Even prior to the Ukraine crisis and Western sanctions, signs were emerging that Russia’s energy sector was facing a period of difficult adjustment and restructuring. High global energy demand, combined with energy abundance at home and historically high prices for energy, made it possible to ignore the fact that Russia’s energy companies had failed to modernize their exploration and production techniques or diversify into new markets. With the shale energy revolution and slumping global energy demand, the rapidly changing dynamics of supply and demand left Russian oil and gas firms facing a more uncertain future. Those issues have come to the forefront now that oil is trading below $70 rather than over $100.
What follows is a look at the current state of the Russian energy sector, focusing on the specific trends that are driving change for Russia’s largest oil and gas firms. In addition, this report includes an overview of Russia’s energy ambitions in both Europe and Asia. The growing bite of sanctions and Europe’s yearning for energy independence have forced Russia to look for new business models, new markets and new customers. The big question is how Russia’s much-touted pivot to Asia – and especially to China – will impact the long-term prospects of Russia’s energy sector.
The authors of the report are Natasha Udensiva of Columbia University, Marat Terterov and Ben McPherson of the Brussels Energy Club, and Ka-ho Yu of the China-based Energy Research Center. This issue also contains a commentary from the Russian Ministry of Energy explaining the Russian government’s position on some of the most pressing issues and sheds some light on what to expect in 2015.