By Dr. Filippos Proedrou, Vice President KEDISA
Making sense of Russian energy strategy is a tricky business. When analysts treat Russia as a monolithic actor, many paradoxes abound. Why, for example, does Gazprom move on to signing Nord Stream 2, or seem decisive to build the alternative to the South Stream pipeline Turkish Stream, when it is more than apparent that these schemes go against fundamental provisions of the EU single market and decreased gas demand in Europe? Bypassing problematic Ukraine is a plausible explanation at first sight, but much more lies under the surface. A more fruitful approach is to follow the pluralist analytical path, according to which there is a multiplicity of actors, whose very interests, leverage and capacity to influence decision-making in the energy sector compete with each other and co-shape in practice the so-called Russian energy strategy. In particular, we can only make sense of the incoherent, spasmodic and piecemeal Russian strategy if we set our eyes on the main domestic actors, their interests and respective actions, as well as interaction with foreign companies and political actors, under the prism of changing structural conditions and opportunities, and competitive pressure by one another. In this light:
- All political regimes in Russia, the Putinist of course not being an exception, are based on a resource rich economy which can generate great rents for the state apparatus and grant its political survival and thriving. Around 40% of the Russian budget comes from energy-born revenues. The Kremlin thus has every reason to oversee increased gas exports and a continuation of the income bonanza. At the same time, a strong energy presence and role in foreign markets can translate in some cases in geopolitical leverage (as is widely the case in the ex-Soviet space, but much less so in Europe). Indeed, these interests (revenues vs. geopolitical influence) at times clash, as for example has been the case with regard to the gas disputes with Ukraine; in these cases contrasting fractions of the regime come into conflict. The dominant segment of the siloviki insist on a hard energy stance with an eye to increase geopolitical power, while the market rationale has to a degree evaporated, in line with and as a result of the diminishing influence of the liberals-reformists within the Kremlin.
- Gazprom is hard hit the last years by a fall in exports and gas prices that yield lower revenues. Its systematic failure to increase production and invest in new fields, as well as to manage the gas business more efficiently, has created the space for challenges by its domestic competitors and the Kremlin. With its LNG export monopoly lifted since 2013, Gazprom is but forced to present itself as the still-dominant behemoth that runs Russia’s gas business abroad. Its sponsoring of Turkish Stream, as well as the very recent agreements with several international companies to build Nord Stream and invest jointly in new gas fields, fit the company’s communication strategy and its existential goal to retain the picture of a well-respected, agile and omnipotent company. The recent agreements also serve to contribute to and facilitate new exploration schemes, which for both financial and technological reasons Gazprom is unfit to conclude on its own. (This goes partially against the will of the Kremlin to retain the stronghold in strategic upstream assets).
- Rosneft, an imminent challenger of Gazprom, and the Independents (several private companies) have lobbied for lifting Gazprom’s export monopoly and aim to increase their share in the gas business and subsequent energy leverage. Rosneft, together with no. 2 gas producer Novatek, earned the approval to create a LNG export terminal, and apply further pressure with the aim to ensure improved access to Gazprom’s domestic pipeline network. What is at stake is nothing less than the dismantling of the current Gazprom-dominated gas model; this infighting will determine the weight of each actor, the persistence of the rules of the game or the creation of new ones, pricing mechanisms and formulae, gas trade partners and the degree of competition in the gas market, both domestic and foreign.
- The regions. One should not forget that Russia is a federal state. As a result, its regions can master significant power and are a significant stakeholder in all negotiations of energy projects. In particular, they lobby for both increased transfers of the energy-born tax revenues back to their peripheries, as well as broader benefits on the basis of investments on, for example, infrastructure, employment, other business activities, ecological safety etc. As a result, competition is often induced among regions regarding which projects will get priority status and will be pursued. The whereabouts and actual pattern of what is summed up as the Eastern gas strategy – the move to supply China and perhaps other Asian customers – depends to a significant degree on how different regions (and the companies that run each project) will manage to mobilize support to run their projects (gas exploration and pipeline route) before others, since not all projects can materialize together at a short timeframe.
The above sketch briefly a fiercely competitive environment, wherein political, economic and institutional infighting determines bits and pieces of the complex puzzle that is referred to as the Russian gas strategy. Russia should be conceptualized as anything but a monolithic, coherent actor that aims to achieve concrete goals, such as revenues, power and influence, geopolitical prizes etc. To the contrary, our understanding increases if we widen our analytical lenses to incorporate the study of the strategy, policies and interests of several actors that co-shape the Russian energy scene. On top of that, it is crucial to make the locus of the study the incessant rent-seeking by multiple stakeholders with contradictory interests. The Kremlin attempts systematically to referee this struggle, but diverse tendencies and patterns of alliance within it complicate the picture even further.