Russia, the West, and Energy Geopolitics in the CIS; A New Tournament of Shadows? Stephanos S. Germenis

Russia, the West, and Energy Geopolitics in the CIS; A New Tournament of Shadows? Stephanos S. Germenis

Contents The Great Game / Tournament of Shadows The New Great Game / Tournament of Shadows Goals & Results: Russia & the West Analysis The New Great Game: Déjà-vu? Sakhalin Conclusion 2

The Great Game / Tournament of Shadows Kipling s Kim (1901) Russo-British struggle over Central Asia Security of supply Empire & spheres of influence Global importance 3

The New Great Game / Tournament of Shadows Dissolution of U.S.S.R. 3 stages of policy thinking: Retreat / pro-west Regroup Rise of nationalism Eurasianism Emphasis on CIS 1996 Draft Doctrine on Energy Security 4

The New Great Game / Tournament of Shadows cont d. New energy opportunities in NIS Compatibility with the West? Security of supply? Investment opportunities Local need for capital PSAs E.U. Blue Stream & INOGATE 5

The New Great Game / Tournament of Shadows cont d. Russia: 1990s privatizations Yeltsin & the Oiligarchs The West 1990s: need for capital & know-how 3 ways Direct investment Joint venture Upstream investment 6

Goals & Results: Russia Sphere of influence Yeltsin Doctrine & Secret Directive 386 Energy Strategy for the Period Until 2020 (May/August 2003) Economic coercion Putin era: appoint associates to key positions Limit foreign presence in CIS Controlled instability: Azerbaijan, Georgia, Tajikistan Issues: Threat to infrastructure Military reform Maintain assertive role in CIS Military bases Boarder guards Peacekeepers 7

Goals & Results: Russia cont d. Control of strategic resources & transportation network Transneft Vs BTC CPC Gazprom Control of the domestic energy sector Gazprom Limit foreign presence Relations with the U.S. 9/11 Tactical marriage of convenience? 8

Goals & Results: Russia cont d. Private sector: Close cooperation with the state Vagit Alekperov: the state has a significant say in our company (LUKoil), and in return state protectionism and patronage enables us to obtain specific projects in other former Soviet republics YuKOS Company strategies Export maximization maximized unitary income Seek immediate liquidity Limited investment in exploration State exercises control through: Main transportation networks Tariffs Reserves Defining & dictating export volumes 9

Goals & Results: the West Need for foreign investment: Expertise & know-how Capital U.S. State level Caspian oil: a piece of the pie Military bases & aid Pro-Western projects (i.e. BTC) Private level Possibility of exporting LNG Sakhalin, Shtokman, St. Petersburg E.U. INOGATE & Blue Stream 10

Analysis The CIS as an oil and gas producer Reliability Potential (oil V gas) Potential output Aims to export 160-170 million tons p.a. for the next 20 years Increase amount of extracted oil to 540 million tons p.a. until 2015 Significant drop in exploration Geographic & environmental restrictions Export to China? 2004: 5.25 million tons exported to China Poor transportation infrastructure Security premium Export to North America? Sakhalin & LNG 11

Analysis cont d. E.U. Vs the Far East Far East: Supply meets demand requirements in China Projects in Central Asia Japanese investment Potential projects: Angarsk-Nakhodka/Daqing E.U. 63% of its gas imported from Russia ( 70% by 2020) Oil: 150-160m tons p.a. by 2020 ($30/bbl) Growing dependence active role in ensuring security of supply 12

Analysis cont d. Energy-dependent economy $1/bbl change in oil prices $1.4 billion change in Russian government revenues World Bank: 25% of Russia s GDP from oil & gas sector; but employing less than 1% of population Russian majors comfortable with $15-18/bbl, if not less Close ties between state and Russian private energy majors Revenue from energy sector: Putin Vs Yeltsin 13

A New Tournament of Shadows / Great Game? Long-term capabilities: Oil: 20-25 years Gas: different story! 2005: 598 billion cubic meters produced; 21.6 of world total Post-9/11 Notion of cooperation in CIS Re-integration Vs domination & exploitation Shanghai-6, Central Asian Cooperation Org. Sphere of security Strategy of dependence shifted into the energy sector Mutually beneficial U.S.-Russia relations Rapprochement; recognition of mutual position & role New players involved 14

A New Tournament of Shadows / Questions: Great Game? cont d. If U.S. military presence in Central Asia temporary, why has American aid to the region been so intense? How will presence be accounted for when Afghanistan & Iraq are deemed stabilized? Russia s stance & reaction? 15

Sakhalin Ecological approval for Sakhalin II canceled by Russian Natural Resources Ministry Shell: The project complies fully with Russian and international environmental standards and is introducing environmental best practice into Russia. Political motive? Gazprom & Zapolyarnoye-Neocomian Wider effects Russia s position & image as supplier Foreign relations Bureaucracy & delays 16

Conclusion Issue in question is geographically regional, but global in importance and impact Prize of the New Great Game: untapped oil & gas reserves, pipeline networks, tanker roots, LNG export hubs, consortiums diversification & security of supply Changing role & position of players after 9/11 Game at end? 17

Thank you Stephanos S. Germenis 18