It’s hard to ignore Yuri Maltsev‘s recent warning about Russia’s “paradox of plenty” when you read this Bloomberg Businessweek article about the impact for Russia of America’s natural gas boom.
Since reclaiming the presidency in May 2012, Putin has become the biggest impediment to the Obama administration’s foreign policy aims. That’s undoubtedly played well with Russians yearning for the days when the country was a superpower. Yet beneath Putin’s swagger lie weaknesses at the core of the economy that threaten Russia’s future—and with it, his power base. And for that, he can blame a familiar nemesis: the U.S.
His difficulty has nothing to do with intercontinental ballistic nuclear missiles—and everything to do with natural gas that’s cooled to -260F at normal pressure, condensed into liquid form, and transported on special tankers to markets around the world. America’s surprising return as an energy superpower is complicating life for the Russian petro state. The rise of a vibrant, global, and pipeline-free liquefied natural gas (LNG) market is a direct threat to Russia’s interests in Europe, where Gazprom (GAZP:RU), the state-owned energy giant, supplies about 25 percent of the gas. So is the shift in pricing power from suppliers to consumers as a result of the huge supply shock emanating from North America.
Russia is still the world’s biggest overall energy exporter: It’s the No.?1 oil producer and No.?2 in gas after the U.S. However, the country’s known oil reserves—primarily between the Ural Mountains and the Central Siberian Plateau—are enough to sustain current production levels for just 20 years, according to a study in December by the European Bank for Reconstruction and Development (EBRD), vs. 70 years for Saudi Arabia and 90 years for the United Arab Emirates. Untapped oil and gas reserves in eastern Siberia and the Arctic will take massive investments to explore.
Putin’s aware of the problem. “For many years we have had a situation when prices for our main export goods rose fast and almost without interruption, and this made it possible for Russian companies and for the government to cover high expenses,” he told global executives at the St. Petersburg International Economic Forum on June 21. “But this situation has changed now. There are no simple solutions and no magic wand we can wave to change things overnight.”
That may be true, but the country has little time to waste. Many Russians, and in particular members of the president’s inner circle, have benefited hugely from the country’s energy-export windfall. Now that foundation is slipping away. The question is whether Putin’s power will, too.
