Home to the world's largest natural gas reserves, second-largest coal reserves, and the eighth-largest crude oil reserves, Russia is an energy powerhouse. Recent production declines in the country's maturing oil fields have provided the impetus for signing foreign partnerships, which may change the face of Russian energy development forever.
Russia plans to double its nuclear power output by 2020, allowing for greater export of fossil fuels. The country currently has 33 operating reactors, which generate roughly 16% of the country's electricity. Rosenergoatom, or Rosatom, is the Russian utility that operates the plants.
Russia has 102 hydropower plants that also generate 16% of the country's electricity. The Russian government owns a 60.38% stake in JSC RusHydro, the company in charge of the nation's hydro plants and programs.
Unlike nearly every other sector of the energy industry, the majority of Russia's coal production comes from independent producers.
At 173 billion short tons, Russia's coal reserves are second only to the United States'. In 2010, the most recent data available, Russia produced 357 million short tons of coal.
Russia is the second largest exporter of oil after Saudi Arabia. The two countries are neck and neck as far as overall oil production goes, exchanging first and second place depending on which agency is doing the counting that day.
The country's proved reserves stand at 60 billion barrels.
Russia is the second largest producer of natural gas, after the U.S. The country is the No. 1 exporter of natural gas, exporting more than 7 trillion cubic feet in 2010. Russia provides Europe with approximately 25% of its natural gas supply. The country also lays claim to the largest natural gas reserves in the world, at 1,680 trillion cubic feet.
As long as a government owns a country's two biggest energy companies, the playing field will never be level. Such is the case in Russia, and foreign companies attempting to make money in the country have had a rough go of it.
The country has a history of reneging on deals, or as was the case with Royal Dutch Shell in 2006, coercing companies into selling assets for less than they're worth.
Often, the difficulties are not limited to the Russian government. TNK-BP, BP's joint venture with Russian oligarchy AAR, has been nothing but a tangle of distrust and in-fighting since its inception in 2003. Though the partnership is incredibly lucrative for BP, the headaches and lawsuits are not worth it, and most analysts predict the JV is quickly coming to an end.
Some things are beginning to change, at least on paper. In an effort to boost declining production in Russia's conventional oilfields, the government made three key changes to the rules that govern offshore oil and gas development.
- For the next 15 years, export duties will be abolished, dependent on a project's profitability. This could save companies as much as $460 per ton of oil.
- If a foreign company is using production equipment that cannot be manufactured by Russian companies, there will be no value added tax on import.
- Mineral extraction tax will be as low as 5% on the most complex Arctic projects.
- Additional taxes will be kept low and held at the same rate for 15 years once production has begun.
The changes are specifically aimed at enticing foreign oil majors to team up with Russia's state owned companies and develop the country's more complicated reserves. The success of these partnerships, from both an oil production and foreign relations perspective, remains to be seen for now.
Gazprom (OTC: OGZPY.PK)
The Russian government owns slightly more than 50% stake in the gas giant, and the remainder of the company's shares traded on exchanges in Moscow, Frankfurt, and London.
The company holds the world's largest natural gas reserves, making up 18% of the global total. Gazprom is Russia's sole producer and exporter of liquefied natural gas, accounting for 5% of world output.
Rosneft (OTC: RNFTF.PK)
Russia owns 75.16% of Rosneft, the oil company in charge of the world's largest liquid hydrocarbon reserves. Recent deals with three foreign oil majors offer the company exposure to a variety of production projects abroad, and operating expertise at home.
In an effort to join the ranks of the world's top oil majors, the company is making some changes. It is focusing on capital expenditures, increasing efficiency, and maximizing shareholder return. Rosneft just doubled its dividend from last year and is considering a listing on an American stock exchange.
Lukoil (OTC: LUKOY.PK)
Lukoil is not state-owned, and it is the only Russian oil company whose ownership is controlled by minority shareholders.
The company's oil and gas reserves make up close to 1% of the world's total, and its hydrocarbon production makes up 2.2% of global oil production. Domestically, Lukoil accounts for 16.6% of Russian oil production and 17.7% of refining.
Exxon is one of the handful of oil majors with any sort of foothold in Russia. The company has held a production sharing contract on Sakhalin Island since 1996, and it recently inked a deal with Rosneft to develop Arctic offshore assets and the Bazhenov shale.
Norway's Statoil signed an agreement with Rosneft in May to take a 33.33% stake in four offshore areas. Rosneft may also get a share of a few of Statoil's offshore projects as well.
Statoil is also partnered with Gazprom and Total on a stagnant natural gas project to develop the Shtokman field in the Barents Sea. A final investment decision on the project is expected by July 1.
Suggestions for further reading:
- Could a New Cold War Freeze ExxonMobil out of Russia?
- Russia's Iron Grip on Energy
- Russia Forgoes Shale Gas
- Is Big Oil Headed for Hypothermia?
- Big Oil's Big Chance
Get more region-specific analysis on energy investing using the Fool's world map.
Motley Fool newsletter services have recommended buying shares of Statoil A and Total. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.