Russia’s Energy Outlook 2020 – 2030

Russia’s energy future looks rosy, because Russia has a great variety of energy sources.

Russia is one of the few countries that is truly energy independent and able to export oil and gas abroad.

1. Russia has such enormous energy reserves. Oil importing countries can only dream of such a wealth of resources. Logistics make it difficult to tap into domestic energy resources.

In this article I would like to discuss in more detail Russia’s energy policy, which has a decisive impact on the European Union’s energy policy decisions. In particular, the extraordinary role of the Russian energy industry in the world energy trade will be taken into account. Russia, which possesses one third of the world’s mineral resources on its territory, will continue to find buyers for its own deposits of raw materials in the future. Other countries play a much more important role as buyers of the energy that Russia provides to countries like China.

The energy policy objectives of the Russian Federation also take into account the geopolitical interests of the country. Russia has been in a diplomatic ice age with the USA for some time. The current sanctions affect the country’s energy policy ability to act and restrict international trade in energy commodities. At the same time, however, the sanctions also lead to Russia becoming economically more independent. Russia is looking for new trading partners in the energy sector and is building up its domestic industry.

The interdependencies of the globalized economy require a certain degree of coordination and planning due to the complexity that extends beyond individual countries. Russia will be able to shift the focus of its energy sector from Europe to countries like China. This will be a gradual process that may also put Russia in financial difficulties.

2. Russia’s proven oil and gas reserves are growing as many oil and gas discoveries are being made in the Siberian permafrost, which the OPEC states see with mixed feelings due to the current decline in the price of crude oil on international markets.

Moreover, it should be considered that a large part of Russian energy reserves is located in Siberia. Geographical distances in Siberia alone lead to unsuspected costs because freight costs more for every kilometer traveled to the final destination.

The fact that Russia is isolated from international maritime trade routes and most of the waterways used makes logistics and production costs extremely high. It is therefore not always profitable to extract energy raw materials from the ground, and there are usually large deposits of energy that are then exploited in the end. It is only recently that huge gas deposits have been discovered in northern Russia, which contribute significantly to Russia’s long-term energy security.

Various governments of the Gulf States were received in this region to see for themselves how huge these energy reserves in Northern Russia really are. There is no doubt that some of these quantities are destined for the European market due to their relative proximity to these markets. Other quantities are destined for the East Asian market.

This leads to more competition between Russia and the countries of the Middle East, and it affects the oil markets. When oil prices are very low, as is currently the case, many Gulf states cannot afford to refinance themselves through energy exports. Today, Russia has also started to export liquefied petroleum gas from northern Russia to East Asia via Arctic waters and the Bering Strait.

South Korea and Japan have also shown interest in purchasing some of these quantities from Russian energy companies. South Korea may be particularly interested in increasing its share of Russian PNG and LNG, as South Korea has greater difficulties than Japan in obtaining energy supplies across the Western Pacific, the South China Sea and the Strait of Malacca. In general we see a shift away from the North Atlantic towards the West Pacific. East Asia is the heart of the world economy and Russia is a major supplier of energy resources to East Asia.

China will have the largest share of the volume of liquid oil and natural gas imports from Russia. It is precisely this interaction between energy policy and the economy that is important for the United States and to some extent also for the Western allies of the United States. The energy policies of the United States and Russia are very different. This has been exacerbated by the tight oil and gas boom in the United States. 

3. Economic and energy policy interests go hand in hand.

Many states of the European Union are well aware of Russia’s enormous potential. In fact, Russia can satisfy the energy hunger of European countries from its own resource base, all by itself. Due to dwindling oil and gas reserves in the North Sea, the Western European states will have difficulties in meeting their basic energy needs. Within the European Union there are strong differences of opinion about how to cooperate with Russia. On the one hand, we have countries like Poland and some Baltic states that would severely limit increased cooperation with Russia in the field of energy policy.

Germany is thinking about the precarious nature of Europe’s energy supply. This means that in the next 10 to 20 years Europe will be confronted with the depletion of oil and gas reserves in the North Sea. Perhaps we are not paying enough attention to this fact. But we have to be aware that LNG based on the shale gas reserves in the USA will not replace the European energy supply in the next 10 to 20 years.

4. NordStream and SouthStream should be considered as long-term energy projects that will last for decades. Both pipelines are part of a transcontinental energy policy. This energy policy includes direct access to the Western European market. On the other hand, it also includes securing long-term supply contracts.

NordStream 2 offers Europe a higher degree of energy security over a long period of time. And the Russian government would also potentially be willing to commission NordStream 3 and 4. There will be a need for more gas supplies in Europe in the coming decades. The disadvantage would of course be that the European countries would become dependent on just one supplier. German-American relations in connection with the Nordstream 2 project are increasingly suffering from the project, which also affects Ukraine and Poland. It makes sense to look at this project from different points of view.

Despite all the assurances given by the pipeline operators, it is possible that less natural gas will be transported to Central Europe via Ukraine and Poland. One of the reasons for this is that the pressure of the underwater natural gas pipelines compresses the natural gas so that more natural gas can be transported via NordStream.

This has far-reaching consequences. The Nordstream 1 and 2 pipelines will cross the Baltic Sea, which is ideal for transporting natural gas. Ukraine and Poland may lose transit fees. The fact that SouthStream bypasses Ukraine and transports natural gas to Central Europe via the Black Sea and Southeast Europe raises suspicions that Russia could bypass Ukraine.

More than two thirds of the NordStream road has already been laid, so NordStream 2 should be completed by the end of 2020. The German side criticized the US government for putting pressure on Swiss companies to stop the construction of the pipeline as soon as possible.

5. While Russia diversifies its energy trade and expands its supply, East Asian countries and China should complement Western European sources of revenue. This safeguards Russia against possible geopolitical uncertainties.

Russia is therefore striving to broaden its energy policy in order to protect itself against energy risks and to secure long-term revenues from oil and gas activities. This also explains the rapid completion of Siberian power, which is not particularly profitable for Russia.

The contractual constellation, volume deliveries and prices indicate that not only are energy policy objectives being pursued, but alliances are also being forged. Nevertheless, from the Russian point of view, it makes perfect sense to diversify the customer base. Additional deliveries of liquefied petroleum gas will further promote international energy trade for Russia and create additional sources of revenue.

Many thanks for the shared interest in the energy world!

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