Talking about Russia and reading the recent news three topics are really important and fundamental to analyse the country: the energy policy, the geopolitical and security situation and the relations with the West. The recent oil crisis has showed how Russia can be exposed to the changes of the energy market; can you describe how much does the energy situation affect the Russian geopolitical strategy and foreign policy? Moreover, the intervention in Syria can be viewed as a strategic Russian move linked to the energy resources or could it be explained as the will of the Kremlin to challenge the White House?
” Of course, Russian energy sector is influenced by geopolitics greatly and gas is used as a political tool. The Power of Siberia, Altai Route, Nord Stream II, cancelled South Stream, Turk Stream – all these projects are much more about geopolitics than business. The current circumstances are rather unfavourable for the Russian energy industry. Syria is in the sphere of interest for Russia as the main and probably last partner in the region. I do not think that Kremlin is led by the will to challenge the U.S., the pushback against ISIS is necessary. However, looking back in history intervention in the Muslim world is never a good idea. Shooting down the Russian military jet yesterday shows that the countries of the world are far from being united in the face of terrorism. Hopefully, the conflict will be de-escalated, otherwise it may cause serious political consequences including the cancellation of the Turk Stream.”
The low oil price driven by the huge production of Saudi Arabia, the historical ally of the United States, affected the ruble and the Russian economy. In the last days, the US investment bank predicts the ruble will be on the list of good performing currencies next year and Goldman Sachs advised to buy the ruble in 2016. Do you believe that the oil crisis has mined the Russian idea of super power? And why did it affected so heavily the Russian Federation?
“The oil crisis affected Russia heavily because 40% of state budget depend on oil industry taxes. We have been talking for years that Russia needs to hop off the “oil needle” but still there is no clear strategy to improve the situation. The crisis that started in the end of last year was predictable and inevitable.”
Recently the European Union announced its backing for the linking pipelines that will distribute Russian natural gas through Europe via Turkey. This decision represents an important factor to the realization of the Turkish Stream Project, idea to export the Russian gas to Turkey and then to Europe via the Tesla Pipeline which will reach Austria. First of all, do you believe that this different approach of the European Union on the Turkish Stream could represent a relaxation of the European-Russian tensions? Can the Turkish Stream be viewed as a threat or a challenge to TANAP and, directly, to the Azerbaijani energy export policy? Is there a real chance that, during the official visit of the Turkish President in Moscow the next December, Russia and Turkey can sign a final agreement on the Turkish Stream?
“Yes, I think that the different approach would be a sign of better relations between the EU and Russia, especially after the cancellation of the South Stream project. At the same time Gazprom’s suggestion for the stagnating European market to build pipelines was fallible from the beginning.
As we know, gas for TANAP is already contracted: 6 bcm for Turkey and 10 bcm for the EU. I would not regard Azeri gas as a threat as Russia would be able to set competitive prices for the region.
In the light of latest events, the destiny of Turkish Stream is uncertain, but it was a challenge for Russia from the beginning: Turks are difficult negotiators that get a discount after discount in addition to their preferred route of the project and 2 pipeline strings instead of 4. As much as Turkey depends on Russian energy, Russia depends on Turkey’s decision on this project.
The deal can happen if the presidents come to the conclusion on the Syrian question as it is a matter of pure geopolitics.”
Talking about the Asia-Pacific region, it is important to stress the attention on the Sakhalin II LNG project which is one of the most successful export projects. Recently Alexei Miller, head of Gazprom, met Ken Kobayashi, President and CEO of Mitsubishi Corporation, addressing the possibility to realize the third line of the Sakhalin II LNG plant. Could the Asia-Pacific region be the ideal market for Russia, particularly after the EU sanctions and the EU energy policy focused on new routes of importation? What are the pros and cons of the Asia-Pacific market?
“The expansion of Sakhalin II has all chances to succeed and come into operation in 2021. Gazprom has support of Shell and they are not going to back up even if Yuzhno-Kirinskoye field (the source of additional gas for Sakhalin III) might be under threat of sanctions. I think Japanese companies can join the project, too, as the experience of Russian production sharing agreement shows its efficiency.
Asian market is far from being ideal for Russia – the infrastructure to be built costs a fortune, the competition is tough (Australia, Papua New Guinea, the U.S.). Moreover, the Asian market might not need the amount of gas that Russia is going to sell them. For example, by 2025 Gazprom is planning to export 101 bcm of gas to Japan and by 2030 reach 105 bcm of export volumes. Japan has another strategy, though: by 2030 the nation is planning to decrease the use of natural gas from 131bcm in 2015 to 92 bcm.
Talking about China, the Power of Siberia is very high-priced and the economics of project triggers a question whether the whole story will be profitable by 2019. As for Altai route, I have doubts that China will agree on it as the Chinese will hardly need so much gas from Russia soon.”
After the recent attacks in Paris and the increase of the threat of terrorism, Putin has received more moral support for his decision to intervene in Syria and Middle East. Could this new “rapprochement” between Russia and the West unlock the Ukraine Crisis and the linked natural gas problem?
“The chances for the Ukrainian crisis to be resolved soon are extremely low. First of all, the must-condition of giving the Crimea back won’t be fulfilled. Secondly, the countries are moving in the opposite direction: Russia wants to find alternatives to the Ukrainian transit and the Ukraine wants to get rid of Russia’s gas monopoly. Gazprom and Ukraine cannot agree on the price: what Russia regards as a goodwill gesture, the Ukraine sees as unfair pricing. I believe that the Ukraine can refuse Russian gas in the future and use reverse gas and in a decade provide itself with its own reserves. For Russia transit through the Ukraine was crucial but some things have changed. Moreover, the Ukraine just cannot be a reliable partner anymore with the civil war going on.”
Last Friday Russian Energy Minister Alexander Novak stated that “The project of Russia’s energy strategy until 2035 forecasts the growth of all major indexes of energy resources production and maintenance of Russia’s role and place at the world’s energy markets”. In which way could the Russian Federation improve the growth and respect this forecasts?
“Currently the best word to describe the situation in the Russian energy sector is “uncertainty”: low oil and gas prices, slowing down demand – both domestic and export, complicated geopolitical situation, rising competition. I think the growth of indexes can be possible if the Western sanctions are lifted. In this case Russia will be able to get foreign investments and technology to start to work with hard-to- reach deposits. Until that time it is not clear how Russia is even going to maintain the current indexes. As for the Russia’s role at the markets, in the European market it will be as important as it is now for the next 10-15 years.”
Giuliano Bifolchi, OSINT Unit Director, met Marina Zvonareva in Moscow during one of our working visit in the country. This interview was written by Giuliano Bifolchi in partnership with Giampierto Ventury and was originally published in Italian by Difesa Online.