The Energy Crisis Developing between Russia and the United States may do more to incite Military conflict than Drills and Exercises

Russia currently  has a grip on the European gas market, which it uses to bully its close neighbors and shush any major European states that push back on its geopolitical ambitions. U.S. Liquefied Natural Gas – LNG, it follows, will break Russia’s stranglehold. It is a cheaper and more reliable alternative. In turn, Russia will either lose market share or compete by lowering its prices.

Russia depends heavily on its energy exports. In fiscal year 2008, oil and gas revenues reached a peak, accounting for half of the Russian federal budget. However, since the global financial crisis hit the country in 2009, the Russian economy began to run fiscal deficits. In 2012, 2013 and 2014 Russia ran budget deficits representing -0.02%, -0.7% and -0.6% of GDP, respectively. The exception was the year 2011, when the Russian budget incurred a 0.8% of GDP surplus.

Low oil prices and a collapse in domestic demand and imports as the economy fell into recession decimated fiscal revenues in 2015. In fact, the impact of low oil prices on Russia’s fiscal revenues raised questions about the country’s long-term economic prospects as well as fiscal sustainability. With the decline of energy prices and the Russian government’s dependence on energy revenues to fund its budget—revenues from oil and natural gas represented around 52% of the Russian budget—forced the Russian government to rethink its fiscal policy. The Finance Ministry announced in early September 2015 that it had decided to suspend the fiscal rule—a law designed to limit government spending.

By 2020, the United States could be sending roughly 80 billion cubic meters of LNG to Europe a year—about two-thirds of the volume that Russia exported to Europe in 2015 and just under a third of Europe’s entire gas consumption, which is 400 billion cubic meters per year (450 billion cubic meters, if one includes Turkey). It is no wonder that conflict seems imminent.

The Nord Stream 2 gas pipeline construction project will be implemented in due time despite new US sanctions, Russian Energy Minister Alexander Novak said on Friday 18 August.

“As far as the Nord Stream 2 is concerned, in terms of US sanctions, much will depend on uncertainty the law contains and requiring clarifications. Considering that European nations are interested in gas supplies from Russia over the Nord Stream 2 pipeline as well subject to their declining production and consumption growth, we are confident this project will be implemented within the intended timeframe. At least its implementation continues,” Novak said.

Russia’s Nord Stream pipeline vanishes into the Baltic Sea, which is full of unexploded naval mines from two world wars.

On August 2, US President Donald Trump signed the bill envisioning tougher sanctions against Russia, Iran and North Korea. The new measures allow fining European companies for participation in joint energy projects with Russia, particularly in Nord Stream – 2 and Turkish Stream.

In an effort to circumvent the sanctions imposed by the U.S. Russia has completed an energy deal with Iran. Iran can start deliveries of oil to Russia under the “oil-for-goods” program within the next month, Russian Energy Minister Alexander Novak told reporters on Friday.

“We are finalizing the last details of regulatory documents. I think I will respond to your question within one month,” Novak said confirming that supplies can start by the end of that term.

Moscow and Tehran may shortly agree upon conditions for sale of 100,000 oil barrels per day by Iran for Russia, Novak said earlier. Supplies can be either physical or swap-based, he added. Purchases will be made within the framework of the “oil-for-goods” deal.

 

Iran’s major oil and natural gas fields

Russia has turned to the Arctic to solve it’s energy crisis.  Russia’s Arctic development comes as its oil production increases despite a more than two-year long supply glut and plunge in prices.  But it also comes as the country’s oil fields mature.

Mikå Mered, managing partner at Polarisk, a consultancy specializing in polar issues said that Russia’s onshore oil and gas fields “are depleting and depleting fast.”

“If you are the Russian government today and if you want to keep having your oil and gas, you need to start developing offshore Arctic oil and gas fast,” he said.

The Wilson Center, a Washington-based independent research group, said in a recent report on Arctic drilling that Russia needs these new fields if it is going to maintain oil production levels of at least 10 million bpd by 2020 and beyond.

Russian oil company Gazprom Neft, the country’s fourth largest oil producer, said that four wells were now in production at the northern Prirazlomnoye field after two more were successfully started. The Prirazlomnoye field is an Arctic offshore oilfield located in the Pechora Sea, south of Novaya Zemlya, Russia.

Production from an ice-resistant offshore rig perched in the Pechora passed 43,980 barrels of oil per day (bpd), the company said. Full field development plans call for 32 wells. In March, the company said that it had reached a milestone with production of its 10 millionth barrel of oil at the field, while it revised its production schedule higher to 35 million barrels.

Russia is serious about developing the Arctic. Russia has four nuclear icebreakers with three under construction. Russia also possesses 37 Diesel-powered icebreakers with four under construction. The most powerful fleet in the Russian Federation, the Northern Fleet is based in Severomorsk on the coast of the Barents Sea along the Kola Bay 25 kilometers (16 mi) northeast of Murmansk. The Fleet consists of the flagship Kuznetsov, an aircraft carrying cruiser, heavy cruisers, cruisers, frigates, corvettes, SSBNs and SSNs plus many amphibious assault ships, hovercraft and Fleet aviation assets.

In 2012 the Russian Air Force decided to reopen Graham Bell Airfield as part of a series of reopenings of air bases in the Arctic. A major new base, named the Arctic Trefoil for its three lobed structure, was constructed on Alexandra Land. It can maintain 150 soldiers for 18 months and has an area of 14,000 square meters.

Russia’s Arctic Trefoil military base. Spending on Russian military bases abroad will be increased this year by more than $8.81 million.

In 2017, Russian president Vladimir Putin visited the archipelago to protect Russia’s interests in the Arctic.

The depletion of resources in Russia, sanctions from the United States and increasing tension along NATOs Eastern Flank have meant that Russia is developing new oil and gas facilities in the Arctic, initiating deals with Iran, which will benefit the economies of both countries, and forging ahead with the Nord Stream 2 pipeline project.

The big issue for the Russian Federation is whether they can compete with the United States. Rotterdam, Antwerp, Hamburg and Amsterdam are gearing up for an excess of imported U.S. Liquefied Natural Gas. Will Russia be able to compete?

 

THE BALTIC POST

 

 

 

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