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171. Advancing Natural Gas Reform in Ukraine

Author:
Sagatom Saha and Ilya Zaslavskiy
Publication Date:
12-2018
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
A prerequisite for Ukraine’s economic and political success is reform of its energy sector. Enduring corruption and mismanagement in the energy sector have generated pernicious budget deficits, eroded sovereignty, jeopardized energy security, and limited economic potential. Although all post-Soviet states have encountered obstacles in transitioning to market economies, Ukraine has been remarkably slow to introduce market reforms, and its sclerotic energy sector is at the center of its economic dys- function. Even after the fall of the Soviet Union, the Orange Revolution, and nine International Mon- etary Fund (IMF) loans conditional on reform, Ukraine’s energy sector remains a drain on taxpayers, a playground for corrupt oligarchs, and an unattractive destination for international investment. However, Ukraine now has a small but important window of opportunity. The 2014 Euromaidan Revolution—the series of pro-European demonstrations that culminated in Ukrainian President Viktor Yanukovych’s removal—provided a mandate and framework for energy reform. Beginning in 2015, Ukraine moved to cut implicit subsidies on natural gas, adopted laws to restructure the state-owned oil and gas company Naftogaz, and halted imports of Russian gas. These advances are welcome news not only for Ukraine, but also for the United States. A prosper- ous and energy-secure Ukraine, capable of standing up to Russian interventionism, would advance U.S. foreign policy objectives in the region. Recognizing this, Washington already provides technical, financial, and military assistance to Kiev.1 The United States has focused particularly on encouraging Ukraine’s energy-sector reforms, last year tasking the State Department with promoting the country’s energy security with the Countering America’s Adversaries Through Sanctions Act. Unfortunately, Ukraine’s energy-sector reforms to date do not go far enough. To achieve lasting reform, Ukraine must curtail its population-wide subsidies, reinforce the independence of its energy regulator, and dismantle the monopolies that exist in every segment of the natural gas sector. The benefits that would result from these steps are manifold. End consumers would enjoy better energy services and lower prices; the domestic energy sector would create high-skilled jobs and boost eco- nomic output; and the government would secure new revenue streams that could bolster national priorities such as defense and social services. Further reforms in Ukraine’s energy sector could mean the difference between economic growth at the current sluggish rate of 2 percent and reaching 6 percent or more, which some experts suggest is possible.2 Ultimately, Ukraine will be the arbiter of its own success in energy-sector reform. But the United States can and should do more to help it achieve politically and technically complex reforms. Apply- ing greater diplomatic pressure, providing technical assistance, and offering targeted financial in- centives—and disincentives—could speed the pace of Ukraine’s reform efforts. The Donald J. Trump administration, which has not yet articulated a clear strategy toward the country, should place energy-sector reform at the center of its relationship with Ukraine. Doing so would constitute a low-risk, high-reward strategy for Washington to counter Moscow’s influence at the North Atlan- tic Treaty Organization (NATO) border without overcommitting to military options and antagoniz- ing Russia. Moreover, by helping Ukraine reform its energy sector, the Trump administration may create opportunities for trade in energy equipment and services, advancing its strategy of U.S. en- ergy dominance.
Topic:
Energy Policy, Natural Resources, Reform, and Gas
Political Geography:
Europe, Ukraine, and Eastern Europe

172. The Impact of US LNG on Russian Natural Gas Export Policy

Author:
Tatianna Mitrova and Tim Boersma
Publication Date:
12-2018
Content Type:
Working Paper
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
The United States and Russia have long been the world’s largest natural gas producers, but they traditionally have not faced off in direct competition in that market. The United States was expected to become a net importer of natural gas, while Russia’s state-owned Gazprom took a prominent position in the European market. The boom in US shale-gas production changed that. While the United States had been trading gas regionally by pipeline for decades, the shale boom allowed for the export of US liquefied natural gas, putting the two gas giants in competition. Even before the first molecule of US LNG shipped, rising US production had diverted LNG destined for the United States into the European Union. Facing increased competition pushed Russia toward a more market-oriented strategy, with Gazprom adjusting its long-term oil-linked contracts that had previously been the backbone of Russian sales to European customers to use more hybrid formulae. This was just the beginning. After a slow start, the competition brought on by US gas is to a large extent shaping the Russian natural gas strategy in Europe and beyond. For Europe, rising gas competition from new suppliers has both economic and energy security implications. Globally, it is also raising questions about how Gazprom will compete in Asia, where demand is growing and gas suppliers are looking to place future production, as well as in other markets. Understanding how Gazprom will react to US gas is thus a critical economic and geopolitical question for LNG importers and exporters worldwide. In this paper the authors examine how Gazprom will maneuver in global markets under specific circumstances. It opens with a discussion of how the US and Russian gas sectors developed and interacted in the period before shale gas. The paper then examines how Gazprom’s gas trade has been impacted by new US production and what changes may be coming as US exports continue to increase. It finds that the advent of US LNG has already reduced Russian gas revenue, undermined its oil-linked pricing model, forced contract renegotiations and accelerated domestic gas market liberalization and LNG development. The authors argue that Russia is in a good position to defend its market share in Europe and looks at some of the strategies that could be pursued under various market scenarios, including the following: High Asian demand and low oil prices: If oil-linked gas prices were pushed below spot prices, Gazprom would not need to further adjust its pricing policy (as was the case in 2015–2017). In certain situations Gazprom might even limit supplies to drive prices up and increase its rent, becoming the price maker. Such a strategy would be utilized cautiously to avoid demand destruction and prompting new FIDs for new (US) liquefaction capacity. High Asian demand and high oil prices: In this scenario Gazprom’s position would be well served in the short to medium term by strong revenues. In the longer term, however, high prices will attract more competitors to the markets (and prompt new FIDs), so it is important for Gazprom to keep its own prices competitive and to keep the margin of the aggregators, which are supplying the European market, below their margin in Asia. There are already almost no “pure” oil-linked contracts left, and Gazprom in Europe mainly has hybrid pricing, but this scenario will require a more fundamental shift in the pricing, with the share of spot-indexed prices becoming dominant. Low Asian demand and low oil prices: Gazprom may be forced to keep prices for its long-term contracts below short-run marginal costs of US LNG. Gazprom might voluntarily move to completely spot-indexed prices, simultaneously trying not only to find new markets for its gas (both in Asia and in Europe) but also to stimulate new demand. The company would need more flexible and creative marketing, and it would seek to improve the efficiency of its operations, both internationally and domestically. Should Gazprom start to see its market share decline, Moscow could decide to liberalize the pipeline export monopoly, a decision that would make Novatek and Rosneft more powerful players. Low Asian demand and high oil prices: Russia would feel competitive pressure not only from the United States but also from all existing low-cost LNG suppliers like Qatar, which may have to switch to Europe and keep gas prices at a low level. Gazprom would have to engage in this price competition as well, flooding the market using spare capacities and driving the prices down to the level of its short-run marginal costs, which will disincentive US LNG aggregators to offtake their LNG. Gazprom has considerable underutilized upstream capacities and huge spare transportation capacities, allowing it to drive down European prices below the level acceptable for US LNG suppliers. This scenario hurts everyone on the supply side, and it is warranted to ask how long it could be upheld. The study finds that even in scenarios where Gazprom sees gas revenues driven down to 2009 or 2016 levels, this should not prove catastrophic for Russia. For Moscow, facing more competition in Europe is a new situation that Gazprom and decisions makers in the Kremlin will have to deal with. Under normal circumstances, competition between various sources of supply can result in net benefits for the end consumer. In addition, this paper demonstrates that the changes in the global gas market have forced Gazprom to adjust its business practices. However, the increased politization of natural gas in the United States carries a risk of inflamed tensions between Moscow and Washington.
Topic:
Globalization, Natural Resources, European Union, and Gas
Political Geography:
Russia, United States, and Europe

173. Securing Energy Supply and Maritime Interests: Seeking Convergence

Author:
Frank Umbach
Publication Date:
10-2018
Content Type:
Working Paper
Institution:
Centre for Non-Traditional Security Studies, S. Rajaratnam School of International Studies
Abstract:
As ASEAN’s energy demand is likely to increase by almost two-thirds in the period up to 2040, the regional oil and gas resources in the offshore zones of the ASEAN member states will become even more important for enhancing the energy supply security of both the individual member states as well as for ASEAN as a whole. Accordingly, access to and political as well as physical control and security of these offshore energy resources will receive even more governmental attention. In context of China’s Belt and Road Initiative as well as South China Sea policies and its energy dimensions, they can fuel already existing maritime competition and conflicts in the South China Sea, the Bay of Bengal, the Indian Ocean and the interconnecting sea lanes and regional choke points. This paper analyses the question to what extent are energy security concepts and challenges are interlinked with maritime policies, particularly in regard to the unresolved overlapping claims in the South China Sea and the perceived intensifying naval competition in the Indian Ocean. It also highlights the strategic implications of ASEAN's rising energy demand and growing exploitation of its offshore maritime energy resources for future regional cooperation, enhanced competition and potential strategic rivalries as well as conflicts.
Topic:
Security, Energy Policy, Oil, Gas, Maritime, and ASEAN
Political Geography:
China, Asia, Indian Ocean, and South China Sea

174. Russia’s National Oil Champion Goes Global

Author:
Edward C. Chow and Andrew J. Stanley
Publication Date:
02-2018
Content Type:
Working Paper
Institution:
Center for Strategic and International Studies (CSIS)
Abstract:
After the Soviet Union collapsed and Russia was roiled by political and economic chaos, many state-owned assets were privatized based on political connections and corrupt practices. The oil sector was a particularly attractive, but by no means the only, target for these privatizations. By the end of the 1990s, almost all of Russia’s oil production was privately owned. In spite of continued nontransparency, the oil sector began to resemble a competitive market with private investors introducing Western technology, financial accounting, and operating and management practices. It also started to attract major foreign investments. The remaining state oil assets were managed by a sleepy state enterprise named Rosneft that, in spite of its name (Russian Oil), produced less than 5 percent of Russia’s oil. Today, majority state-owned Rosneft produces almost half of Russia’s oil. Its daily oil production of 4.6 million barrels, according to its last reported quarterly results, is double that of the world’s largest oil company by market capitalization, ExxonMobil, which last reported daily liquids production of 2.3 million barrels. Rosneft’s rapid rise coincided with the rule of Vladimir Putin, who first became president of Russia in 2000. Its production increases were built largely on the backs of controversial acquisitions of assets previously held by private companies such as Yukos, TNK-BP, and Bashneft. Rosneft’s acquisition spree accelerated after Putin’s close associate and Russia’s then-deputy prime minister Igor Sechin became chairman of its board of directors in 2004. Sechin left government in 2012 to take over as Rosneft’s chief executive officer. Rosneft’s board of directors is now chaired by former German chancellor Gerhard Schroeder. Rosneft’s transformation as Russia’s national oil champion is consistent with Putin’s policy of regaining state control over the commanding heights of the Russian economy, which is more reliant on oil income today than the Soviet Union ever was. Rosneft is Russia’s largest taxpayer and contributed a quarter of government revenue in 2014. Until recently, Rosneft concentrated mainly on consolidating its dominance over the domestic oil patch. It is also Russia’s leading refiner and is increasing natural gas production for direct sales to domestic gas users, producing 67 billion cubic meters in 2016. In 2014, Russia was hit by the twin shocks of a global oil price collapse and Western economic sanctions enacted after its aggression against Ukraine in the Donbas region and annexation of Crimea. These developments affected Rosneft severely since it involved the value of the commodity it produces and sells and restricted Rosneft’s access to international financing when it was heavily indebted from the aforementioned acquisitions. A normal company might hunker down, repair its balance sheet, and wait for external conditions to improve. Instead Rosneft has done the exact opposite and expanded its international business aggressively. As part of the 2014 U.S.-led sanction efforts, Igor Sechin, as the leading figure of Russia’s largest petroleum company and his having “shown utter loyalty to Vladimir Putin,” was directly sanctioned. Further Russian sanctions enacted by Congress in 2017 called on the U.S. Department of the Treasury to submit a detailed report on senior political figures, oligarchs, and parastatal entities as determined by their “closeness to the Russian regime and their net worth.” While the unclassified version of the report released to Congress on January 29 included Igor Sechin, the report was poorly received and largely regarded as nothing more than a “rich list” by Russian experts. However, the report also contains classified annexes, including a list of parastatal entities and supporting analysis, which by definition would have included Rosneft. Although Rosneft’s rapid international expansion is too recent to assess definitely, this paper describes some of Rosneft’s overseas ventures and explores possible motivations, economic and political, behind them.
Topic:
Energy Policy, Oil, Foreign Direct Investment, Sanctions, Gas, Transparency, and Private Sector
Political Geography:
Russia, United States, Europe, and Eastern Europe

175. Who’s Afraid of Russian Gas? Bridging the Transatlantic Divide

Author:
Nikos Tsafos
Publication Date:
05-2018
Content Type:
Working Paper
Institution:
Center for Strategic and International Studies (CSIS)
Abstract:
The Issue Russian energy has divided the transatlantic alliance for over 60 years. Tensions normally just simmer, but they flare up when a new project is proposed, especially after a political crisis. In the 1960s, it was the prospect of increased Soviet oil exports following the Cuban missile crisis. In the 1980s, it was more Soviet gas for Western Europe after the Soviet Union had invaded Afghanistan and martial law had been declared in Poland. Today, it is the proposed Nord Stream 2 gas pipeline after Russia’s annexation of Crimea and its war against Ukraine (among other actions). Disagreements are natural in a broad alliance with diverse interests and perspectives. But it is now almost impossible to discuss Russian gas with any sense of calm (increasingly true for all things related to Russia). Russian initiatives are infused with perceptions and fears that range from the simple and legitimate to the obscure and far-fetched. In reality, arguments about Russian gas are rarely about Russian gas; they are about history, strategy, and geopolitics. Gas is just the spark. The end result is confusion and discord at a time when the transatlantic alliance has enough problems—without needing to add gas to the fire. It is time to separate Russian gas from the broader Russia agenda. Doing so will boost energy security, protect and strengthen the transatlantic alliance, and allow us to focus where the West can resist Russian power more meaningfully. This argument rests on three propositions. First, that energy does not give Russia as much power as we usually assume; second, that an antagonistic strategy is unlikely to be sustained or succeed in bringing about change, whether in energy or geopolitics; and third, that the best response to Russian gas is a set of policies that Europe should pursue anyway and that are unrelated to Russia. In short, we need to radically rethink Russian gas; how much it matters; and what the United States and Europe should do about it.
Topic:
Foreign Policy, Energy Policy, Natural Resources, Gas, and Transatlantic Relations
Political Geography:
Russia, United States, Europe, and North America

176. Fuel Competition in the Expanding Power Market Renewable Energy in Southeast Asia

Author:
Stephen Naimoli and Jane Nakano
Publication Date:
06-2018
Content Type:
Working Paper
Institution:
Center for Strategic and International Studies (CSIS)
Abstract:
This report provides a summary of the discussion from a CSIS roundtable held on April 13, 2018, as part of the CSIS-Pertamina Energy Initiative. The discussion brought together government, industry, and policy experts to explore the outlook for the region’s energy mix out to 2040, the state of renewable energy in Southeast Asia, and its role in the region’s energy priorities. This was the first in a series of events that will be convened this year to examine the role of renewable energy in Southeast Asia and its security, economic, and political importance in the Indo-Pacific. Southeast Asia is one of the fastest-growing regions in the world. The region’s gross domestic product (GDP) grew 66 percent from 2006 to 2015, and if all 10 countries were one economy, it would be the seventh-largest in the world. This growth is projected to increase, averaging just over 5 percent annually from 2018 to 2022. With economic growth comes demand for energy. From 2000 to 2016, economic growth in Southeast Asia drove a 70 percent increase in primary energy demand. Governments in Southeast Asia have implemented a range of policies and incentives to ensure they meet their energy demand. Renewable energy (wind, solar, geothermal, and sometimes hydro and biomass) is capturing an increasing, although not dominant, amount of attention from policymakers, investors, and the private sector as an important part of meeting this demand. Renewable energy’s share of the electric power mix is driven by a range of factors—the economics of power generation, efforts to reduce greenhouse gas emissions, energy security concerns, and concerns over local air pollution. While renewable energy is set to grow as a share of the region’s energy mix, there are indications that its potential contribution is much higher than is currently on track to be realized. Renewable energy increasingly competes on an economic basis in many countries against all fuels except coal, but sometimes political and socioeconomic factors stand in the way of improving their competitiveness in specific markets. The region is also attracting a great deal of outside investor interest. Countries from around the region and ever farther afield are investing in Southeast Asia’s energy sector because of the rapid growth experienced over the last decade and half, and their investment priorities, along with economics, shape their investment decisions in Southeast Asia. Energy policy and investment decisions are also being driven by the shifting nature of supply-and-demand balances in each country and the shifting domestic realities that come from becoming a net importer of specific fuels, such as in Indonesia. Many Southeast Asian countries have integrated low- or zero-carbon renewable energy into their energy planning efforts, and this report examines the dynamics of the power sector in Southeast Asia and how renewable energy competes with fossil fuel sources of electricity.
Topic:
Security, Energy Policy, Oil, Governance, Gas, Electricity, Renewable Energy, and Industry
Political Geography:
Indonesia, Asia, Southeast Asia, and Indo-Pacific

177. How International Oil Companies Could Assist the Republic of Cyprus to Achieve the Sustainable Development Goals: A Conversation Starter

Author:
Andrea Tornaritis and Perrine Toledano
Publication Date:
10-2018
Content Type:
Working Paper
Institution:
Columbia Center on Sustainable Investment
Abstract:
This policy paper is addressed to International Oil Companies (IOCs), public officials and Non-Governmental Organizations (NGOs) involved in the natural gas industry in Cyprus. There is currently no conversation happening in Cyprus on how the oil and gas industry could help Cyprus achieve their Sustainable Development Goals. Therefore, this paper hopes to initiate a debate and conversation around this topic. It provides an overview of the ways in which IOCs operating in Cyprus could contribute towards the sustainable development of the natural gas industry and assist the Republic of Cyprus to achieve a number of their 2030 Sustainable Development Goals (SDGs).
Topic:
Energy Policy, Oil, Natural Resources, Gas, Sustainable Development Goals, and NGOs
Political Geography:
Europe, Cyprus, and Mediterranean

178. The New Geopolitics of Natural Gas by Agnia Grigas

Author:
Andrew C. Hess and Agnia Grigas
Publication Date:
07-2018
Content Type:
Journal Article
Journal:
Fletcher Security Review
Institution:
The Fletcher School, Tufts University
Abstract:
It is encouraging to find a highly competent scholar willing to take on the complexities of a global energy revolution. Agnia Grigas’ book is not just about the political control of oil and gas reservoirs. Rather, it addresses the consequences of a new era in natural gas production that is capable of transforming structural relations in the energy world. Grigas’ geographical and historical context for examining the new politics of natural gas are appropriate: the geography being the northern and eastern parts of Eurasia, while the historical dimension is the emergence of a large pipeline structure connecting the Soviet Union to Europe after 1960, and the challenges it posed after the collapse of Soviet Union in 1991. ​ Long before Nikita Khushchev (d. 1971), Soviet geologists had discovered large reserves of oil and gas in Central Eurasia. After the end of World War II, the Soviet State proceeded to construct a huge pipeline network to distribute energy within the Soviet Union as well as to Europe. This created an energy management system that favored long pipelines, long-term contracts, fixed prices, and a decision-making environment in which political power often determined the outcome of disputes over prices and costs. Post 1991, with the Russian Union trying to protect its market for gas in Europe on one hand, and emergence of new nation states on the other, severe disputes arose over the price of gas...
Topic:
Energy Policy, Natural Resources, Geopolitics, Gas, and Book Review
Political Geography:
Russia and Europe

179. ETHICAL COMMITMENTS AND RAISON D’ETAT IN RENTIER STATES: ASYLUM-SEEKER POLICIES IN THE GULF COOPERATION COUNCIL AND CENTRAL ASIAN REPUBLICS DURING THE REFUGEE CRISIS

Author:
Farkhad Alimukhamedov, Laurent A. Lambert, and Hisham Bin Hashim
Publication Date:
10-2018
Content Type:
Journal Article
Journal:
Alternative Politics
Institution:
Department of International Relations, Abant Izzet Baysal University, Turkey
Abstract:
The international migrant crisis made headlines during summer 2015 and challenged the national asylum systems of many countries worldwide. Going beyond academic circles, hot debates on migrants and the role of asylum highlighted the gap and paradoxes that exist between claimed values of solidarity on the one hand, and the restrictive policies and regulations towards asylum seekers on the other hand. This paper documents this tension in oil and gas exporting states, particularly in the Gulf Cooperation Council (GCC) and the Central Asian Republics (CAR). It questions the claimed regional, ethnic and/or religious ties and the borders that have been closed to most asylum seekers from Syria and Afghanistan, who are presently living in poorer (oil and gas deprived) neighboring countries. This paper argues that in a time of low oil revenues and fiscal difficulties, rentier states give priority to the Raison d’Etat over any form of transnational solidarity and commitment to international human rights agreements and charters. New and creative institutional arrangements are needed to deal with the global refugee crisis, as traditional solidarities are, in both regions as well as in other rentier countries, victims of the modernization of politics and its uncaring redefinition of state interest in times of low oil revenues.
Topic:
Migration, Oil, United Nations, Refugees, Gas, and transnationalism
Political Geography:
Afghanistan, Central Asia, Middle East, Asia, and Syria

180. The Trump-led Trade War with China: Energy Dominance Self-destructed?

Author:
Sylvie Cornot-Gandolphe and Jean-François Boittin
Publication Date:
09-2018
Content Type:
Special Report
Institution:
Institut français des relations internationales (IFRI)
Abstract:
Under particular US legal rationale, such as calling foreign imports a “national security threat”, President Donald Trump has started imposing tariffs and/or quotas and has launched national security investigations on a growing number of imported goods from US allies and others alike.In March and June 2018, the US imposed tariffs or quotas on steel and aluminium on all trading partners, but Australia. In July and August 2018, the US began imposing tariffs on $50 billion in Chinese industrial goods on the ground of unfair trade practices. As China has retaliated with tit-for-tat measures, President Trump has imposed tariffs on $200 billion in Chinese goods from 24 September 2018 onwards, and in an unprecedented escalation of his trade war with China, he has also threatened to impose tariffs on an additional $267 billion in Chinese goods. If eventually carried out, Trump’s latest threat could result in tariffs on all Chinese goods entering the US. China has retaliated and imposed tariffs on $60 billion in US goods, including a 10% duty on liquefied natural gas (LNG). For the time being, trade tensions have had a limited impact on the energy market. But the new round of US tariffs and retaliation measures by China suggest that this is going to change.
Topic:
Climate Change, Energy Policy, International Trade and Finance, Gas, Renewable Energy, and Coal
Political Geography:
China, Asia, North America, and United States of America