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Russia's Iron Grip on Energy

Aimee Duffy
June 13, 2012

According to the Energy Information Administration, Russia holds the world's largest natural gas reserves, second-largest coal reserves, and the eighth-largest crude oil reserves. Those rankings are impressive, but they don't give quite an adequate picture of Russia's energy story and how it stands to change in the coming years.

Russia ignores shale gas
Two months ago, I wrote about Russia's decision to leave its shale gas reserves alone for now. The country has the biggest natural gas reserves in the world, and the conventional gas resources that make up those reserves are more than enough to meet domestic consumption and export demands for decades.

Conventional resources are much cheaper to exploit, and developing complicated unconventional gas resources won't benefit Russia right now. For example, if a boom ensued from shale gas production similar to the one the U.S. is experiencing now, that would drive down the price of natural gas in Europe, where Russia provides 25% of the natural gas consumed.

A new deal
After taking a pass on shale gas, Russia's next big announcement was aimed squarely at increasing oil production.

Russia and Saudi Arabia have been the world's top two oil producers for years, producing 10 million and 9 million barrels per day, respectively. In May, Saudi Arabia surpassed Russia in production according to at least one analysis, as production from Russia's maturing conventional oil fields in Western Siberia continues to decline. Saudi exports, meanwhile, rose to their highest level in five years.

Acknowledging that when it comes to oil, unconventional resources may be its only route to keeping production levels at the country's stated goal of 10 million barrels per day, Russia announced it was changing its tax code to allow for more foreign partnerships in its Arctic waters. In the days following, ExxonMobil (NYSE: XOM  ) , Statoil (NYSE: STO  ) , and Eni (NYSE: E  ) all inked deals with Rosneft, the Russian state-owned oil company. Here's a quick recap of what went down:

  • ExxonMobil: Signed a $3.2 billion deal