Natural Gas in Putin’s Russia: The Reconstruction of Energy Geopolitics

Natural Gas in Putin’s Russia: The Reconstruction of Energy Geopolitics

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 Nikita Triandafillidis

ISTANBUL, TURKEY – JANUARY 08: Russian President Vladimir Putin talks onstage at the opening ceremony of the Turkstream Gas Pipeline Project on January 08, 2020 in Istanbul, Turkey. The TurkStream project comprises two underwater gas lines, each with an annual capacity of 15.75 billion cubic meters. Gas will initially flow to Turkey, while a combination of existing and new pipelines will subsequently take supplies via Bulgaria to Serbia and then on to Hungary. Russia is building TurkStream and doubling the capacity of NordStream across the Baltic Sea to Germany as part of plans to bypass Ukraine in its gas deliveries to Europe. (Photo by Burak Kara/Getty Images)

After the dissolvement of the Soviet Union in 1991 and the systematic collapse of communism in Eastern and Southeastern Europe, all the new democratic emerging states had to remodel and reconstruct their economies based on the new demands of a globalized world. Such was the case with the Russian Federation, the de facto successor of the old Soviet Union. A complete transformation occurred in the country in every sector of the economy, including the energy sector. Over the years, since the presidency of Vladimir Putin, Russia has emerged as a steady supplier of natural gas in Europe while supporting various projects that help secure its influence towards the West but also towards the East. The high demand and supply for Russian gas have created a new form of geopolitical struggle in Europe and abroad, and Russia has emerged as a major key player in the 21st-century geopolitical “chessboard”.

The Russian state has effectively put this plan in motion for years with the increased natural gas production since the beginning of the presidency of Vladimir Putin. The main and most important asset that contributes to this plan is the Russian majority state-owned energy corporation Gazprom.

Energy politics during the era of communism

During the period of the Soviet Union, the country’s energy sector was one of the most important features of its planned economy. Although the Soviet Union had relatively achieved a status of self-sufficiency in energy, major problems started to appear during the late ‘70s, in a period known as the Brezhnev stagnation (1975-1985). This term was first used by Mikhail Gorbachev, in an effort to present his negative views on the socio-political and economic status of the Soviet Union that started by Leonid Brezhnev and continued under Yuri Andropov and Konstantin Chernenko. Also, this stagnation was characterized by the lack of energy demand from the West, which created a difficult situation in the supply-side economic aspect. This stagnation was inevitable, not only because of macroeconomic reasons but also because the political situation inside the Soviet Union did not allow for the appropriate technological innovation regarding the energy sector. Instead, the sheer focus and energy of the leadership in the Soviet Union were concentrated in competing with the United States in the Cold War, mostly in militaristic expansion. As a result, one can speculate that this was the reason why the Soviet Union was effective on a domestic level, but not on an international one, where it was clear that the capitalist nations had the upper hand in terms of technological advancements and innovation.

Vladimir Putin and the geopolitics of natural gas

Ten years after the dissolvement of the Soviet Union, a new era of political and economic stability came after the 2000 Presidential elections, when Vladimir Putin became the new President of the Russian Federation. Alongside many economic and socio-political reforms that began, major transformations occurred in the energy sector, especially in the natural gas sector. It became clear that the preservation of the natural gas sector became the top priority in Russia.

This mix of traditional capitalist systems with some aspects of the old Soviet Union grip over businesses could only be successfully operated in Russia. The fact that Russia has large amounts of natural gas reserves inside its territory allows it to effectively control the natural gas industry for the benefit of the state.

Some analysts argue that, especially in the natural gas sector, the Russian Federation under Vladimir Putin follows the same USSR policy as guidance. Marshall Goldman, the author of the book, Petrostate: Putin, Power, and the New Russia, argues that Putin has followed a similar line of thinking when it comes to the cancellation of exports towards buyers who might have gone against national objectives, putting forward a plan of total dependency over Russian gas, especially towards its neighboring states. The Russian state has effectively put this plan in motion for years with the increased natural gas production since the beginning of the presidency of Vladimir Putin. The main and most important asset that contributes to this plan is the Russian majority state-owned energy corporation Gazprom. Following the end of the USSR, the Natural Gas Industry was converted into the private company Gazprom, under the CEO and former deputy Minister of the natural gas industries of the Soviet Union, Viktor Chernomyrdin. Although there were objections from many politicians at that time, this politically driven decision was approved in December 1992, by the new President of the Russian Federation Boris Yeltsin.

However, the situation changed just a few months after Vladimir Putin succeeded Boris Yeltsin in 2000. In a fast and methodical way, Putin managed to suppress the overgrowing power of the oligarchy in Russia, and soon business oligarchs like Chernomyrdin were set aside from Putin’s political agenda. Chernomyrdin was fired from the position of CEO of Gazprom. The increased government stocks in Gazprom, allowed Putin to replace Chernomyrdin with Alexei Miller and Dmitry Medvedev. The new majority state-owned Gazprom was under the National Champions program, a program that was advocated by Vladimir Putin himself where corporations would remain technically private but would serve as instruments of the Russian government in order to be efficient and competitive on a domestic and international level. This mix of traditional capitalist systems with some aspects of the old Soviet Union grip over businesses could only be successfully operated in Russia. The fact that Russia has large amounts of natural gas reserves inside its territory allows it to effectively control the natural gas industry for the benefit of the state. Any sort of attempt to privatize Gazprom or exclude the Russian government to support a more laissez-faire system would collapse simply because the era of oligarchy in Russia and forced privatization resulted in an economic and societal collapse.

As of today, Russia is considered to have the world’s largest natural gas reserves, with a steady increase in both natural gas and oil since the presidency of Vladimir Putin. In addition, Gazprom is the world’s largest energy major in terms of natural gas reserves and production. According to the company, its hydrocarbon reserves have amounted to 34.899 billion cubic meters of gas, while analysts predict that by 2030 Russia will double its gas exports in Europe and at the same time Europe’s gas demand will increase by 100 bcm over the next ten years. The latest information regarding natural gas exports in Europe allows us to investigate even further to what extent the Russian government uses Gazprom and natural gas as a geopolitical tool to expand its influence. The fact that Russia has the largest natural gas reserves in the world gives it leverage of economic and political influence, especially over the post-Soviet states. One country that has been influenced the most by Russia, is Ukraine. It is estimated that at least 80% of the exported natural gas to the West is transitioned from Ukraine, allowing Russia to promote its political agenda to the country. However, after the Maidan events of 2014 in Kyiv, the relations between the two states have deteriorated, to a point where Russia tries to find other routes and projects that could boost its influence in Europe.

The other most significant project and by far the most controversial one is the Nord Stream II gas pipeline. The pipeline is part of an offshore natural gas pipeline system in Europe, crossing the Baltic Seas and ending up in Germany. The recent project of the Nord Stream II pipeline began in 2015 and as of June 4, 2021, the first section of the project has been fully completed despite numerous sanctions that were imposed by the U.S.

The new era natural gas projects

The latest statistics show that Russia’s gas production has reached its highest-ever level, producing at least 725 billion cubic meters. Also, Russia’s liquified natural gas has become a significant power tool and a global force, with the possibility of further expansion in the coming years. With that being said, Russia has acquired a status of an energy superpower, and as a superpower, it aims to spread its influence in a more realpolitik strategy. To achieve this, Russia has invested in numerous gas pipeline projects. The most significant projects are the TurkStream gas pipeline and the Nord Stream II gas pipeline.

The TurkStream gas pipeline is running from Russia to Turkey. Starting from Anapa in the region of Krasnodar, it crosses the Black Sea, ending up in the terminal of Kıyıköy in Turkey. The project was announced back in 2014, and the official construction started in 2017. In 2020 the first gas deliveries to Bulgaria officially began. Although Southeast Europe as a regional gas market is often overlooked because of its relatively small size, a project like TurkStream could change this dynamic. Researcher Julian Bowden makes two good points about the significance of the project. First of all, it will change the regional gas flows into Southeast Europe by diverting the transit from Ukraine. It is estimated that at least 19 billion cubic meters per year will be removed from the Ukraine transit in 2020. Secondly, this project has the potential to transport 31.5 billion cubic meters of gas per year, which can be equal to the energy demands of 15 million households. All in all, Russia is expected to be able to divert 19 bcm away from Ukraine. Also, the AKP, the ruling party in Turkey has seen this project more positively, saying that it will eliminate transit risks for Turkey’s security of supply and decrease external dependency by replacing the Western Line.

The other most significant project and by far the most controversial one is the Nord Stream II gas pipeline. The pipeline is part of an offshore natural gas pipeline system in Europe, crossing the Baltic Seas and ending up in Germany. The recent project of the Nord Stream II pipeline began in 2015 and as of June 4, 2021, the first section of the project has been fully completed despite numerous sanctions that were imposed by the U.S. For Alan Riley, an expert in energy and environment issues, the Nord Stream II has divided the West. Supporters of the group might argue that the project will bring the much needed natural gas supplies to Western Europe, while opponents of the project argue that it is only masquerading as a commercial project and in reality, it is used as a political “weapon” to undermine the European Union and give Russia political leverage over the EU countries in Eastern and Central Europe. Some European countries are concerned that the recent disputes with Ukraine and the general foreign policy of Russia towards Eastern Europe, are strong indications of the Kremlin’s intentions to use the Nord Stream II pipeline as a political tool of influence. Although Russia and Germany have expressed their opinions about the project saying that it is purely commercial, it is certain that for whatever reason this project might be used in the end, the geopolitics of Europe has drastically changed and in the short-term, it seems that Russian has the upper hand in energy politics in Europe.

The struggle for international political influence

The projects that were mentioned, surely have the potential to change the geopolitical structure of Europe. This statement cannot be seen as an exaggeration. According to Eurostat the Russian Federation is the largest exporter of natural gas in the European Union. The total imports of energy products from Russia account for at least 60%. From that 60%, at least 39% represents the natural gas imports. This is an important figure, not only for economic reasons but because it also represents a geopolitical struggle between Russian and the United States. The previous American administration under Donald J. Trump has accused Russia of holding the EU as a “captive” due to its energy reliance. His administration and the current administration of Joe Biden have imposed sanctions on the project but with no results as the project seems to be almost done. However, there are still efforts to convince the EU to diversify its energy sources to stop the energy dependency from Russia. One country that can be a potential energy supplier for the future is Qatar. The U.S is very keen on seeing one of its closest Middle East allies as the main energy supplier for the EU to halt the economic and political influence of Russia. According to Reuters, there is a possibility for the creation of a liquefied natural gas pipeline towards Germany in the next five years. As of now, Qatar has promised to invest at least $10 billion to strengthen its ties with Germany who currently is the biggest energy consumer in Europe.

The energy politics of Russia, combined with the ongoing projects that affect Europe and the external pressure from the United States of America, is a great example of how natural gas and energy play a significant role in the reconstruction of the geopolitical map. What can be seen at first glance, as purely economical and commercial projects and energy trade policies, hides underneath it the core essence of the international struggle for political influence. Since the 2008 financial crisis, global natural gas production has been boosted by new innovative technologies and besides the traditional Cold War rivals, other countries like Norway or Qatar seem to climb the “ladder” of natural gas producing countries. Qatar and Norway are producing at least 124 billion cubic meters and 112 billion cubic meters of natural gas respectively. Generally speaking, natural gas markets globally are becoming more integrated. This is because the costs of the liquefied natural gas transportation have fallen significantly over the last few years. This can be interpreted as an important factor not only to the diversification of energy imports in the EU but also to the geopolitical changes in Europe and beyond.

The energy sector in Russia, especially natural gas production, will play a significant role in the following years to come. Russia is entering a new era of energy production and energy exportation, significantly increasing its influence and political power to the West but also the East. One can expect that the ongoing rivalry between Russia and the United States will not stop as both countries are applying a more realistic approach towards their foreign policies and re-evaluating their existent energy diplomacy and trading tactics.

Nikita Triandafillidis

Bachelor’s Degree in International Relations & Political Science. Columnist focusing on Global Affairs

Copyright Modern Diplomacy

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