Andreev O.A. Managing Partner of the Personnel Agency “Andreev and Partners”, Professor of the Department of the Baltic Institute of Ecology, Politics and Law in Murmansk.

Tyukkyulainen Markku, Professor of the Regional Geography
of the Universit of Yoensuu (Finland).

Russia’s state as one of the largest energy producers is based on rich natural resources. Among Russia’s energy resources, there such as gas, oil coal hydroenergy and uranium.

In the North, in the zone of coniferous forests, there is plenty of timber and peat, which are not used in considerable amounts as an energy resource. Russia consumes a large amount of energy. The huge energy consumption is explained by the developed industry, specialization in raw processing, as well as the north location of the country. Energy is necessary in large amounts both for economy and house and communal service.

Energy is sold in large amounts abroad. Natural gas is brought by Russia to European markets to a greater degree than other kinds of raw materials. 20 % of the natural gas consumed in the European Union and 15 % of the oil exported there, go from Russia . According to the statistical data of the delivery of the European Union’ s goods, Russia is the largest exporter of natural gas to the countries of the EU and the second after Norway petroleum exporter. On the other hand, Russia’s good financial state depends, to a great degree, upon the incomes received from oil export, and this dependence on the export to Europe is consolidated by a network of pipe-lines. 

The crash of the external rate of rouble in 1998 furthered the economic rise of exporting enterprises and their enrichment. Oil and gas companies acting at exporting markets, managed to update their production, using some foreign technologies and capital investments, and to become competitive at the world’ s market. Such structural changes were not unexpected. The companies have to keep pace with the changing economic state of the market so that their competitive ability grows.

Natural gas of Russia

Despite Russia’s energy production in the 1990-s had reduced, the export of natural gas restored faster than any other energy bearers. After the lowest point of the reduction curve in 1993, export gradually began to gather strength . The consumption of natural gas in the country remained even in the period of economic regress at rather a high level. As a result, the meaning of gas in Russian economy arose. 

The country’s gas extraction is practically concentrated in one organization’s hands. The Gasprom controls over 90 % of Russia’s gas extraction, and four west-Siberian companies, controlled by the Gasprom, namely: the “Urengoygasprom”, “Yamburggasextraction”, “Nadymgasprom” and “Surgutgasprom” - produce a larger part of the natural gas of Russia. For example, in 2000, the Gasprom enterprises in West Siberia extracted 83 % of all natural gas of Russia . The most important gas pads are Urengoy, Yamburg and Medvezhie at the North Polar Circle near Yamal in the Yamalo-Nenetskiy independent district. The opening up of the Polar deposit began in late 2001. Gas extraction exists in West Siberia and in the European part of Russia, in Orenburg. Natural gas is also extracted as a by-product of oil-fields. The length of the network of pipe-lines, being a property and management object of the Gasprom, is 150 000 km.

The gas deposits of the West-Siberian lowland are situated far from the Russian consumption centers and the sales markets of European countries. The gas pads situated along the lower current of the Ob, Taz and Pur rivers are at the latitude of Finnish Lapland, but here, winters are colder than in Finland. 4000 km right to the South is India. From New Urengoy, the distance according to the curve of the large circle to Helsinki is 2695 km, and to Berlin – 3799 km. In 1970, the West-Siberian lowland gave only 5 % of the natural gas of the Soviet Union, and the total gas extraction of Siberia did not exceed 6 %. The North Caucasus, Volga and Komi produced 35 % of natural gas. The remained part belonged to the territories which are now separated from Russia: there was gas extraction in the Ukraine (31 %), in Uzbekistan (16 %), Turkmenistan (7 %), Azerbaijan and Kazakhstan. In 1970-1980-s, the gas industry of West Siberia was rapidly growing. The Urengoy deposit, opened up since 1978, gave already 36 % of all gas of the USSR in 1984. The change was really quick. At the same time, the large former delivery distances grew; from 1975 to 1983, an average length of gas transportation doubled from 1200 km to 2400 km . The main direction became the pipe-line going through Perm and Kazan. The second pipeline situated to the north, delivers gas through Ykhta to the West, too.

In 1990-s, in Russia, a dependence upon natural gas went up. At the millennium boundary, almost one half of electrical energy was produced with the help of gas. Gradually, one half of the powers of heat energy production began to work at the expense of gas. In 1990-s, the volumes of gas reserves were increased so that it was easier to react to the changes of demand. Domestic Russian prices for oil and payment delays create problems for the Gasprom. That is why, export is the most important income source.

Indices of the future of the power engineering of Russia and the European Union

After the crisis of 1998, Russian economy has been gradually developing. Recently, two forecasts of production and consumption in Russia have been made. The first one is the prognosis published by the International Energy Association (IEA) in 2000 . And in November 2000, the Russian Government considered the “Main Regulations of the Energy Strategy of the Russian Federation till 2020” . The both forecasts gave almost the same figures on original energy production by 2020, nevertheless, they were based on different, and really important, aspects of the economic rise and the structural changes of the economic sector.

In the Energy Strategy of the Government of the Russian Federation, the economic rise (under the optimistic alternative) is planned by 5 % annually. With the help of such tempos of the economic grow, the difference between the living wages in West Europe and in Russia would reduce. The effectiveness of Russia’ s energy consumption is supposed to go up considerably, to a greater degree, at the expense of the service sector increase, as well as due to the total economic grow. Thus, the plan would lead to the moderate figures of the power engineering grow. The original energy supply would reach 884 million tons oil equivalent (toe) , t.i. energy production would return to the same level it was at before the economic reduction. The energy supply grow would be 36 % of the level of 2000, which would have been almost thrice-repeated with the intensive energy supply grow. At the millennium boundary, Russian economy depended very much upon natural gas. According to the new energy program, there is an intention to correct such a state. Gas consumption in energy production is supposed to be compensated with the help of a coal consumption grow, and it is also supposed to keep increasing the role of atomic energy. If in 2000 the share of atomic energy was 15 % of electrical power engineering, then by 2020, it is planned to raise this index up to 21 % .

According to the prognosis of the International Energy Association (IEA), Russian economy grows considerably slower (2.9 % per year), so, the grow of energy bearers’ production is planned to be 1.5 % annually. In this case, the effectiveness of power engineering in the economy would go up, too, although, not so considerably as in the program approved by the government. Thus, original energy supply would be 802 million tons oil equivalent. The International Energy Association’s prognosis does not forecast any coal and nuclear energy consumption grow. The coal share increase is considered as an inconsiderable program. Today’s gas and oil pipe-lines provide a necessary infrastructure, the maintenance of which is implemented at the expense of home and export incomes. Thus, one can doubt concerning the increase of coal consumption.

Russia’s strategy is to increase oil production moderately. Oil companies carry out test borings, develop new oil deposits, which compensate today’s fields the productivity of which is reducing. According to the IEA’s prognosis, oil extraction grows much faster than it is planned in Russia. According to Russia’s Energy Strategy, in 2020, oil export is to be approximately at the level of the millennium boundary.

Russia tries to decrease its dependence on the gas deposits of West Siberia, which have already half exhausted themselves. Such intentions are first of all influenced by the reduction of the productivity of today’s deposits. There are many projects in Russia, with the help of which they try to strengthen the gas branch. They are also important for the development of Russia’s north parts. There is an intention to start a new gas extraction in the region of the rivers Ob and Taz in such a way that it is near today’s gas pads (Yamburg and Urengoy), as well as near today’s production and transport infrastructure. It is planned to start the opening up of these new deposits within 300 km from Nadym.

It is intended to extend gas extraction in Siberia farther to Irkutsk in the direction of the Kovytkinskiy deposit. It is planned to develop Siberia’ s other areas as new consumers of natural gas in Asia appear. China, as well as Japan, are interested in the purchase of Russian gas. In the south of Russia, a gas pipeline called “the Blue Stream” is being built through the Black sea to Turkey.

The hydrocarbon reserves of the Barents sea were investigated in 1970-80-s. Positive results were reached due to the use of the equipment partially developed in Finland. Ships, equipped with drilling rigs and lifting barges researched the resources of the bottom of the Barents sea . It was found out that there was more oil in the Pechorskaya Lip near the coast (two fields at the distance of about 20 km from the coast), but gas was found in the sea to the north. All these deposits belong to the Russian Federation, because they are situated on its continental shelf. Prospected reserves at 400 million tons provide the possibility of annual extraction at 15-20 million tons. On the shelf of the Barents sea, there is a considerable Shtockman gas and condensate deposit, which is going to be opened up. 2006 is mentioned in the plans as the year of the beginning of the development. But whenever it was started, in the future, it means the building of a gas pipe-line to the south from the Kola Peninsula. It is planned to develop the fields of the Yamal Peninsula after 2015. These areas are situated in the Arctic conditions, to the north from the deposits of West Siberia, which are now being opened up.

Not only the renovation of old pipe-lines, but new deposits, too, require huge investments. The Barents Sea pipeline and the pipeline connecting the fields of Yamal with Ykhta, are of the largest technical difficulties. Both projects also influence the territories situated nearby; from the Shtockman gas deposit, the pipe-line will go through Karelia, and from the Yamal Peninsula, the pipeline built will connect with the pipeline “ Aurora Borealis”, by which gas is delivered to Europe’s markets. Russia wants to increase gas deliveries to Europe, passing by the Ukraine. For this, by the moment of the opening up of the gas deposits of the Yamal Peninsula, it is necessary to finance the pipeline going from Belorussia to Poland. At the same time, they would build a connecting pipe-line from Poland to Slovakia, that is, to the south, in the direction of the pipeline “Brotherhood”.

Russia has plans to expand the pipeline system in the region of the Baltic sea. There is an intention, partially alternative to the Russia-Belorussia-Poland project, to build a pipeline starting to the north from St. Petersburg and going to Greyphsvald in Germany. The pipeline would stretch by the sea bottom or through Finland and Sweden. In the latter case, the pipe-line would go to Sweden where there is some cooling-off concerning the gas project. The plans of Europe’s north countries should be considered wider than just a project of Russian gas transportation. If Norway’s gas was added to the pipe-line of the north countries, then acting markets of many deliverers would open. Such a structure of gas markets is the purpose of the European Union. The European Union tries with help of some directives to limit former exclusive markets. According to its directives, the gas pipeline owner and the gas deliverer are to be different entrepreneurs, juridically, what provides competition and at the same time, increases the guarantee of the safety of business undertakings.

Factors connected with security (for example, an unstable state in Chechnya), further the grow of Russia’s energy sector to the north. The requirements of high payments for transit on the part of the Ukraine have lead to the fact that investments move to the north . Debts to Belorussia, connected with energy consumption, have also been paid out at the expense of energy transit from Russia. Under such circumstances, Russia’s intentions to broaden the networks of the delivery of energy bearers to the north become clear. The shortest way from the center of Europe to the deposits of Siberia goes through the Baltic Sea, and to the Barents Sea – through Phennoscandia. Russia is willing to reduce its transport dependence upon the Baltic States. Latvia and Lithuania are important for oil deliveries, that is why, Russia treated negatively the extension project of the Ventspils port, referring to safety precautions . Nevertheless, the importance and state of the Baltic countries can change, as they have become members of the European Union.

The North-West of Russia as Europe's energy gates

Changes taking place in the power engineering of Russia's north and north-west economic regions, are of a great importance both for Finland and Baltic countries. Investments and production changes influence price formation policy in these countries.

As it is known, Russia is divided into 11 economic regions. Russia's north economic region includes: the Republic of Karelia, the Murmansk region, the Arkhangelsk region (with the Nenetskiy independent district), the Republic of Komi and the Vologda region. The population of this region is a bit over 5 million citizens. The region's territory is equal in its size to five north and Baltic countries taken together. There are considerable deliverers of energy resources in the Arkhangelsk region and in the Republic of Komi.

Russia's north-west economic region includes: the city of St. Petersburg, the Leningrad region, the Pskov region, the Novgorod region, as well as the Kaliningrad enclave. Over 50 % of the north-west economic region's population live in St. Petersburg. The region's territory is a bit larger than one half of Finland's territory.

The north and north-west economic regions together are of a great importance for energy production and consumption. The Finnish Gulf, Finland and the seas of the Antarctic Ocean are important canals of energy export to the west.

In the plans till 2020, oil and gas extraction in West Siberia reduces. According to the Energy Strategy, in the future, the north region will turn into a gas net-exporter . The north region is already an oil net-exporter, and here, it is planned to increase oil extraction even more. An economic rise is also forecasted in Asia, that is why, it is intended to develop energy export in West Siberia and in the Far East of Russia. After West Siberia, the north economic region is the largest oil and gas net-exporter.

Russia's Energy Strategy implies considerable investments in the north economic region. The purpose of the strategy is to increase export part of oil and gas extraction both on the continent and at sea. It means an extraction increase in the Timano-Pechorskiy region and the beginning of the opening up of the Barents sea's shelf. The purpose is to develop energy production on the basis of various energy sources, improving, at the same time, the distribution network; including the renovation of the four nuclear reactors of the Kola Atomic Power Station in the city of Polyarnye Zori. In the strategy, it is said about the necessity of keeping in order oil and gas extraction enterprises, as well as sales networks referring to them. It means support to coal consumption popular in Russia. A special attention is paid in the strategy to the energy needs of industrial enterprises, as well as to the creation of prerequisites for their functioning in the future. The gas network is being developed in the Republic of Karelia, the Arkhangelsk region, the Murmansk region and in the Republic of Komi. It practically means the building of the Petrozavodsk-Murmansk pipeline.

In the north-west economic region, the Energy Strategy supports the updating of heat power stations. According to the strategy , there is a goal to develop power engineering, renovating heat and nuclear power stations, as well as building new objects. The four reactors of the Sosnovyj Bor should be replaced with the new ones. In St. Petersburg, they will renovate heat production on the basis of gas. Due to the development of heat production, as well as of local electricity production, the energy dependence of the Kaliningrad region reduces. In the Strategy, it is also mentioned of the construction of an oil-port at the Baltic Sea. This project will be carried out when the Primorsk oil-port is ready.

The purpose of Russia's energy planning is to increase energy supply and to improve its delivery system. Finland's geographical position becomes more important than before. The building of pipelines creates new opportunities on the expansion of suggestions for the Baltic region. Huge investments and new technologies of the environment security control are necessary for the implementation of the Energy Strategy. Russian energy decisions are based on national interests. For example, in its supply decisions, Russia tries to derive all profit and to keep control over export. Russia's Energy Strategy furthers the increase of economic activity in the region of the Baltic Sea.

Conclusion

Russian economy gradually integrates into the world's economy, in which the connections between the center and the regions are defined, to a greater degree, by market conditions. The investments of the energy sector strengthened the direction of the development; when oil and gas pipelines, with the help of which the countries of COMECON had been economically connected with Russia, became export canals. New economic plans also strengthen the connection with the West and World's economy. The role of the north regions is vitally important for Russia. The development potentials of the country's energy sector are large both in the European part and in Siberia.

Judging by economic indices, the core of Russian economy is built around the large inhabited centers of Moscow and St. Petersburg, as well as around some well-to-do oil and gas regions . They work in the conditions of home markets or try to get to the world's markets. With the help of investments, political steps and programs, the authorities try to take care of the main basic economic structures (t.e. of production, infrastructure and dwelling). In West Siberia and in the Far East, a development strategy in the direction of Chinese and Japanese markets is being formed, as the demand of Asian countries for energy and raw materials, form the economy of these regions of Russia. Such a market start for Asia is no cause for any federal disintegration or conflicts.

In the future, being under the influence of many factors, Russia will also be oriented at Europe. The factors of Russia's economic development are connected with Europe by numerous threads. The energy potential and the state of the energy distribution system further the integration of Russia and Europe. This economic connection between Russia and the developed industrial countries of the West is profitable for both parties, as the production systems complement one another. The work of the Russian energy sector is advantageous for the EU and Russia. The USA economy also gets benefits of the stable work of Russian power engineering. The formation of such mutual use leads to the overestimations of the external policy security. It is seen, for example, of the relationships between Russia and NATO.

Belorussia and especially the Ukraine, bordering with Russia, have appeared to be negative factors in the disputes about transit dues, than natural partners and reliable companions in joint work. Hence, the center of gravity of the perspective energy prognoses has geographically moved to the north. Russian companies develop north pipelines and ports available and plan the building of new gas and oil pipelines through Phennoskandia. On the other hand, the north infrastructure plans are also just a geographic chance in that meaning, that it is north latitudes, new promising gas and oil deposits are situated at.

The distribution of infrastructure investing near Finland’s front line regions, are supported by the fact that the shortest gas (and partially oil) delivery ways to Central Europe go through the region of the Baltic Sea.

Power engineering infrastructure decisions have not changed considerably since the countries of East and Central Europe joined the EU. After Latvia and Lithuania had joined the European Union, a new land border between Russia and the EU appeared. The shortest routes from West Europe to the Barents Sea will still go through Finland. By the way, the geographic position of Finland is also profitable from the point of view of the gas and oil projects of Timano-Pechora and the Yamal Peninsula.

Russia’s energy infrastructure is built in such a way that it provides the delivery of energy bearers to the West. Investments are necessary for the work of the energy system. The European Union is interested in it, that is why, according to some forecasts, the export of gas to Europe will especially grow . Russia can deliver plenty of gas if large investments planned are carried out. Russia’s activity at oil markets also creates All-European home energy markets, thus reducing energy dependence upon the Arab countries. The electricity delivered by Russia is also bought by the countries of the EU. They will also buy it in the future, that is why, the electric networks going to Europe are invested.

The joint work with European entrepreneurs is of use for Russia. Russian companies export energy to where they have relatively no difficulties in delivering it. For Russia, such a tendency is also positive from the political point of view, because energy buyers in Europe consider Russia as an important trade partner. It raises in Europe the political value of Russia. The close co-operation in the sphere of power engineering between Russia and the European Union can lead to the fact that the countries of Baltia and the former countries of COMECON, as they join the EU, partially integrate back to the energy system, which 10 years ago they wanted to separate from. Nevertheless, the integration conditions have changed. For example, gas directives create absolutely different markets for the former buyers of Soviet energy, than in the times of team economy.

Recently, the importance of the heat and energy complex as a source of Russia’s currency incomes has been paramount. On the incomes got from the export in the West, one can buy production technologies. Thus, the potentials of the country’s economic development depend, to a great degree, upon what is going on in the power engineering sector. Power engineering with its multiplicative effects will even longer play the main role in economy, that is why, the incomes of the energy complex go to the maintenance and improvement of its infrastructure. Economic changes in Russia also have a strong influence on the oil and chemical branch. There should be built new production powers, and old production powers should be renovated.

If in the nearest 20 years, the purposes of Russia’s Energy Strategy were carried out at least approximately, it would provide a guarantee of grow and development of Russian economy, as well as a considerable improvement of its functioning. As far as service, consumption and transport grow, it is planned a large change of Russia’s economic structures. Russia’s Energy Strategy tries to create a more effective, in comparison with the past, economic system from the economy wasting energy. Such intentions further the economic integration with Europe, because there are some examples of many effective, from the point of view of power engineering, decisions in the European Union.

The Industrial NORTH #3