By Sergei Kolchin
UPI Outside View Commentator
Jun. 8, 2006 at 8:47AM
Recently, foreign mass media have been engaged in a heated debate
on whether Russia will honor its commitments on natural gas
supplies.
Claude Mandil, executive director of the International Energy
Agency, is often quoted as saying that Gazprom, Russia's
state-controlled gas monopoly, is not a reliable gas supplier to
Europe in the long term. The Russian gas giant is reproached for
producing gas from old fields and investing too little in the
development of new ones. There are also speculations that Gazprom's
ability to honor new contracts depends seriously on its purchases of
Central Asian gas, which is seen as a dubious guarantee of future
gas supplies.
However, statistics of global gas reserves is quite
controversial, as is the assessment of Russia's share of them.
Different sources estimate it at one-fourth to one-third. Anyway,
this share is a key one on the global gas market. The world's proven
reserves amount to 150 trillion cu m, which is enough to fuel
economic development for about 70 years. Russia is an obvious leader
in this respect, given its reserves and energy consumption (its gas
security is well above the world's average). Moreover, the U.S.
Geological Survey estimates that about 25 percent of still
undiscovered oil and gas reserves lie in the Arctic, mainly in
Russia.
The question is whether gas reserves on Russia's sub-polar
shelf are ready for industrial exploitation and bring export
revenues any time soon. The current situation on the gas market and
available capacities to develop hard-to-access fields in the extreme
north and in the shelf of Arctic seas show that their development is
at present sufficiently profitable compared to the mid 1990s. The
necessary technologies are now close at hand.
This is why I believe the issue of global gas supplies is now
politically motivated, making the debates around Russia's
reliability as a gas supplier so heated. The possibility of a gas
version of the Organization of Petroleum Exporting Countries
appearing in the world is becoming more and more evident. With
Russia controlling 27 percent of the world's gas reserves and Iran
15 percent, these two countries together boast huge potential in
terms of global gas distribution, which cannot but cause concern of
major gas consumers.
Under different estimates, about three-fourths of the world's
gas reserves are concentrated in the Middle East and the former
Soviet Union. This is an impressive figure and it obviously
irritates the West, given that natural gas is becoming a leader in
global energy consumption. As a result, the West is increasingly
viewing Russia as a state that dictates its will on its partners
guided by its own political interests. This leads to a new wave of
Russophobic sentiments, especially in the EU and U.S. political
circles.
Western countries stubbornly demand that Russia de-monopolize
its gas transportation network and allow Central Asian gas to the
network on conditions of simple transit. Simultaneously, they are
pushing for alternative projects of shipping the same gas, such as
the Trans-Caspian pipeline. However, the political moves related to
Russian gas do not always gain support from business circles
orientated towards intensive cooperation with Gazprom. Good examples
are Germany's E.ON, Italy's Eni and other companies.
Russia, in its turn, combines inter-government contacts with
robust commercial activities of Gazprom and its affiliated
structures, supported by high-ranking officials. Recently, Russian
Finance Minister Alexei Kudrin said that only Russia could be the
founder of the global gas market. An element of Russia's state
policy in gas supply is selection of Gazprom's potential partners in
large projects by their loyalty, but without detriment to the
economic expediency of cooperation. So Russia has a sufficient
investment resource for developing the gas industry, given Gazprom's
own potential and its foreign partners' interest.
Russian government sources and independent experts, such as
BP, estimate Russia's proven gas reserves at 48 trillion cu m (27
percent of the world's total) in late 2004. Russia's gas output may
reach 645 billion to 665 billion cu m by 2010 and 710 billion to 730
billion cu m by 2020. At present, Russia produces about 600 billion
cu m annually, of which 200 billion cu m is exported. Obviously,
there is no ground to fear the shortage of export resources.
At the same time, about 51 percent of proven reserves lie in
Russian regions with developed gas infrastructure, and these regions
account for the bulk of gas production. So the question is whether
Russia can successfully develop new gas producing regions and
provide them with the required export infrastructure.
Yet even a superficial analysis of the situation in the
Russian gas sector shows that Western concerns are rather
demonstrative and politicized. The production base for gas
development at new fields was created during the last decade, and
now it is being revived due to the changing gas prices on the global
market. The necessary transportation routes are also being built
promptly.
Most probably, the West is apprehensive not so much of gas
dependence on Russia, as on the possibility that its partner,
bolstered by export revenues, may expand to European markets and buy
into local energy companies. This is why European politicians show
little enthusiasm about Russia's concept of asset swap. However,
foreign companies cooperating with Gazprom demonstrate a better
understanding and are busy working out competitive proposals. This
is true of Norway, Italy and France.
Russia's stance was clearly formulated by President Vladimir
Putin at a briefing following the Russia-EU summit: "If our European
partners want to be admitted to the sanctum of our economy - the
energy sphere, then we expect their similar moves in response."
Europe is also resisting Russia's desire to sign long-term gas
contracts with consumer countries. It views such contracts as a
possible tool for market monopolization and subsequent gas blackmail
on the part of Russia. Gazprom retorted by asserting its commitment
to free trade principles and hinting that it has other promising
markets, such as China and Japan.
Consequently, Russia has every chance to increase its gas
exports and strengthen its foothold on global markets. However,
there are still problems with developing new fields at a pace
adequate to that of constructing additional export routes. The
growing anxiety around the issue testifies not so much to Gazprom's
production difficulties, as to the political controversies between
Russia and the West.
--
(Sergei Kolchin, Ph.D. (Economy), is senior fellow of the
Institute of International Economic and Political Studies of the
Russian Academy of Sciences. This article is reprinted by permission
from RIA Novosti.)
--
(United Press International's "Outside View" commentaries are
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