Russia's energy consumption

Official Name: Russian Federation.

Summary: Russia is the one of the world’s largest oil producers and holds the world’s largest natural gas reserves. It constitutes an ideal supplier to Asia because of its important unexploited gas and oil fields in its east Siberia and far eastern regions. After Russia's 2022 invasion of Ukraine, countries throughout the world imposed sanctions on the country, including its energy industry. During its war with Ukraine, it destroyed half of Ukraine's power generation and its invasion led to an energy crisis throughout the world.

After the dissolution of the Soviet Union in 1991, the “shock therapy” of privatization, and the ensuing financial crash of 1998, the Russian economy, including its energy industry, was deeply affected. The nation recovered, however, and its economic health was mainly attributable to the rising price of crude oil, which began to inject considerable cash into the Russian economy in 2007. The economic recovery was characterized by a new trend in Russia’s foreign policy behavior, especially regarding energy issues. Russia went into a deep recession in 2015, caused in part by falling oil prices.

Russia is a major player in the world energy markets. According to the US Energy Information Administration, in 2023, Russia was the world’s third-largest oil producer, with an estimated 10.8 million barrels per day (bbl/day) of crude oil produced, a decrease of 2 percent from the previous year. Russia’s proven oil reserves were estimated at around 80 billion barrels as of January 2024. In terms of downstream activities, Russia has dozens of oil refineries, and the majority of Russia’s oil production comes from its fields in western Siberia. Among the main actors responsible for oil exploration and production (E&P) in that region are the state-run companies Rosneft and Transneft and the privately owned companies Lukoil and TNK-BP.

Russia holds the world’s largest natural gas reserves, an estimated 1,600 trillion cubic meters as of January 2024. Russia produced an estimated 617.83 billion cubic meters of natural gas in 2022, second only to the United States, which produced an estimated 1.029 trillion cubic meters that year, exporting an estimated 176.056 billion cubic meters in 2022. The largest fields of gas production are located in Siberia, nearly all of which are controlled by Russia’s state-run natural gas monopoly Gazprom, which holds more than 70 percent of the country's natural gas reserves.

According to the CIA, Russia’s total electricity consumption was an estimated 301.123 million kilowatt-hours in 2022. The main segment in the Russian electricity sector is thermal power comprising fossil fuels, which accounted for more than 60 percent of Russia’s total installed generating capacity (2022 estimate). Other segments of installed electricity generating capacity include hydropower (19.2 percent) and nuclear power (19.6 percent). The electricity sector is divided in eight regional systems. Among these systems are Urals, Western Siberia, Eastern Siberia, and the Far East.

Regaining Control Over the Energy Sector

The retaking of the energy sector is an essential component of Russia’s resurgence on the international scene. To better understand how controlling energy resources and extraterritorial activities line up behind Russia’s statecraft, one must look at some political “coups” orchestrated by the Kremlin. In 2003, Mikhail Khodorkovsky, former chief executive officer of Yukos, once the largest Russian private oil firm, expressed a desire to build private pipelines (one to China and another to the United States through Murmansk in the northwest of Russia) without obtaining the approval of the state-run company Transneft, which is responsible for oil pipeline routes. In parallel, Khodorkovsky intensified negotiations with American majors ExxonMobil and ChevronTexaco in order to sell 40 percent of the shares (a $25 billion value) of a company that was supposed to be created by the fusion between Yukos and Sibneft, the fifth-largest Russian firm.

For the Kremlin, it was inconceivable to see a strategic asset such as oil being controlled by foreign interests. Accused of fraud and tax evasion, Khodorkovsky was arrested in October 2003, and 44 percent of Yukos’s capital was seized. In April 2004, the Russian state announced the freezing of Yukos’s assets. Later that year, the company was ordered to pay $13 billion in tax arrears in addition to the $6.8 billion already requested by the Russian Federal Tax Service. According to expert Philippe Sébille-Lopez, this was the beginning of the “informal” dismantling of Yuganskneftegaz, the main subsidiary of Yukos, which alone accounted for $11.63 billion barrels of crude—more than 17 percent of Russian reserves. Yuganskneftegaz was later acquired by Rosneft, which became the leader of the oil industry in Russia. In 2004, Rosneft was also instrumental in the Kremlin’s refusal to let Chevron and ExxonMobil participate in the development of the Sakhalin-3 project.

In December 2006, Gazprom retook the E&P rights from Royal Dutch Shell in Russia’s far eastern Sakhalin Island. According to the Russian Petroleum Research and Exploration Institute, the reserves of this region amount to 3.4 billion tons of oil and 10 trillion cubic feet (3 trillion cubic meters) of gas. By playing the “environmentalist” card, the Kremlin wanted to renegotiate the terms of the contract with Shell to make them more advantageous for Russia. As Jeronim Perovic and Robert Orttung noted, Shell was indirectly forced to sell half of its shares in the Sakhalin-2 project (with reserves totaling 155 million tons of oil and 1,607 billion cubic feet or 490 billion cubic meters of gas) to Gazprom for $7.45 billion or risk losing its E&P license on the grounds that the project was violating Russian environmental law. Finally, in 2007, the Russian state took control over the Kovytka field (with reserves of 6.98 trillion cubic feet or 2.13 trillion cubic meters of gas and 108 million tons of oil) by “strongly urging” the joint venture TNK-BP to sell the entirety of its shares in a project whose value was estimated at $20 billion.

These political moves were part of the Kremlin’s efforts to regain control over its energy sector in response to an imminent threat to its domestic regulatory authority and Russia’s market power in global energy markets.

European Projects

Most of Russia’s energy resources are located in western Siberia. Close to 80 percent of these resources were destined for European markets, particularly Germany, before its war with Ukraine. According to specialist Jeffrey Mankoff, in 2007, the European Union (EU) imported nearly 30 percent of its oil and 50 percent of its gas from Russia. Helped by effective and persuasive “pipeline diplomacy,” Russia seeks to control the energy flows from outside the EU to secure its western borders by building pipelines in partnership with European energy firms and offering special business and energy security to EU members, which benefit from a strategic hub position for Russia’s energy exports. To that end, several projects are envisaged to achieve these goals.

In the north, Russia cofinanced with Germany the Nord Stream project, a gas pipeline system that runs from Vyborg in Russia to Lubmin near Greifswald, Germany, via the Baltic Sea, thereby circumventing the Baltic states and the Yamal-Europe Pipeline, which currently traverses Poland.

The first portion of the line went up at the beginning of November 2011 and the second portion was completed in April 2012. The pipeline became the longest undersea pipeline in the world, with a capacity of 180 billion cubic feet or 55 billion cubic meters per annum.

Gazprom also launched the Yamal Megaproject in late 2008, which provides for the exploitation of the Yamal Peninsula and its adjacent offshore areas in northern Russia. Based on Gazprom’s figures, these areas are believed to hold 52 trillion cubic feet (16 trillion cubic meters) of explored gas reserves and 72 trillion cubic feet (22 trillion cubic meters) of forecast gas reserves. In the south, Russia had convinced many European countries to support the construction of the South Stream project, a 559-mile (900-kilometer) pipeline with a capacity of 206 billion cubic feet (63 billion cubic meters) per annum that will run from the Russian Black Sea coast to Austria and Italy via Bulgaria, Serbia, Hungary, Croatia, and Slovenia, as well as by Bulgaria and Greece. The project completion was scheduled for 2015, but was cancelled by Russian president Vladimir Putin in 2014.

Northeast Asia

While energy resources coming from western Siberia and the Russian Caspian Sea sector will continue to flow toward Europe, the Russian energy complex is increasingly sliding toward northeastern Asian markets. This was especially true in the 2020s when some countries, including the United States, banned the importation of Russian oil and petroleum. Russian exports then shifted more heavily toward Asia, and the country relied on seaborne shipments of crude oil and condensate. These shipments to Asia had increased 57 percent by 2023.

Russia has an enormous potential for energy development in the regions of eastern Siberia and the Far East. According to the Geological Institute for Oil and Gas (part of the Siberian Branch of the Russian Academy of Sciences), extractable energy resources (underground and subsea) in those regions are estimated at 85–90 billion tons of hydrocarbon: 20–22 billion tons of oil, 196–206 trillion cubic feet (60–63 trillion cubic meters of gas), and 3–5 billion tons of “condensed” gas.

According to estimates provided by the Japanese Economic Research Institute for Northeast Asia, the region of eastern Siberia might hold more than 18 percent of Russia’s oil and 29 percent of its natural gas. However, it should be noted that, thus far, only 5–6 percent of the resource-rich areas have been explored. Upon the completion of the exploration, TNK-BP believes these areas could be holding close to 75 billion barrels of oil reserves, more than a quarter of Saudi Arabia’s reserves.

Russia’s energy power depends largely on western Siberia. The production in eastern Siberia and the far east remain minimal. In 2007, the Russian government adopted the Eastern Gas Program. According to this program, gas production in these regions was projected to reach 492 billion cubic feet (150 billion cubic meters) per annum by 2020 and 531 billion cubic feet (162 billion cubic meters) by 2030. The program provided for gas exports of around 82–164 billion cubic feet (25–50 billion cubic meters) per annum, while exports of liquefied natural gas (LNG)—based on the production of Sakhalin—were projected at 68 billion cubic feet (21 billion cubic meters) per annum by 2020 and 92 billion cubic feet (28 billion cubic meters) by 2030. After its 2022 invasion of Ukraine, the Russian government began relying more heavily on the construction of infrastructure for LNG so it could reach markets that were no longer assessible via pipeline. Its LNG exports increased 10 percent in 2022 but then decreased slightly in 2023 and 2024. The development of the country's reserves was also hindered by the war because sanctions limited its access to new technologies and financing.

Russia’s Energy Strategy

The Energy Strategy of Russia for the Period up to 2030 was approved by the Russian government in November 2009 and published in 2010, but as of 2024, its implementation was still under way. Therefore, in the mid-2020s, it was too soon to know whether Russia would effectively succeed in realizing all of its objectives, especially in light of its war with Ukraine.

According to the data provided by the strategy statement, Russia would produce up to 535 million tons of oil and 3,084 billion cubic feet (940 billion cubic meters) of gas by 2030. The strategy planned for exports of 330 million tons of oil (an increase of 86 million tons compared to 2008) and 1,207 billion cubic feet (368 billion cubic meters) of gas (an increase of 636 billion cubic feet or 194 billion cubic meters compared to 2008) by 2030.

Furthermore, as noted by Alexei Gromov, the former deputy director of Russia’s Institute of Energy Strategy, an important point of the strategy was to “support the Russian gas companies” in the E&P of gas fields as well as “building gas-transport infrastructure abroad” and widening the “integrated gas-transporting system between Europe and Asia” so as to give Moscow the upper hand in the management of energy flows.

According to Gromov, the strategy aimed to shift from a “resource-based and export-oriented” economy to an “innovative economy” that was further integrated into the global energy system. The strategy aimed to reduce the share of the energy sector in the structure of gross domestic product from 30 percent to 18 percent by 2030.

To this end, Russia’s strategy was based on three critical stages: (1) the “engine” stage (2009–13), with economic recovery and investment to create a “backlog” of massive construction and renovation of Russia’s energy production assets and infrastructure; (2) the “innovative designer” stage (2015–20), entailing investment in “capital-intensive projects” to modernize the material and technical base of the Russian fuel and energy complex; and (3) the “innovative development” stage (2022–30), during which energy development would be based on new technologies, modern equipment, and new “operating principals,” as well as the development of alternative energy sources.

The strategy also recognized the need to increase investment in the energy complex. Indeed, during the three stages, the strategy provided for investments of about $1.8 trillion to $2.2 trillion, of which $609 billion to $625 billion would be for the oil industry, $565 billion to $590 billion for the gas industry, and $483 billion for energy transportation and production infrastructure. That said, the share of foreign direct investment accounted for only 12 percent of the entire investment structure provided in the strategy.

Bibliography

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