Russia: A Critical Evaluation of Its Natural Gas Resources

Abstract

Abstract The dissolution of the Soviet Union in 1991 and its replacement by the Commonwealth of Independent States (CIS), prominent among which was the Russian Federation, was a welcome development around the world. However the development of Russian resources such as natural gas has been nothing short of disappointing. The future of the Russian natural gas industry is even more pessimistic. If the current trends do not change, there will be a severe natural gas shortfall in Russia by 2010. This prediction is contrary to widely held beliefs and astonishing considering that Russia has more reserves than any other country and one of the largest reserves-to-production ratios. The reason of this coming gas shortfall is simple. In the past several years, Gazprom, the state owned natural gas monopoly in Russia has not invested enough and does not have the technology to develop new gas fields to replace existing aging ones. From a western point of view, the solution is simple. The Russian government should terminate Gazprom's monopoly position in Russian natural gas and involve more foreign and independent Russian oil companies in natural gas exploration, production and transportation. However, the government has no intention of terminating the current Gazprom monopolistic position at least in the near future. Typically, Gazprom announced recently that it will not share its huge Schtokman gas fields with any other companies. The reasons leading Russian natural gas industry to its current state are complicated. A thorough understanding of Russia's natural gas industry and its history is required before we can even discuss the gas industry. This paper summarizes Russian natural gas reserves, production and transportation. Special attention is paid to recent geopolitical events involving the Russian natural gas industry. How the Russian government handles and legislates activities around natural gas production provides important clues to understand Russia's view on its natural gas resource exploitation and to predict Russia's action on future similar events. Based on these studies, the problems and possible solutions to the Russian natural gas industry are discussed.