David Clark, chair of the Russia Foundation, has a good piece in the Financial Times about Russia’s rejection of the Energy Charter Treaty (ECT), which will come into effect this coming Monday. Although Clark makes some good points regarding some overly aggressive moves by the Russian government which may dampen demand, it is harder to say if investors will ever actually take a hint and move on to less risky countries – they shown no lack of appetite of risk so far, and keep coming back for more punishment.
If rejecting a major international treaty was intended as a demonstration of unilateral Russian power, it may instead backfire and expose the underlying fragility of Russia’s national revival. As Mr Medvedev himself acknowledged last month, in what was taken as an oblique criticism of his predecessor, the Russian economy remains dangerously lopsided in its dependence on energy export revenues. Without the record energy prices of the past decade, Russia would have remained mired in post-Soviet decline. Yet even if prices now rebound as the world economy recovers it is by no means certain that Russia will be able to pick up from where it left off. A combination of internal and external factors is rendering the Putin model unsustainable.
Within Russia itself, the failure of the cumbersome, state-centred energy sector to invest in new production is beginning to bite as existing fields reach exhaustion and replacements are not yet ready to be brought on stream. This problem is especially acute in the more strategically important gas sector. Russia possesses huge reserves of oil and gas, but according to the government’s own assessment needs investments to the tune of $2,000bn over the next 20 years in order to access them and sustain current production. The already heavily indebted state energy companies, Gazprom and Rosneft, cannot generate the required funds, nor do they have the technology needed to drill in the icy waters and permafrost of the Arctic north where the future of Russian energy production lies. For this they need foreign investment and know-how, and plenty of it.
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“If rejecting a major international treaty was intended as a demonstration of unilateral Russian power, it may instead backfire and expose the underlying fragility of Russia’s national revival.”He wishes.”As Mr Medvedev himself acknowledged last month, in what was taken as an oblique criticism of his predecessor, the Russian economy remains dangerously lopsided in its dependence on energy export revenues.”Please tell us all what the RF should have done, starting from where it was in 1999, that would have given it a diversified economy able to withstand the withdrawl of credit that came about due to a global financial collapse in 2008.”Without the record energy prices of the past decade, Russia would have remained mired in post-Soviet decline.”False. Russian economic growth was accelerating in 2002-2003, with oil priices at a far-from-record levels of the mid-$20s. It’s really time to stop posting people who tell ridiculous, easily disprovable lies.”Yet even if prices now rebound as the world economy recovers it is by no means certain that Russia will be able to pick up from where it left off.”Pish. Who will?”A combination of internal and external factors is rendering the Putin model unsustainable.”Not that you’ve shown.Within Russia itself, the failure of the cumbersome, state-centred energy sector to invest in new production is beginning to bite as existing fields reach exhaustion and replacements are not yet ready to be brought on stream.”And with energy prices having dropped, this is no bad thing. Russia has a current account surplus still. Pumping and selling more hydrocarbons will only add to Russia’s oversupply of dollars.”This problem is especially acute in the more strategically important gas sector. Russia possesses huge reserves of oil and gas, but according to the government’s own assessment needs investments to the tune of $2,000bn over the next 20 years in order to access them and sustain current production.”Why is it advantageous for the Russian government to sustain present production while prices are dropping? To drop them even further and faster?”The already heavily indebted state energy companies, Gazprom and Rosneft, cannot generate the required funds, nor do they have the technology needed to drill in the icy waters and permafrost of the Arctic north where the future of Russian energy production lies.”They will have the funds, when the price is right. Why go after expensive, hard-to-get gas while prices are dropping?”For this they need foreign investment and know-how, and plenty of it.”And they will acquire it, when the price is right, and not one minute before, no matter how loud you whine.
Rubbish! Qatar, Iran, Kuwait, Nigeria, Saudi Arabia, Oman, the UAE and Venezuela, all energy heavyweights that are either as important, almost as important or even more important than Russia, have also never ratified the Energy Charter Treaty. Note that the United States and China, the world’s largest energy consuming countries, are mere observers!And the Energy Charter Treaty isn’t a purely European endeavour (Japan has ratified and Australia is in the process of doing so)But I have to agree with rkka, it makes very little business sense to invest heavily in oil & gas production capacity when prices are falling.In addition, we don’t even know how energy demand may unfold in the future. With heavy ongoing research into alternatives and climate change becoming a real issue, the current forms of hydrocarbons we consume today may be in less demand (and fashion) over the next 10-15 years (which is the time it takes to realize major multi-billion energy investments)
” The already heavily indebted state energy companies, Gazprom and Rosneft, cannot generate the required funds, nor do they have the technology needed to drill in the icy waters and permafrost of the Arctic north where the future of Russian energy production lies.”In 1980 , ” experts ” were saying the same thing about the Siberian gas : ” The USSR has not the technology to extract gas from the permaforst and no molecule of Siberian gas will reach Europe “So far , billions of m3 and tera-zillons molecules have reached Europe …………Russia has built its first arctic capable LNG tanker , is building its first arctic capable off-shore platform !If Russia hasn’t these technologies , it buys it like Wadan shipyards which are under Russian managment .It does like other countries .EYH GUYS ! The so-called ” experts” of the FT ! It’s time to make a visit at the Sevmash shipyards !
“The so-called ” experts” of the FT ! It’s time to make a visit at the Sevmash shipyards !”What!!?! You’re suggesting that Western journalists should find some real facts???!?That’s simply Not Done! Western journalists are incapable of anything more than what Colbert said to their collective face at the National Press Club back in 2006:“The President makes decisions. He’s the decider. The press secretary announces those decisions, and you people of the press type those decisions down. Make, announce, type. Just put ‘em through a spell check and go home. Get to know your family again. Make love to your wife. Write that novel you got kicking around in your head. You know, the one about the intrepid Washington reporter with the courage to stand up to the administration? You know, fiction!”