I recently travelled to St Petersburg to attend a conference arranged by the International Energy Centre of the European University at St Petersburg. The conference was attended by an international audience, with companies and individuals coming from both Europe and from Asia, primarily Japan, China and Korea. The speakers and attendees discussed Russia in its current energy and geopolitical context and also the emerging and developing energy market in the Caspian and Central Asian region.
It is still widely acknowledged that oil and gas are likely to remain the world’s main energy sources for the next 20-40 years. The conference therefore addressed the fact that Russia needs to maintain continual energy production – even in the current climate – because although prices may be fluctuating, demand for it is not going to decrease. In order to maintain a constant level of production, it is essential that Russia makes efforts to improve the services around its oil and gas industry. Russia needs to work to develop new, exportable technologies and lead the market to introduce new approaches to the extraction and production processes. The development of this technology is not only important for exports, it is vital for Russia to create a strong local base of operators and suppliers. The sanctions that have been placed upon Russia have pushed them into a position where the country needs to put a lot more of its resources into local production and services in order to support the energy industry at the same level as before the sanctions.
In the Caspian and Central Asian region, a lot is yet to be determined. Following the easing of sanctions against Iran, international oil companies (IOCs) are likely to rush to the South Pars field in Iran. Speakers also discussed Azerbaijan and the South Gas Corridor. Turkmenistan was also discussed, as it has recently bound itself only to deal with China and Russia in relation to energy.
I had a productive conversation with one of the foreign energy companies, a company that has recently been working in the oil and gas sector in Russia. They remarked that Russian onshore oil is one of the cheapest globally. This could be for a number of reasons, but is likely due to the depreciation of the ruble and to the creation of a new taxation regime in Russia. They believe that the future of Russian oil and gas lies in Eastern Siberia where the oil is both light and of a particularly high quality, incidentally, it is also cheaper and more secure than the LNG that is produced in other regions in the world. Company believes that there is massive potential in Eastern Siberia, and that this region should be further explored and utilised. They are currently searching for new investors and finance in order to take advantage of the wealth of opportunities that lie in proximity to the Eastern Siberia-Pacific Ocean pipeline and other major export infrastructure.
Sino-Russian relations were also examined in relation to energy. Several speakers concluded that Russians are currently incorrectly assuming that the Chinese energy market is a protection against Western sanctions. The speakers argued that Russia should not count solely on China as a destination for oil and gas exports as the Chinese are always looking for new opportunities. These may ultimately come from the Caspian or from Iran if their energy supply proves to be more affordable. The Chinese authorities would also consider LNG supply from new major exporters. This could place Russia in an unfortunate situation if it becomes too heavily dependent on the Chinese market. Russia needs to be able to make fast and wise decisions to remain a major energy partner in the uncertain environment.