Russian Natural Gas
Russia holds the world's largest natural gas reserves, with 1,688 trillion cubic feet, more than twice the next-largest reserves, in Iran, according to the Energy Information Agency of the United States Energy Department, as of January 1, 2013. Russia's proven natural gas reserves amount to 47 trillion cubic meters, 26% of the world's total. The majority of these reserves were located in Siberia, with the Yamburg, Urengoy, and Medvezh'ye fields alone accounting for more than 40% of Russia's total reserves, while other significant deposits were located in northern Russia. In 2004, Gazprom held licenses to fields accounting for 60% of these reserves; 21% was held by other producers, with the remaining 19% unallocated.
On the global scope Gazprom produced 412.6 billion cubic meters in 2022, down by 20% year-on-year. Gazprom’s exports to countries outside the former Soviet Union amounted to 100.9 billion cubic meters of gas in 2022, down by 45.5% year-on-year. Western countries have cut Russian gas imports. However, Russian officials many times stated that Moscow will not sell oil and gas to countries that will introduce a price cap or any other sort of embargo.
The United States and Germany said 21 July 2021 they had reached an agreement to allow the completion of Nord Stream 2, the controversial Russian gas pipeline to Europe that opponents say undermines the energy security of Ukraine and other Eastern and Central European countries. The Biden administration was expected to face strong pushback over the deal from Congress, which has twice passed sanctions legislation to stop the project with overwhelming bipartisan support. In a joint statement on July 21, the United States and Germany said they have agreed on a package of measures, including the possible implementation of sanctions against Russia, that will aim to soften any impact on Ukraine's budget and national security from the completion of the Kremlin-backed project. Nord Stream 2, which consists of two parallel pipelines stretching 1,230 kilometers each along the Baltic Sea, was designed to reroute Russian Arctic natural gas bound for Germany around Ukraine and Poland, potentially depriving Kyiv of $2 billion in annual transit fees.
Russia – through its state-controlled energy company, Gazprom – successfully blocked shale gas exploration through a shadowy but well-funded campaign waged to protect its regional energy dominance. Along with the massive drop in energy prices, hydraulic fracturing constitutes the greatest threat to Russian financial and political influence in Europe and to future Russian tax receipts,” Keith Smith, a former U.S. ambassador to Lithuania with additional posts throughout Europe said in February 2015.
Before stepping down in 2014, former NATO Secretary General Anders Fogh Rasmussen openly accused Moscow of aiding Europe’s anti-fracking movement. “Russia, as part of their sophisticated information and disinformation operations, engaged actively with so-called non-governmental organizations – environmental organizations working against shale gas – to maintain European dependence on imported Russian gas,” Rasmussen said.
The United States appeared to be rethinking its aversion to natural gas exports so it could help meet Ukraine's energy needs and weaken Ukraine's dependency on Russia for its gas supply. The top US energy official, Ernest Moniz, said at an energy conference in March 2014 that he "would certainly welcome" discussions with congressional leaders about easing the country's current natural gas export restrictions that limit sales to countries that were not free trade partners. He said the conflict in Ukraine, where Russian troops were occupying the country's Crimean peninsula, was "obviously a very, very serious and important situation" that merits considering whether energy exports should play a role in U.S. foreign policy.
According to some forecasts, the US and Canada, by promoting their programs of liquefied natural gas (LNG) export, would be able to gradually meet at least 25% of the European demand for natural gas from 2016. When searching for new markets, the US and Canada were expected to conduct a rather aggressive policy since low prices and excessive gas supply were two major factors constraining the development of the North American gas market. By and large, according to preliminary expert estimates, the annual export potential of the US and Canada may reach 176 BCM of gas8 after 2016 (for comparison – Gazprom OJSC exported 130 BCM of gas to Europe in 2012). Given US Government plans to keep gas prices low on the domestic market in order to boost the national economy, the actual gas exports from North America would not exceed 100 BCM/year by 2020.
Some European states, such as France, Switzerland, the Czech Republic and Bulgaria, banned extraction of shale gas on their territory, fearing environmental problems. However, the example of unconventional gas development in the US showed a real opportunity to minimise environmental risks in case of achieving balance between interests of extracting companies, government agencies and the public.
US Secretary of Energy Ernest Moniz said 25 March 2014 that the Ukrainian crisis would not cause the administration to go reverse. Each of 24 pending applications to export liquefied natural gas would still be processed, as if nothing had happened, although a number of certain corrections could be implemented further if need be. Though these plans sound bold, in reality the most advanced program, Sabine Pass, which intended to help the Europeans get off their dependency from Russia, would start its work at best in the end of 2015. The global market was unlikely to feel any changes until 2018-2019.
Gas prices were pegged to oil and refined products prices but change with a lag of six to nine months. Russia sends about 76% of its natural gas exports to customers in Western Europe, with Germany, Turkey, Italy, France, and the United Kingdom receiving the bulk of these volumes. Smaller volumes of natural gas were also shipped via the Gazprom pipeline network to Austria, Finland, and Greece.
In 2012, Russia was the world's second-largest dry natural gas producer (23.8 Tcf), second only to the United States (24.1 Tcf). In 2004 Russia was the world's largest natural gas producer (22.4 Tcf), as well as the world's largest exporter (7.1 Tcf). Independent gas producers such as Novatek have been increasing their production rates, with non-Gazprom sources expected to increase further in the future. Higher production rates have resulted from a growing number of companies entering the sector, including oil companies looking to develop their gas reserves. Russian government efforts to decrease the widespread practice of gas flaring and to enforce gas utilization requirements for oil extraction may result in additional increases in production.
Open Joint Stock Company (OAO) Gazprom was the legal successor of the proprietary rights and obligations of State Gas Concern Gazprom, including the rights to use land, subsurface reserves, natural resources as well as the rights and commitments under the agreements concluded by the Concern. The sales of shares commenced in 1993 and ended in 1995 with the results as follows: 41% of the shares remained under the state ownership. The old nomenklatura grabbed state property. Prime minister Victor Chernomyrdin, for example, controlled Gazprom. On 30 June 2000 shareholders of Gazprom elected Dimitry Medvedev, a former senior government official, to take over as Chairman. Medvedev replaced former Prime Minister Victor Chernomyrdin in the post. In the middle of 2005, after state-run OAO Rosneftegaz acquired a 10.74% stake in OAO Gazprom, the share of the Russian Federation in OAO Gazprom grew to a controlling stake (50.002%). The move enabled to reinforce the state's control over the Company being of strategic significance for the national economy. There were no legislative restrictions on foreign ownership of OAO Gazprom shares.
Gazprom, Russia's state-run natural gas monopoly, produces nearly 90% of Russia's natural gas, and operates the country's natural gas pipeline network. Gazprom was also Russia's largest earner of hard currency, and the company's tax payments account for around 25 percent of federal tax revenues. Despite its enormous size and significance, Gazprom was seriously encumbered by domestic regulation. By law, the company must supply the natural gas used to heat and power Russia's vast domestic market at government-regulated prices (approximately $28 per thousand cubic meters), regardless of profitability.
Gazprom's natural gas production forecast called for modest growth of 1-2 percent per year by 2008. Russia's natural gas production growth has suffered due primarily to aging fields, state regulation, Gazprom's monopolistic control over the industry, and insufficient export pipelines. Three major fields (called the 'Big Three') in Western Siberia -- Urengoy, Yamburg, and Medvezh'ye comprise more than 70 percent of Gazprom's total natural gas production, but these fields were now in decline. Although the company projects increases in its natural gas output between 2008 and 2030, most of Russia's natural gas production growth would come from independent gas companies such as Novatek, Itera, and Northgaz.
In 2005 Gazprom opened up the US LNG market. In September 2005 the first LNG carrier arrived at the Cove Point re-gasification terminal (Maryland) in the USA. LNG was delivered as per contracts signed with British Gas and Shell. Also in 1995, the "ring-fence" -- the cap on foreign share ownership in Gazprom -- was eliminated. Removal of the "ring fence" would clearly be a boon for investors (increased ability to trade in Gazprom shares) and Gazprom (improved access to capital), but the long-term significance was that it was the first step in reforming Gazprom. It was unclear, however, whether the government has the political would to follow through with reform of the company. In addition, Gazprom has been acquiring other assets in related industries (electrical generation and oil) in what appears to be an effort to create a national champion in the energy sector.
By 2006 Gazprom was worth about $260 billion and ranked as the third-largest corporation worldwide in terms of market capitalization, after ExxonMobil and General Electric.
On 08 September 2008 Gazprom again revised upwards its gas export revenue forecast for 2008, and saw sales exceeding $65 billion as European prices would hit an all-time high in the fourth quarter. Total revenues were $39.5 billion in 2007. Gazprom expected 2004 export revenue, the main source of its profits, to rise to at least US$17.5 billion from a 2003 record of $16.5 billion. Gazprom expected export revenue to rise to a record and surpass $20 billion in 2005 because of increased supplies to Europe and higher prices.
Whenever Gazprom does have extra revenue it fritters it away in higher operating costs. Lack of profitability was likely to remain an issue so long as domestic gas prices remain so low in comparison to world prices. But if Russia raised its domestic prices to the prices it charges in Europe, Russian industry would incur very large investment adjustment and unemployment costs in the short run - adjustment costs that cannot be justified on the basis of comparative advantage.
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