Economic Focus – Russia’s Petro Power

After a decade of political instability and economic woes, Russia is once again beginning to rise phoenix like from the ashes of the old Soviet Union. Constantly fuelled by income from Russia’s vast natural resources, (especially in oil and gas), Russia is once again a dominant player in world politics.

When Russia’s name is invoked, the name Gazprom is found tagging along. Gazprom, the state-run gas monopoly is the world’s largest producer and exporter. Yet Gazprom may not be as big a bully as it seems to be.

Newsweek (31st December 2007) revealed what might be the Achilles heel of Gazprom. The gas giant, though having the looks of a big bad bully (at least in Ukraine’s eyes) produces only about 550 billion cubic meters (bcm) of gas – just enough to supply its own domestic markets. Ironically, Gazprom relies on cheap imports (around 80bcm of gas) from Central Asia to meet majority of its other obligations to customers in Europe.

Recently, countries in Central Asia (Turkmenistan, Uzbekistan, and Kazakhstan) have begun to cut their own deals with China. Hu Jintao of China has recently signed a deal with Turkmenistan to buy 30bcm of Turkmen gas for the next 30 years while at the same time financing a giant new gas pipeline to China’s Xin-jiang province.

Together with a deal of selling 14bcm of gas to Iran and 50bcm of gas to Russia (until 2009), Turkmenistan has promised to sell more gas it can feasibly pump. The question is, which commitment would Turkmenistan fulfil?

Gazprom, according to Newsweek, was paying just $65 per 1,000 cubic meters to the Turkmens and at the same time selling the same gas to Europe for $250. This is of course made possible only because of Russia’s monopoly of the regions pipelines. With China eyeing to gain access to resources in Central Asia, Russia would surely be on its guard to any breach in its pipeline monopoly.

Facts – BBC

  • Full name: Russian Federation
  • Population: 142.5 million (UN, 2007)
  • Capital: Moscow
  • Area: 17 million sq km (6.6 million sq miles)
  • Major language: Russian
  • Major religions: Christianity, Islam
  • Life expectancy: 59 years (men), 73 years (women) (UN)
  • Monetary unit: 1 rouble = 100 kopecks
  • Main exports: Oil and oil products, natural gas, wood and wood products, metals, chemicals, weapons and military equipment
  • GNI per capita: US $4,460 (World Bank, 2006)
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