Natural gas in Russia

Russian natural gas production (red) and exportation (black), 1993–2011

As of 2013, the Russian Federation is the world's second-largest producer of natural gas, producing an estimated more than 669 billion cubic meters (bcm) of gas a year, and the world's largest exporter, shipping an estimated 196 bcm a year.^[1]

The Russian Federation provides approximately about 25% of natural gas consumed in the European Union; approximately 80% of those exports travel through pipelines across Ukrainian soil prior to arriving in the EU.^[2] According to The World Factbook estimate, the country also has the largest proven reserves (48 trillion cubic meters [tcm]).^[1] OPEC figures also place Russia first, with an estimated 49 tcm, 24% of the world's proved reserves; however, BP estimates put Russia second behind Iran with 33 tcm.^[3][4] Additionally, Russia is likely to have the largest volume of undiscovered natural gas deposits, an additional 6.7 tcm, according to US Geological Survey estimations.^[5] Russia consumes approximately 457 bcm a year, second only to the United States.^[1]

Disputes with Ukraine

Since 2005, the Russian gas supplier Gazprom and the Ukrainian oil and gas company Naftogaz have been involved in a number of disputes. These disputes have grown beyond simple business disputes into transnational political issues that threaten natural gas supplies in numerous European countries dependent on natural gas imports from Russian suppliers, which are transported through Ukraine.^[2]

During 2005, Russia claimed Ukraine was not paying for gas, but diverting that which was intended to be exported to the EU from the pipelines. Ukrainian officials at first denied the accusation, but later Naftogaz admitted that natural gas intended for other European countries was retained and used for domestic needs.^[6][7] The dispute reached a crescendo on 1 January 2006, when Russia cut off all gas supplies passing through Ukrainian territory.^[8] On 4 January 2006, a preliminary agreement between Russia and Ukraine was achieved, and the supply was restored. The situation calmed until October 2007 when new disputes began over Ukrainian gas debts. This led to reduction of gas supplies in March 2008. During the last months of 2008, relations once again became tense when Ukraine and Russia could not agree on the debts owed by Ukraine.^[9]

In January 2009, this disagreement resulted in supply disruptions in many European nations, with eighteen European countries reporting major drops in or complete cut-offs of their gas supplies transported through Ukraine from Russia.^[10][11] In September 2009 officials from both countries stated they felt the situation was under control and that there would be no more conflicts over the topic,^[12][13] at least until the Ukrainian 2010 presidential elections.^[14] However, in October 2009, another disagreement arose about the amount of gas Ukraine would import from Russia in 2010. Ukraine intended to import less gas in 2010 as a result of reduced industry needs because of its economic recession; however, Gazprom insisted that Ukraine fulfill its contractual obligations and purchase the previously agreed upon quantities of gas.^[15]

On 8 June 2010, a Stockholm court of arbitration ruled Naftogaz of Ukraine must return 12.1 billion cubic metres (430 billion cubic feet) of gas to RosUkrEnergo, a Swiss-based company in which Gazprom controls a 50% stake. Russia accused the Ukrainian side of siphoning gas from pipelines passing through Ukraine in 2009.^[16][17] Several high-ranking Ukrainian officials stated the return "would not be quick".^[18]

Agreement with China

On 21 May 2014, Russia and China announced an agreement between state controlled gas companies Gazprom and China National Petroleum Corporation after a decade of negotiations. Under the agreement, Russia will supply China 38 billion cubic meters of natural gas each year for 30 years, starting in 2018.^[19] Both countries will be responsible for building new infrastructure to make the transport possible. Russia will spend about US$55 billion to build a pipeline from Siberia to Vladivostok, while China will spend $20 billion on infrastructure within its borders.^[20] The Kovykta and Chayanda gas fields which will supply the majority of the natural gas are currently largely undeveloped.^[21]

Tentative agreements had been reached several times since 2005, but each time final negotiations broke down over price.^[21] The agreed upon price was not disclosed, but those familiar with the situation said getting a lower price than European buyers was a key demand of China in the negotiations.^[19] However, Russian representatives said the price would fluctuate based on the market price of oil, making the deal closer to what Russia had wanted than to what China had been asking for.^[20] The total value of the deal was estimated at US$400 billion.^[19] It will increase Russian exports to countries not part of the former Soviet Union by 25% and make China the country's 2nd largest customer, after Germany.^[21]

The agreement was reached as Chinese and Russian leaders met to discuss greater cooperation in Asia without involvement of Western powers. It was seen as an important political and economic victory for Russian President Vladimir Putin. It allows Russia to diversify its natural business outside of Europe and weakens the force of economic sanctions placed by the West in the aftermath of the 2014 Crimean crisis.^[19] More generally, it allows Russia to reduce its isolation due to the crisis in Ukraine.^[20] For China, the deal helps lessen its dependence on coal to produce electric power, using a cleaner method of electricity generation through natural gas. It also helps meet the country's growing demand for natural gas.^[20]

See also

• Energy Triangle
• Energy policy of China
• Energy policy of Russia
• Petroleum industry in Russia

References