From the editor: One 2024 election with a foregone conclusion
To say that 2024 is a critical election year is an understatement. A record 64 countries representing over half of the world’s adult population and more than 60% of global GDP, will have votes on new governments and legislatures. The results will have major implications for energy and climate policy – nowhere more so than in the US, where Joe Biden and Donald Trump remain neck-in-neck in the polls.
So many elections in a single year creates great uncertainty, particularly in those countries where it is far from clear which political parties and leaders will emerge victorious. Russia, of course, does not fall into this category.
Russia’s presidential election is two months away, and while Western media has hyped up a would-be challenger Boris Nadezhdin in recent weeks, who has said he would end the war in Ukraine, his candidancy likely will not be approved by authorities. And even if he were to enter the race, the odds of presenting a significant challenge to Vladimir Putin would be miniscule.
The longest-serving Russian leader since Joseph Stalin has a stranglehold on the media, and there is no shortage of rampant fraud in past elections. And according to the Levada Centre, seen as the most reputable independent polling agencies in Russia, both support for Putin and the war in Ukraine has remained consistently strong over the past two years.
Meanwhile, despite Western predictions of catastrophic collapse as a result of sanctions, the Russian economy is faring comparatively well compared to many others in Europe. GDP is estimated to have grown by more than 3% last year. The Russian economy ministry predicts 2% annual growth between 2024 and 2026, although international projections are less bullish. The International Monetary Fund (IMF) for example expects 1.1% GDP growth this year.
Russian oil and gas budgetary revenues also remain strong, despite the sector being the one of the main targets of sanctions. These revenues dropped by nearly a quarter year on year to 8.82 trillion rubles ($99bn) in 2023, according to finance ministry data released on January 11. But this result must be given some context.
2022 was a bumper year for oil and gas profits globally, as a result of soaring oil and particularly natural gas prices. When the revenue sum for 2023 is compared to that of 2021, prior to the war and subsequent santions, it was only down by a mere 2%. And at least according to the Russian government’s projections, revenues will rebound to 11.5 trillion rubles this year, as the country carves out more market share in Asia.
Challenges and risks
Still, the overall revenue figure for 2023 masks the significant challenges that the Russian natural gas industry is facing. The overall sum was propped up by strong oil export volumes, as Russia has rapidly expanded its market share in Asia, namely in India and China, to make up for lost sales in the EU, which has placed an embargo on most Russian oil and petroleum products. It has also employed various tactics including complex pricing systems, intermediaries and a shadow tanker fleet with opaque ownerships and secretive ship-to-ship transfers to circumvent both the embargo and Western price cap.
Russia’s natural gas industry, on the other hand, is grappling with a 80-85% loss in pipeline gas sales to Europe, primarily as a result of the Kremlin’s failed attempt to weaponise supply. The government still aspires to capture a 20% share of the global LNG market by 2035 to offset these losses, but sanctions pose a significant obstacle. Russia will have to find alternatives to Western technology and equipment to support new projects, and while its flagship Arctic LNG-2 development began commissioning work this month, more or less on schedule, a fresh round of US sanctions targeting it directly has led many offtakers to declare forces majeures, including France’s TotalEnergies.
Over the longer term, Russia is banking on expanded market share in China. But despite successive rounds of talks, Moscow is yet to clinch the critical gas deal it needs to underpin the construction of the Power of Siberia 2 pipeline, a colossal project that will run from the Arctic Yamal Peninsula all the way to China via Mongolia. Mongolian Prime Minister Luvsannamsrain Oyun-Erdene told the Financial Times in an interview on January 28 that construction was unlikely to begin this year as he previously expected, as Russia and China “still need more time to do more detailed research on the economic studies.”
The war has also been brought deep into Russia, with Ukraine understood to have launched a series of drone strikes against strategic oil and gas infrastructure in the country in recent weeks, including the Ust-Luga gas condensate complex on the Baltic Sea coast, a refinery and a fuel depot. Besides crippling fuel supply to the Russian military, these attacks are also designed to weaken the Russian economy by targeting its lucrative oil and gas revenue stream.
Meanwhile in Europe, there may be a risk of a further cut to Russian gas supply at the end of 2024, if Moscow and Kyiv fail to agree on a new long-term transit deal. The Ukrainian government insists it will not seek a renewal, and the European Commission is yet to declare its position formally. If a deal is not reached, though, Russia could potentially lose out on billions of dollars of gas revenues. With both the Yamal-Europe and Nord Stream pipelines no longer operational, Russia’s only other route to the European market is the TurkStream, whose capacity is already mostly used up.