Geopolitics of Russian Oil and Gas Essay

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Pages: 8
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1. Introduction
Gazprom—behalf of Russian natural gas industry, had greatly contributed to Russian economic development as they enjoyed sky-high gas prices for years and it would never end. However, the Russian prosperity based on the gas exports is now under threats: its aging gasfields, shale booms from U.S.A and the decrease of the growth rate in Europe, the biggest importer for
Russia. Since Putin came back to Kremlin in May 2012, it has been emphasized to develop the
Far East region as a strong economic development driver tackling the global economic turmoil now than ever. Following Putin’s intention to give a greater focus to the development of the Far
East, the Russian government established the Ministry for the Development of Russian Far East solely dealing with the Far East development (MedetskyAnatoly, 2012).
On the contrary, Korea—a small country located in the Far East, is always thirsty for the energy resources as the economy grows. Korea ranked on the 8th of the natural gas imports and the
19th of the natural gas consumption in 2011 (CIA, 2013). Since Geun-hye Park, the first female president was inaugurated in February 2013, the Korean energy policy government does not only focus on developing renewable energy as a long-term plan but also secures the energy supplies as a short mid plan. In addition, the Korean government has plans to construct gas pipelines in order to provide natural gas to each household living out of urban areas (Yoo, 2013).
However, Korea mainly imports natural gas from Middle East and Southeast Asia: 47% from
Middle East and 33% of Southeast Asia (KOSIS, 2013).
The diversification of trade countries on global natural gas market is critical for both Russia and
Korea as major natural gas exporter and importer. This could be a win-win strategy and reduce

risks from both sides–the possible economic slowdown due to the decrease in gas exports for
Russia and the energy insecurity for Korea. This paper analyzes both countries’ gas supply and demand and recommends how both countries will be able to develop the partnership to strengthen their corporation for the natural gas.
2. Natural Gas in Russia
Russia has the largest gas reserve in the world. Russian gas industry is one of the key economic engines to grow the Russian economic growth for last decade. Recently, Russia gas industry does not seem to guarantee to grow economy because the power of Russia in global natural gas mark seems to weaken thanks to America’s shale gas boom. Since European countries—the largest gas customer for Russia had experiences gas cut from Russia due to pricing disagreement (Handley,

2013),

they

are

welcoming to choose other choices instead of
Russia. The crash of Gazprom’s share price for last 4 years implies that Russia gas industry faces serious inherent risks—Gazprom, the statecontrolled gas producer is account for about 15% of global supplies (Javier Blas, 2012).

[Figure 1. The crash of Gazprom’s share price]
(Source: Bloomberg)

U.S shale boom is not the biggest risk for Russian gas industry, however the potential of development of similar reserves in neighboring Bulgaria, Poland and Ukraine as they use same technology—hydraulic fracturing, known as fracking, and horizontal drilling—used in the US gas industry (Javier Blas, 2012). This would provide good opportunities for European countries to

find their alternative supplies instead of Russia which is in charge of 20% of their needs. These all risks originally result from that Russian gas export hugely depends on the European market: over 90% including C.I.S and Eastern European countries in 2010 (See Table 1).
In addition to increasing the market competitiveness, the downward gas demand in Europe is another risk for Russia gas industry. According to the BP and BofA Merrill Lynch Global Research, even though the gas demand in
Europe slowly has been increased after plunging by 6% in 2009,
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