Today Michael Economides of the University of Houston and other authors have published an extensive survey of Russian natural gas, concluding that if current trends continue, the country will face a severe gas shortage by 2010. While the authors highly recommend that Gazprom’s monopoly be broken and more foreign capital and technology be invited into Russia to help develop reserves, there is a geopolitical dependency on the Russian state’s use of its national champion to project political power. Some excerpts from the survey:
Gazprom, often referred to as a “state within a state,” holds about one-third of the world’s natural gas reserves and produces about 80 percent of Russia’s natural gas. The remaining percentage comes from independent producers. The company operates 90,000 miles of natural gas pipeline and 43 compressor stations. As the world’s largest producer and exporter, Russia is also a huge consumer of natural gas. The country produces an annual 21 Tcf, consuming 14.5 Tcf and exporting the rest (2002 numbers). Despite the country’s huge reserves, natural gas production has remained essentially flat over the past several years, with a mild production increase (1.3 percent) forecast for 2008. In contrast, oil production has flourished, especially during the Yukos years. The immediate future of natural gas production in Russia does not allow for much optimism. The overall production decline forecast for Gazprom is quite steep, as shown in Figure 4. Considering that Russia’s domestic consumption is increasing by 2.5 percent annually, the current demand in Europe, Turkey, and the C.I.S. for up to 325 billion cubic meters, and China’s demand for 38 billion cubic meters, it’s clear that additional sources of natural gas must be found if Russia wants to play a major role in the natural gas market. It’s equally clear that the problem of Russia’s looming gas shortage can only be solved by optimizing existing fields and through the rapid development and production of major fields such as Yamal, Shtokman, and Sakhalin. Obviously, implementing these solutions will require a substantial investment that Gazprom is unable to raise. Making matters worse, the state-owned company indirectly contributes to a continued production decrease by precipitating further government regulations and difficulties for independent producers. These obstacles include: – Insinuated takeover threats by Gazprom; – Increased government transportation tariffs; and – Independent producers’ lack of access to the gas transportation system. The only real solution to Russia’s looming financial deficit is foreign investment in Gazprom, but this would strike at the heart of its monopoly, and the Putin government does not want that. It is clear that gas production in Russia might have looked very different had the government encouraged independent producers and investors to get involved with Gazprom. One scenario for the potential contribution of independent producers shows a net increase of 100 billion cubic meters per year by 2010. Investment from foreign companies could, by 2020, help increase production from fields such as Yamal (180 to 190 Bcm per year), the Nadym-pur-Tazovsky area (440 to 445 Bcm per year), and Kovyktinskoye (16 Bcm per year). For Shtokman, foreign investment could allow production to reach 10 Bcm per year by 2010.