Russia Faces Bleak Energy Outlook

The Russian economy is besieged on all sides these days, as Western sanctions sap foreign investment and tepid demand and abundant supply depress the price of oil. Energy analyst Dr. Tatiana Mitrova paints a grim portrait of Russian oil and gas prospects in an oversupplied world and links that development with economic stagnation, as Natural Gas Europe reports:

[A] stagnant economy is having a knock-effect for producers, customers, and for investment into the sector.

“There has been some sort of competition in the gas sector but definitely that is not enough for a purely competitive and efficient market,” [said Dr. Tatiana Mitrova, Head of the Oil and Gas Department at the Energy Research Institute of the Russian Academy of Sciences]. “Now we are facing a stagnant demand both for oil and gas globally. These two commodities are providing 70% of Russian export and 50% of Russian federal budget revenues, so you can imagine how painful that is.” […]

“The oil and gas price decline is a complete disaster,” she says. “Again, if you remember 50% of the federal budget is provided by oil and gas, that explains a lot why Russia is so nervous about the oil price and gas price.”

Partially in response to Western sanctions, Moscow finalized a massive $400 billion gas deal with Beijing last year, and has another similar supply agreement currently in the works. Checked in the west, Russia is appearing to turn east to ply its hydrocarbon wares, but Mitrova pours cold water on those agreements, saying “Asian exports will start to expand only after the Power of Siberia pipeline is completed in five years starting from now. After that, it will take another five years to reach its projected capacity of 38bcm. Only by 2025 will the expected capacity of 38bcm start to flow to China, providing Russia with some diversification.”

Europe is far from freeing itself from Gazprom’s clutches, but Mitrova points out that Gazprom has given up on plans to extend its reach westward, content instead to protect what it’s already staked out. “Currently no one is talking about expansion. Currently it’s about protecting the market niche,” she said. However, the Kremlin has to be deeply concerned about its precarious position in an oversupplied world, especially as its conventional fields mature and output tapers off.

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