In this video, I provide background information on the oil and gas industries in Eurasia, focusing on capacity, budget dependence, and export markets.
Reserves and Production
We tend to think of the Central Asian states as being the oil rich countries, but Russia is by far the dominant power in oil and gas in the region. Russia has the largest oil and gas reserves (with the largest proved natural gas reserves in the world) and is the largest producer of oil and gas (where it stands #2 in the world behind the United States in both fields). The Central Asian states are important players in the market, though, particularly Kazakhstan with its large oil reserves and Turkmenistan in natural gas. Azerbaijan is also a significant oil producer, but its reserves are expected to dry up in the next 30 years.
Russia’s oil production is centered in West Siberia, although it also has significant potential for the exploitation of offshore oil deposits in the Arctic. Its natural gas production and reserves are similarly located.
The Caspian Sea is the other significant source of oil and gas, with oil reserves concentrated offshore in Azerbaijan and Kazakhstan.
Just as Russia is a major player in the oil and gas markets worldwide, the industry plays a dominant role in Russia’s economy. A 2018 breakdown of Russian GDP by sector shows that around 1/3 of its economy and half of its exports are related to the oil and gas industries. Russia has tried to diversify its economy, but it remains dependent on natural resource rents. A 2018 study found that around 1/3 of Russian government revenue came from taxes and related revenue from the oil and gas industry (with the remainder primarily coming from VAT and corporate taxes).
The dependence of other, smaller oil producing states on their resource revenue is much larger. Some estimates hold that 2/3 of Azerbaijan and Turkmenistan’s budgets are dependent on oil and gas revenue.
Gazprom is only half-owned by the state and 30% of Rosneft was sold off in 2017. Several states, most notably Turkmenistan and Uzbekistan, do retain full ownership and direct control over their oil and gas industry, but that is more the exception than the norm in the region. While Azerbaijan has full state ownership of its resources, it has services contracts with a wide variety of international companies. And Kazakhstan actually opted for private ownership in its oil industry, again, distributing its international partnerships across Europe, North America, and Asia.
Russia primarily exports its oil and gas to Europe, although China is a significant oil market as well. Europe is in fact pretty dependent on Russian oil and gas – Russian oil makes up 30% of the EU’s oil imports and 40% of its natural gas imports.
A significant pipeline infrastructure is in place to transport these exports. While in the 1990s and 2000s, oil pipelines were the dominant field of international competition and intrigue, today it is natural gas pipelines. There are three big pipeline projects worth mentioning. The first is NordStream 2. This would be a second LNG pipeline under the Baltic Sea bringing natural gas from Russia to Germany. It was scheduled to be completed mid-2020, but is stalled due to U.S. sanctions and renewed political opposition. It is controversial not only as a source of revenue for Russia, but also as another way for Russia to route its natural gas exports around current paths through Ukraine.
Russia is also looking to expand its natural gas exports to China. In 2019, it opened the Power of Siberia pipeline from some of its secondary gas fields to China, and it has begun a feasibility study for another pipeline from its primary fields in the north.
The network of pipelines around the Caspian are pretty well established. While there is occasional talk of a Trans-Caspian Pipeline to transport natural gas from Turkmanbasi across the sea to Baku, it has never gotten off the ground. Most Central Asian oil and gas (that is exported west) ends up traveling north around the Caspian and to Europe through Novorossiysk.
The current construction related to Caspian and Central Asian natural gas is the Southern Gas Corridor. Construction on the BTE (Baku-Tbilisi-Erzurum) pipeline was completed in 2006, and TANAP (the Trans-Anatolian Pipeline) across Turkey in 2015. With an additional pipeline across northern Greece in the works, this will provide an alternate (in other words, non-Russian) source of natural gas to the EU.