveness of the European                       costs, technical complexity of the project, the
market for Russian oil supplies in the medium                            need for costly greenfield oil developments in
to long term.                                                            West and East Siberia, and the possibility of
    Russia’s natural gas exporting strategy to                           the pipeline’s underutilisation. In late 2004 the
Europe is based on new large scale projects,                             Russian Government commissioned a feasibility
offshore resources development in the north and                          study of the project, with the results expected in
the Yamal Peninsula projects. These undertak-                            mid-2005.
ings may require investments of tens of billions                            The major potential sources of Russian gas
of dollars, and their realisation is likely to                           for Asia are East Siberia and the Far East, which
depend on favorable prices for natural gas and                           together are scheduled to produce up to 50 billion
large markets being secured to allow investment                          cubic metres of natural gas a year by 2010, and up
funds to be mobilised.                                                   to 110 billion cubic metres by 2020 (Government
    In the medium term, however, rising compe-                           of the Russian Federation 2003). A large scale
tition and liberalisation of European energy                             project for supplying Russian gas to the Asia
markets do not provide sufficient guarantees that                         Pacific region involves building a pipeline from
these projects will be implemented. Moreover, it                         East Siberia to Dalian and Beijing in China, with
is likely that European importers of natural gas                         an undersea branch to Korea (map 2). However,
will be interested in diversification of supplies                         the export prospects of the project seem some-
to enhance energy security, thus reducing                                what unclear at present, as Gazprom, the coordi-
dependence on Russian imports, provided that                             nator of Russian gas exports to the Asia Pacific

374                                                                      australiancommodities • vol. 12 no. 2 • june quarter 2005
                                                                                   russian oil and gas


region, appears to prioritise Sakhalin Island proj-         Japan is the proposed destination for Sakhalin-1
ects over East Siberian gas developments.                   gas, recent reports suggest that the final destina-
   The Sakhalin Island projects are renowned                tion of Sakhalin-1 gas is not decided yet, with
for their gas export initiatives; however, there are        northern China being mentioned as one of the
also plans for oil production and exports. While            potential buyers. The limited national gas pipe-


   Box 3: Major export projects targeting the Asia Pacific region

   East Siberia – Pacific Ocean oil pipeline                 developments in East Siberia and the Far East and
   The proposal for an oil pipeline from Taishet in         gas exports to the Asia Pacific region, is report-
   East Siberia to the Pacific Ocean was developed           edly prioritising Sakhalin projects over Irkutsk
   in accordance with the Energy Strategy and               gas developments. There are still a lot of issues,
   based on the long term forecasts of oil production       which need to be resolved before the project can
   and consumption in the Russian Federation and            proceed. Project implementation is likely to prog-
   future demand from Asia Pacific markets. Oil is           ress at a faster rate once Gazprom and TNK–BP
   to be supplied from the West and East Siberian           reach an agreement on Gazprom’s participation in
   fields. The Russian Government’s decision in late         the project.
   2004 to commission a feasibility study for the
   East Siberia–Pacific Ocean route has ended the            Sakhalin Island oil and gas projects
   decade long rivalry between China and Japan for          Total recoverable reserves of the Sakhalin-1
   the pipeline’s destination, practically supporting       project area are estimated at 2.3 billion barrels of
   Japan’s option. However, a potential branch to           oil and 485 billion cubic metres of natural gas. The
   China’s Daqing, favored by China, has not been           Sakhalin-1 project is expected to produce approxi-
   fully dismissed yet.                                     mately 0.25 million barrels of export quality oil
   If built, the Taishet–Nakhodka pipeline would be         a day by the second half of the current decade
   one of the longest in the world (4130 kilometres),       (Sakhalin-1 2005). For gas exports, the Sakhalin-1
   over harsh terrain. The state monopoly over oil          project consortium plans to build a pipeline with
   pipelines eliminates private capital participation       a design capacity of 8 billion cubic metres a year,
   in the project, which is estimated at US$11–16           which could run to Japanese Hokkaido Island with
   billion, and leaves the burden of raising the required   an extension to the Niigata or Tokyo area.
   funds solely in Transneft. The costs of bringing on      The recoverable reserves of the Sakhalin-2 main
   additional capacity from greenfield developments          project fields are estimated at 1 billion barrels
   in West and East Siberia are likely to be consider-      of oil and more then 500 billion cubic metres of
   ably higher than for existing brownfield projects in      gas. The Sakhalin-2 project currently produces
   West Siberia (IEA 2004a), leaving aside the possi-       about 0.07 million barrels of oil a day during the
   bility of underutilisation of the expensive pipeline.    summer season, but is expected to produce oil all
   The proposed high transport tariff could also place      year round from 2006 (Sakhalin Energy 2004).
   restrictions on export volumes.                          The project consortium has recently signed long
                                                            term agreements with Japanese and Korean utility
   Irkutsk gas project                                      companies for the supply of almost 5 million
   The project to supply natural gas to China and           tonnes of LNG a year (7 billion cubic metres),
   Korea via a pipeline from the Kovykta gas field           with the first contracts to start in 2007. The project
   near Irkutsk in East Siberia was proposed by             consortium has also finalised a contract to supply
   RUSIA Petroleum with British–Russian TNK–BP              1.6 million tonnes of LNG a year (2.2 billion
   as its major shareholder. Explored reserves of the       cubic metres) over twenty years to the Energia
   Kovykta field are deemed sufficient to produce             Costa Azul future terminal in Mexico on the
   more than 30 billion cubic metres of natural gas         west coast of north America. This deal brings the
   a year for over thirty years (RUSIA Petroleum            total volume of natural gas committed from the
   2004). However, Gazprom, which was appointed             Sakhalin-2 project to 7 million tonnes a year (10
   by the Russian Government as a coordinator of gas        billion cubic metres).


australiancommodities • vol. 12 no. 2 • june quarter 2005                                                      375
      russian oil and gas


line network in Japan and competition from the
East–West pipeline in China create barriers to the      Box 4: LNG projects for the east
imports of Russian pipeline gas. The predomi-           coast of north America
nant reliance of prospective gas buyers, such as
                                                       A potential gas supplier for the north American
Japan and Korea, on LNG also forces Russian            market is the Shtokmanovskoye field in the
gas producers to seek alternatives to pipeline         Barents Sea shelf, capable of producing up to
supplies, such as LNG.                                 60 billion cubic metres of gas a year, with the
    The Sakhalin-2 project consortium is building      full period of development being fifty years
the first Russian LNG plant in Prigorodnoye on          (Rosneft 2004). The project envisages construc-
the south of Sakhalin, which is scheduled to reach     tion of an offshore production platform, an
its design capacity of 9.6 million tonnes of LNG       LNG plant and an export terminal near the ice-
a year in 2008. Sakhalin-2 has already signed          free port of Murmansk on the Kola Peninsula.
long term agreements for supply of LNG to Asia         Gazprom, the sole owner of the Shtokmanovs-
Pacific and north American markets (box 3).             koye field, plans to decide on an international
                                                       project partner(s) this year, followed by supply
Exports to north America                               deals later in 2005 and 2006 (Platts 2004). Start
                                                       of production is currently scheduled for 2010,
A major proposal for oil exports to north              with the United States a primary destination for
America involves constructing a pipeline with          LNG supplies.
a design capacity of 1.6 million barrels of oil a         Another potential option to expand LNG
day from West Siberia to the Murmansk port on          supplies to north America is building an
Barents Sea, or building a new port at Indiga on       LNG terminal in the Gulf of Finland near St
the Barents Sea as an alternative pipeline desti-      Petersburg. Gazprom and PetroCanada signed
nation (map 1). The north American project             a memorandum of understanding to look at
faces a number of counterarguments including           the feasibility of constructing an LNG plant
potentially insufficient reserves of light crude        in the Leningrad region and the possibility of
                                                       LNG supplies to a terminal in Canada by 2009
oil preferred by the north American market, lack
                                                       (Gazprom 2004b). The Canadian terminal
of support from the United States, and more            could provide Gazprom faster access to the US
importantly the need to compete with the higher        market given the slow pace of approval of new
quality oil supplies from the Middle East (Vain-       LNG import terminals in the United States.
shtock 2004), which could result in less favor-
able prices for Russian oil exports.
   Although north America is considered the
main market for the West Siberia – Barents Sea       north American export projects appear to receive
route, it could potentially become a more cost       less priority compared with the Asia Pacific proj-
competitive way of shipping Russian crude oil        ects, perhaps as a result of lack of support from
to closer European markets. This, however, may       the parties involved.
make it a potential competitor with the Baltic
Pipeline System, Transneft’s current priority,
partly explaining its willingness to put off the     Conclusions
project until later in the decade.                   Since the end of the 1990s the importance of the
   North American gas projects envisage LNG          Russian Federation as a major world oil and gas
supplies either from the port of Murmansk on         supplier has increased. It is currently the world’s
the Barents Sea or from an LNG terminal on           largest gas exporter and the second largest oil
the Gulf of Finland near St Petersburg (box          exporter. Oil and gas supplies are backed by
4). Before the start of direct exports from the      abundant indigenous reserves.
Barents Sea, Gazprom plans to swap its pipeline         The potential for future supplies of oil and
gas exports to Europe with LNG to be shipped         gas to the international market is significant.
to the United States, with shipments potentially     Oil production is expected to continue to grow,
starting as early as this year (Platts 2004). The    although at a slower rate than over the past few

376                                                  australiancommodities • vol. 12 no. 2 • june quarter 2005
                                                                                russian oil and gas


years, and to exceed 10 million barrels of oil a            References
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australiancommodities • vol. 12 no. 2 • june quarter 2005                                               377
      russian oil and gas


—— 2004, Russian Economy in 2003: Trends              for replacement, preservation and economic
  and Perspectives, Issue 25, Moscow.                 utilisation of the natural resources and devel-
—— 2005, Russian Economy in 2004: Trends              opment of mineral-raw base in the Russian
  and Perspectives, Issue 26, Moscow.                 Federation, Moscow, 11 February (www.mnr.
IMF (International Monetary Fund) 2004a, Rus-         gov.ru/part/?act=print&id=82&pid=11.
  sian Federation: Statistical Appendix, IMF       OECD (Organisation for Economic Coopera-
  Country Report No. 04/315, Washington DC.           tion and Development) 2004, OECD
—— 2004b, World Economic Outlook Database,            Economic Survey of the Russian Federation
  Washington DC, September 2004 (www.imf.             2004, OECD, Paris.
  org/external/pubs/pubs/ft/weo/2004/02/data/      Platts 2004, ‘Gazprom Sakhalin door ‘opens’’,
  dbginim.cfm).                                       International Gas Report, Issue 509, New
Krutikhin, M. 2005, ‘Balkan route: the oil            York, 8 October.
  industry formulates conditions of Burgas-        Rosneft 2004, Shtokmanovskoe gas-and-conden
  Alexandrupolis pipeline construction’ (in           sate field, Moscow (www.rosneft.ru/english/
  Russian), RusEnergy, Moscow, 3 March.               projects/stockmanovskoye.html).
Lambert, T. and Woollen, I. 2004, ‘View of 12      RUSIA Petroleum 2004, Kovykta Project – Mar-
  million b/d Russian output by 2010 places           kets, Irkutsk, Russia (www.rusiap.ru/kovykta/
  focus on export limits’, Oil and Gas Journal        market.html).
  Online, PennWell, Tulsa, Oklahoma, 26 July.      Sakhalin-1 2005, Project Information – Overview,
MEDT (Ministry of Economic Development                Yuzhno – Sakhalinsk, Russia (www.sakhalin1.
  and Trade of the Russian Federation) 2005a,         ru).
  Scenarios of the Social and Economic Develop-    Sakhalin Energy 2004, Project Overview, Yuzhno
  ment and Main Indicators of the Consolidated        – Sakhalinsk, Russia (www.sakhalinenergy.ru).
  Financial Statement of the Russian Federation    Transneft 2004, Trans-Frakian oil pipeline is
  for 2006 and for the Period to 2008, Moscow,        under development, Moscow, 28 May (www.
  April (www.economy.gov.ru).                         transneft.ru/Projects/Defaultasp?LANG=EN).
—— 2005b, Program for Social and Economic          Tutushkin, A., Levinsky R. and Bushueva, Y.
  Development of the Russian Federation for the       2004, Not the time for exploration (in Rus-
  Mid-term Outlook (2005-2008), Draft revised         sian), Vedomosti, # 209 (1249), Business
  and submitted to the Government of the Rus-         News Media, Moscow, 15 November.
  sian Federation on 5 February, Moscow.           Vainshtock S. 2004, Speech of the Transneft’s
MIE (Ministry of Industry and Energy) 2004,           President S.M. Vainshtock at the presentation
  Speech of the Minister of Industry and Energy       of the Centre for Strategic Research’s report
  of the Russian Federation Viktor Khristenko         ‘About potential development trends of the
  at the IV annual Russian Oil and Gas Week,          infrastructure for transportation of Russian
  press release, Moscow, 26 October (www.mte.         oil’, Press release, Moscow, 12 November
  gov.ru/files/2166/2287.Doklad_VNNG.pdf).             (www.transneft.ru/press/Default.asp?LANG
Mironov, V. and Berezinskaya, O. 2004, Natural        =RU&ATYPE=9&ID=7006).
  rent: oil industry freezes (in Russian), Vedo-   White House 2005, Joint Statement by President
  mosti, # 214 (1254), Business News Media,           Bush and President Putin on US–Russian
  Moscow, 22 November.                                Energy Cooperation, Washington DC, 24
MNR (Ministry of Natural Resources of the             February (www.whitehouse.gov/news/releas
  Russian Federation) 2005, Minister of Natural       es/2005/02/20050224-6.html).
  Resources of the Russian Federation Yuri         World Bank 2004, World Development Indica-
  Trutnev made a speech on the actions taken          tors database, Washington DC, August.




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