Natural Gas in the Context of Russia's Energy System

By Dienes, Leslie | Demokratizatsiya, Fall 2007 | Go to article overview

Natural Gas in the Context of Russia's Energy System


Dienes, Leslie, Demokratizatsiya


Abstract: This article examines Russia's natural gas consumption in the context of stationary energy use, particularly the close linkage between electricity and heat supply. This interdependence will largely determine the prospect of domestic demand and will restrict the extent of adjustment. The author also investigates the constraints on gas production, exports, and imports.

Keywords: electric power, gas consumption, gas production, Gazprom, heat supply, UES (RAO-UES)

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In Russia, as elsewhere, energy is used not in an abstract fashion but in concrete geographic space and, except in mobile machines, in a locationally concentrated manner. It is also consumed in a concrete world of existing equipment and specific technological applications. Energy production is similarly specific and particular, both in its various primary forms (raw fuels and hydro- and nuclear power) and in its location. However, the different primary forms in which energy is produced are not uniformly transportable nor uniformly applicable, efficient, or environmentally acceptable in the diverse technological processes. Energy demand, and the transport-delivery infrastructure to satisfy it, is, therefore, subject to pronounced inertia. The ghost of geography, which burdened the Soviet energy system in its last decade, also haunts that system in Russia today. In the 1980s, 65-70 percent of all fuels used in the European regions (the Urals included) of the USSR had to be shipped from Siberia and Central Asia; in today's Russia, also with three-fourths of the population in its European parts and the Urals, the share is significantly larger.

The enormous spatial discrepancy between consumption and production that characterized the energy complex of the late Soviet era, specifically the oil and gas sector, remains. Indeed, its significance has increased because a much larger share of oil and gas output is exported today, and these exports account for a greater portion of Russia's economy than ever before. Roughly one-half of the oil and one-third of the natural gas were exported in recent years, overwhelmingly through Black Sea and Baltic ports and pipelines to Europe. The sharp rise in prices and the increased volumes, at least until the middle of the present decade, lifted the contribution of energy exports (nearly all of it oil and gas) to approximately 23 percent of Russia's GDP in the first seven months of 2006. (1) To plug the huge domestic deficit in European Russia and fill export pipelines and tankers, Moscow still depends on its West Siberian province and a pipeline system largely developed in Soviet times. Russian oil companies did increase production, construct and expand tanker terminal capacity, and build a few hundred kilometers of pipeline. The anemic growth in the gas sector, however, is due entirely to independent producers who work on small fields and to oil companies, both of which extract mostly fat gas--that is, gas high in heavier hydrocarbon molecules that need to be removed before interregional pipeline transport. Gazprom, the Russian gas monopoly, continues to live off its Soviet inheritance. (2) Although Gazprom's reserves have grown, much less has been done to access and prepare them for production and tap them with new pipelines.

Geographic and structural rigidities in the consumption pattern will therefore circumscribe the scope of change, possibly for a generation. The population and settlement structure on the one hand and the sectoral-technological structure of consumption on the other set severe limits on feasible shifts. Within these limits, adjustments, conservation, and substitution in a market economy will proceed to the extent that price signals convey correct information. Political exigencies, however, circumscribe such adjustments everywhere, at least in the short term. This is doubly true in Russia, still a very distorted market economy, in which the oil and gas sector fueled the recent boom in personal consumption and which faces momentous parliamentary and presidential elections in 2007 and 2008. …

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