Russia: A Critical Evaluation of its Natural Gas Resources

The dissolution of the Soviet Union in 1991 and its replacement by the Commonwealth of Independent States (CIS), prominent among which was the Russian Federation, was a welcome event around the world. However, the subsequent development of Russian resources – particularly natural gas – has been disappointing. And the future of the Russian gas sector could be even worse. Contrary to widely-held beliefs, if current trends continue, Russia will have a severe natural gas shortfall by 2010. This prediction is astonishing given that Russia has more gas reserves than any other country, and one of the largest reserves-to-production ratios.

The reason for the looming gas shortfall is simple. Over the past several years, Gazprom, Russia’s state-owned natural gas monopoly, has not invested sufficiently, and lacks the technology to develop new gas fields to replace its rapidly depleting ones.
From a Western point of view, the solution is simple: the Russian government should terminate Gazprom’s natural gas monopoly, and involve foreign oil companies and independent Russian ones in natural gas exploration, production, and transportation. However, it has no intention of doing so – at least not in the near future. And in typical fashion, Gazprom announced recently that it will not share the development of its huge Shtokman gas fields with outside companies.

There are complicated reasons behind the current state of Russia’s natural gas industry. A thorough understanding of the industry and its history is required before we can discuss its future.

This article examines Russia’s natural gas reserves, production, and transportation, with particular attention given to recent geopolitical events. The Russian gas industry’s problems – and possible solutions – will also be discussed.

Energy Tribune