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Energy Demands on Russia Have Global Consequences

Russian oil producer Rosneft said it was considering sending more oil to the energy-hungry Chinese economy. The world’s No. 2 oil exporter, after Saudi Arabia, already sends about 300,000 barrels of crude oil by pipeline to China. Taking on more crude oil would mean Asian economies would be demanding about 20 percent of Russia’s total oil production. With Asia dominating the global economic landscape, stronger energy ties may bolster Russian President Vladimir Putin’s vision of tilting his own economy to the East. The origin of some of those energy resources, however, may have global implications.

Rosneft’s Chief Executive Officer Igor Sechin met last weekend in Beijing with Chinese Vice Premier Wang Qishan to discuss the possibility of expanding oil exports to China. The Organization of Petroleum Exporting Countries, in its February report, said China and India are expected to lead Asian economies in terms of growing demand for crude oil. China’s economy in 2013 is expected to expand at 8.1 percent, compared to 7.8 percent last year.

Russia already sends 300,000 bpd to China by pipeline and Sechin, a former deputy prime minister, said there were opportunities for Beijing to work closer on oil and gas exploration campaigns as well as prospects for liquefied natural gas. Companies like Rosneft are queuing up for LNG as the Russian government considers liberalization measures. Rival company Novatek, meanwhile, holds the majority of a license to develop LNG in the Yamal Peninsula, which borders the arctic waters of the Kara Sea. Gazprom controls the export market, though the global appetite for LNG may hasten Russia’s arctic gas ambitions.

The U.S. Geological Survey estimates that 70 percent of the world’s undiscovered oil resources and 30 percent of the undiscovered natural gas may lie beneath the Arctic Ocean. Warming trends have left parts of the arctic ice-free for longer periods of time, exposing those untapped reserves to potential explorers. The U.N. Environment Program said as much as $100 billion is planned during the next few years for oil and natural gas campaigns in the arctic. Achim Steiner, UNEP’s executive director, said there was a certain sense of irony about arctic natural resources, however.

“What we are seeing is that the melting of ice is prompting a rush for exactly the fossil fuel resources that fuelled the melt in the first place,” he said.

Energy companies like Shell have encountered their own problems with their arctic campaigns. Nevertheless, Rosneft is expecting to move forward with the likes of Exxon Mobil and Norwegian major Statoil to tap into Russia’s arctic resources. While oil demands from China would strain Russia’ oil export capacity, a surging North America may be able to one day take up the slack. Asia, however, has its own concerns about natural gas because of escalating prices from Australian developments. The U.S. government has re-aligned some of its ambitions toward Asia as Middle East military obligations wind down. Given that, the geopolitical implications of the North American oil boom, and UNEP’s concerns about the arctic, Putin’s emphasis on an “eastern vector” for energy development may have global implications that grow faster than the Chinese economy itself.

This piece is cross-posted from Oil Price.com with permission.

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Dan Steinbock

Dr Dan Steinbock is a recognized expert of the multipolar world. He focuses on international business, international relations, investment and risk among the major advanced economies (G7) and large emerging economies (BRICS and beyond). In addition to his advisory activities (www.differencegroup.net), he is affiliated with major US universities as well as international think-tanks, such as India China and America Institute (USA), Shanghai Institutes for International Studies (China) and EU Center (Singapore).

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