GGP: Global Energy Dialogue: Russian Oil and Gas
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The following is an excerpt from a Memoranda published by the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs (SIPA).
Introduction
While Russia has long been a dominant oil and natural gas player, major changes to global markets, geopolitics, and economics are challenging many assumptions about Russia’s future in the world energy mix. The past year has seen Moscow agree to work in partnership with the members of the Organization of Petroleum Exporting Countries (OPEC) to reduce production, rebalance global oil supply and demand, and support global oil prices. Moscow seems to have followed through on a part of its promise. Recent years have also seen Russia—despite its massive natural gas reserves and traditional dominance in supplying Europe—facing challenges in that market from new sources of supply, even as Russian producers develop capacity to export liquefied natural gas (LNG) and pipeline capacity into Asia. In order to foster a more comprehensive understanding of the economic, social, market, and geopolitical factors influencing Russia’s present and future in regard to oil and gas, the Center on Global Energy Policy at Columbia University convened a high-level workshop on June 5 under the Chatham House Rule. This note summarizes key elements of that discussion.
Russia’s Economy
Russia’s economy and domestic politics are closely linked to the trajectory of oil and natural gas. Russia’s economy has stabilized after experiencing a period of recession that began as oil prices collapsed in the second half of 2014. Uncertainty over macroeconomic reform, falling oil prices, soft global oil and gas prices, and economic sanctions all contributed to Russia’s period of malaise, in the view of participants. Some, though, expressed very firmly the view that sanctions played a distinctly lesser role than tumbling prices for oil and gas.
Now, however, the question is whether Russia will return to growth and, if so, how robustly. Firmer oil prices provide some basis to believe that moderately better economic times are ahead, despite the continuously challenging geopolitical landscape. Some participants debated the durability of this improvement, noting the importance of structural reforms, which seem unlikely for the moment—at least before the Russian presidential election in March 2018.
Without broader reforms, the Russian economy is on track for a protracted period of stagnation, in the view of most workshop participants. Even if Russia eventually decides to undertake economic reforms, though, it is far from clear today what would drive a stronger economic recovery beyond oil and gas. There is potential in sectors as diverse as food processing, automotive parts manufacturing, and consumer electronics, but taken together, these are far too small to supplant the oil and gas sector as the primary engine of the Russian economy. After years of sanctions, recession, and economic hardship, it is also clear that anemic consumer demand cannot play a significant role in Russian economic growth going forward. Therefore, Russia’s future growth trajectory will largely depend on investment, but uncertain property rights remain a critical impediment to a significant ramp-up of private investment in the Russian economy. Only one thing seems clear: the oil and gas industry will remain central to Russia’s overall economic prospects, export earnings, and government revenues in the foreseeable future.
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The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.