Russian energy

The Soviet introduction of the principles of glasnost (openness) and perestroika (restructuring) laid the groundwork for a host of economic reforms, some of which continue to this day. It also led to the dissolution of the USSR into Russia and 14 other independent republics, an outcome that surprised many observers. The 1990s were a time of tumult, and Russia’s economy shrank by half, a disaster that was considered on a par with the 'Great Depression' in the US. The leadership contended with rampant inflation, unemployment, and a host of crippled businesses. The energy industry was sorely affected. Yet by the end of the decade, there were many successes, and real growth was underway. There is no doubt that Russia’s energy resources contributed to this recovery.

The key role of oil

Analysing the Russian energy sector is complicated by the events surrounding the dissolution of the USSR at the end of 1991. Longer term historical data series on the USSR often could not be disaggregated into the 15 new republics that emerged, so there are major discontinuities in data series. The years of turmoil also affected the oil sector in numerous ways.

During the decade of the 1990s, a great deal of work was done to restructure the economy and lay the groundwork for future growth. To a large extent, this was funded by oil revenues. In addition, Russia used its oil resources and its role as a supplier to cement political alliances and to exert political pressure on its neighbours when the leadership deemed it necessary. Russia has given a higher priority to oil exports. By controlling domestic demand and stimulating production, export availability has grown.

Russia’s producing oilfields are scattered and often far from population centres, the majority of them located in Western Siberia. Russia also has limited coastal access, particularly at the western reaches of the country, where the Atlantic Basin markets must be accessed via the Gulf of Finland and the Baltic Sea, and the Mediterranean Sea is reached via the Black Sea. Unsurprisingly, therefore, Russia has built the world’s largest oil pipeline system, approximately 50 000 km of lines run by the state controlled company Transneft.

Natural gas

Oil has been critical to Russian export revenues, but oil export growth has been made possible partly through the increased use of natural gas. Following the dissolution of the Soviet Union, oil consumption dropped sharply, yet oil export revenues began to climb, particularly over the past decade when oil prices began to rise. Natural gas has been substituted for fuel oil in many industrial and power sector uses, and natural gas has satisfied a growing percentage of Russian primary energy needs. In 2011, natural gas use accounted for nearly 56% of Russian primary energy use, while oil accounted for slightly less than 20% and coal accounted for 13%. In the larger picture, however, natural gas can be said to be underutilised in Russia, and the country is working to change this and to develop remote natural gas reserves.

In the eastern and northern parts of the country, efforts to monetise natural gas are focusing on LNG. Russia launched its first LNG project in 2009, the Sakhalin Energy LNG plant, which was part of Sakhalin Phase 2 development. Sakhalin Phase 1 was launched in 1996, and the first oil was produced in 1996. Sakhalin 2 includes two LNG trains at Prigorodnoye in Southern Sakhalin. Both trains have a design capacity of 4.8 million tpy, though actual output can reach 5 million tpy.

Refining sector

With energy exports being so vital to Russia’s export revenues, fluctuations in international prices have caused major swings in government revenue. The Russian government established an oil stabilisation fund in 2004 to moderate these swings by setting aside windfall oil receipts. There was also a goal to increase refinery throughput and capture value added by refining more of its crude oil resource and selling refined petroleum products. However, the goal of becoming a major export refining centre has been impeded.

Conclusion

Russia’s rich hydrocarbon resources allowed it for many years to be a key energy exporter to other markets in the USSR, and a large part of its energy infrastructure was built for this reason. With its major hydrocarbon resource, central geographic location, and focus on exports, Russia will remain a vital trading partner in Europe, Asia, and throughout the world.

The full article from Nancy Yamaguchi can be found in the June 2013 issue of Hydrocarbon Engineering.

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/24052013/russian_energy_nancy_yamaguchi/