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Russian gas

August 9, 2009

Russia controls the world's largest gas reserves, but a combination of factors, including power production, climate change and logistics, are keeping it from reaping the greatest benefits.

A man walks past a line of gas pipes
Russia hopes to be able to save on gas use at home so that they can send more of it abroadImage: dpa - Report

Russia is running out of natural gas - or at least it's running out of easily accessible natural gas. According to the Oil and Gas Journal's 2008 survey, Russia holds the world's largest natural gas reserves, with 1,680 trillion cubic feet (47.5 trillion cubic meters), which is nearly twice the reserves in the next largest country, Iran.

Most of the known reserves, roughly 80 percent, are located in western Siberia and are concentrated in giant or super-giant gas fields. Since the early 1970s, the amount of new fields discovered has been on the decline and output from the country's core super-giant fields has been steadily decreasing.

Russian Prime Minister Vladimir Putin, left, with Turkish Prmie Ministed Recip Tayyip Erdogan
Putin, left, successfully convinced Erdogan to agree to allow Russia access to Turkish territorial watersImage: AP

According to Claudia Kemfert, director of the Energy, Transportation and Environment at the German Institute for Economic Research, there are new fields that potentially could be tapped, but they pose specific problems. Massive reserves are said to exist to the northwest of Russia's northern border, but those fields lie under the Barents Sea, which is covered in ice for much of the year. Fields further to the east also exist, but there the problem becomes one of transport. Most of Russia's gas customers are in Europe, on the other side of the continent.

The second dilemma is currently being taken care of by a set of pipelines that will supply Europe with gas, known as South Stream and Nord Stream. South Stream will run from the Beregovaya compressor station at Dzhubga on the Russia's Black Sea coast to Bulgaria's city of Varna, and would eventually supply gas to eastern Europe and Italy and Austria.

Russian Prime Minister Vladimir Putin was in Ankara on Thursday to persuade his Turkish counterpart, Recep Tayyip Erdogan, to sign up to the agreement. The main reason behind South Stream is Russia's desire to bypass Ukraine - which is the transit route for almost 80 percent of Russian gas to Europe - at all costs. The only way to do that is to route the pipeline through Turkish territorial waters.

The other pipeline, Nord Stream, is currently being laid between Russia and Germany across the Baltic Sea, entering Swedish, Finnish and Danish territorial waters. Germany is Russia's biggest gas customer in the EU and its second-biggest overall, after Ukraine, which has had a notoriously rocky relationship with Moscow since becoming independent following the fall of the Soviet Union.

Yellow pipes being lifted into the air by a crane
The Nord Stream pipeline will connect Russia directly with Germany, its biggest European customerImage: picture alliance/dpa

Up until now, Russia has had no way of turning off the gas to Ukraine without also depriving its European customers. These two pipelines make the issue moot and will have the effect of completely isolating Kiev, at least when it comes to gas and energy economics.

Switching to coal

Russia has had a long and difficult relationship with its gas and oil supplies. According to the United States Department of Energy statistics, a slight majority, or 55 percent, of Russian power stations run on natural gas, which by law has to be supplied at a severely reduced rate. During the 1990s, when post-Soviet Russia was struggling to get back on its feet, the country found itself with an excess of natural gas on their hands. That excess was pawned off on other countries and, due to lengthy agreements, will continue to be so for the foreseeable future.

This puts Russia in a tricky position. By forcing national gas company Gazprom to sell gas to power plants at a reduced rate, the government is actually missing out on millions of dollars in tax money. Gazprom is Russia's largest tax payer, contributing up to 25 percent of the total amount added to the coffers each year.

Power plant with cooling towers spewing clouds of vapour into the sky
Russia gets 55 percent of its energy from natural gas, which is supplied to power plants at a reduced costImage: picture-alliance/ dpa

But Russia also relies on natural gas for 55 percent of its energy needs. The country is home to the world's second-largest coal reserves, after the United States, but after restructuring over the last couple of years, 80 percent of coal production in the country comes from independent producers. This makes Russia the only place in the world where it's cheaper to run power plants on gas than coal, so they are reluctant to turn to the black stuff.

Any economist would tell you that the smart thing for Russia to do would be to switch all the gas-fired power plants to coal, and then send all that unused gas to Europe at regular market prices. However, coal-fired power plants emit enormous amounts of carbon dioxide into the environment, and as a signatory to the Kytoto Protocol, Russia is obligated to reduce its carbon output.

So Russia has started to go another way and has begun to lean a little on renewable energy like hydropower. According to Alexi Kokorin, climate expert at the Russian branch or the World Wide Fund for Nature (WWF), this is not a move to be more climate friendly, but only to look more climate friendly.

Kokorin said that Russian gas fields are being pushed further and further into the arctic, making it more difficult and more expensive to extract.

"Russia doesn't have the technology to extract the gas and it's becoming more and more expensive to get enough gas to send to Europe and China, therefore the government has decided that they have to save gas in the country," he said.

Upcoming climate treaty

In a recently released G8 climate scorecard, Russia was listed in seventh place, only beating out Canada, which is quite significant since both countries are Kyoto signatories. This comes just five months ahead of a crucial meeting in Copenhagen which is intended to hammer out a new climate agreement. Government officials begin another round of climate talks in Bonn on Monday.

Submarine arm planting a Russian flag into the sea floor
International feathers were ruffled two years ago when a Russian submarine planted a flag on the sea floor of the North PoleImage: picture-alliance/ dpa

Given its geographical location, the argument could be made that Russia would be one of the very few countries that would benefit from global warming melting huge swaths of ice, providing better access to oil and gas reserves buried deep beneath Arctic waters. Kokorin both agrees and disagrees with the assessment. Yes, he admitted, less ice would make extraction of gas and oil from the Barents Sea much easier. However, melting permafrost would make it more difficult and expensive to extract current known reserves in Siberia.

Claudia Kemfert says there are many voices within Russia, especially scientists, saying that climate change is positive for Russia and that they would benefit because the ice would decrease and then the access would be improved.

Russia signed the Kyoto Protocol, said Kemfert, because in the mid-90s it was still an emerging nation trying to get back on its feet after the fall of the Soviet Union. The Russians were treated much the same way as India and China are being treated in relation to the Copenhagen agreement. Now that they're among the world eight richest nations, they can't exactly claim that they need to be handled with kid gloves.

There is also the small matter of who actually owns the gas and oil reserves in the Arctic. With just over 24,000 kilometers (15,000 miles) of Arctic coastline, Russia certainly has a claim. But so do the United States, Canada, Norway, and Denmark.

Rough estimates put the amount of oil and gas in the Arctic at 20 percent of the total global reserves on the planet. With that kind of potential, said Kemfert, it won't matter to Russia if the ice is there or not.

"Of course they'll try and sell it to the rest of the world, even if the ice is there," she said. "It's much more expensive to drill into the sea with the ice, but they've already been doing it in parts of Siberia."

Author: Mark Mattox
Editor: Rob Mudge

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