Academic journal article Energy Law Journal

The Myth of Liberalization: The 2013 Changes in the Russian Lng Export Regime

Academic journal article Energy Law Journal

The Myth of Liberalization: The 2013 Changes in the Russian Lng Export Regime

Article excerpt

Synopsis: Many energy experts were quick to label the 2013 amendments to two Russian statutes governing exports of liquefied natural gas as liberalization. Although the LNG Export Amendments effectively ended Gazprom's monopoly on LNG export, they failed to truly liberalize the LNG sector. This article analyzes the text of the amendments, as well as their legislative history and the applicable legal and policy framework. The article takes the position that the degree of the Russian government's involvement and control, and not the mere number of actors allowed to participate in an oil and gas-related activity, should serve as the main criteria for determining the liberalization effect of a particular legislation. The article ultimately concludes that the LNG Export Amendments were enacted to serve the companies that the Russian government controls via ownership and/or personal connections. Therefore, the LNG Export Amendments failed to meet this liberalization criterion, leaving the Russian LNG export sector under heavy government control.

I. INTRODUCTION

The events in Ukraine this spring reminded the world of Russia's role as an energy superpower. With twelve European Union (E.U.) nations having more than half of their natural gas supply coming from Russia, the E.U. struggled to reach a coherent and unified decision on how to respond to the Kremlin's actions.1 However, anxiety over the dependence was also felt on the other end of the pipeline. That is why many Russian media outlets rejoiced after Gazprom and the China National Petroleum Corporation (CNPC) reached a $400 billion deal over thirty years for the supply of Russian natural gas.2 One outlet went as far as to call the deal "Europe's nightmare."3

In light of these geopolitical events, the recent legislative amendments that effectively stripped Gazprom of the exclusive right to export liquefied natural gas (LNG Export Amendments)4 might not have been the optimal idea. Based on this fact alone, the effect of the LNG Export Amendments conceivably lessened the Russian government's control over the oil and gas sector, logically raising doubts about Russia's ability to muster a decisive response to future geopolitical challenges.

The fact that the word "liberalization" dominated the press coverage of the LNG Export Amendments did not encourage anyone to think otherwise.5 Most commentators in both the Russian- and English-speaking press6 focused on the effect of the LNG Export Amendments yet hardly anyone supported his or her opinion with an in-depth analysis.7 This should not be viewed as criticism - most of the coverage was a rapid reaction to the then-upcoming and now-enacted legislation. Several months and geopolitical events later, we are in a much better position to conduct such an analysis. Yet before we submerge into the world of Russian energy law and policy, we need to deconstruct the word "liberalization." Merriam-Webster's Dictionary defines the verb "liberalize" as "to make (something) less strict or more liberal."8 In terms of economic policies, "[e]conomic liberalization encompasses the processes, including government policies, that promote free trade, deregulation, elimination of subsidies, price controls and rationing systems, and often, the downsizing or privatization of public services."9 Even though these instances of liberalization vary in their qualitative approach, they have a common vector-decrease in government involvement and control. Therefore, for the purposes of this article, I use the degree of government involvement and control as the ultimate criteria for evaluating the LNG Export Amendments as a liberalization measure.

Some commentators referred to the LNG Export Amendments as "long coming," suggesting inter alia that the need for the legislation had been recognized for some time.10 In her report entitled Russian LNG: The Long Road to Export, Tatiana Mitrova, the head of the Oil and Gas Department at the Energy Research Institute of the Russian Academy of Sciences, attributes a series of failed attempts to develop LNG projects over almost twenty-five years not only to the lack of appropriate technologies but also to deficiencies in the "oversight and regulatory systems. …

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