Russia's Energy Strategy and its Impact on Gulf Energy Markets

Abstract

The economies of Russia and the Gulf states are dependent on extraction and export of their hydrocarbon resources. Saudi Arabia and Russia are the worlds largest oil exporting countries, with Russia and Qatar the largest natural gas exporters. Gulf energy exporters are therefore unable to determine global prices by themselves. They need to cooperate with Russia - which has not always been achieved. When they work together, as they have in relation to oil since 2015, they have managed to boost prices to their combined benefit. On the other hand, Saudi Arabias overproduction in 2014, aimed at weakening Irans oil returns, caused collateral damage to the Russian economy. That said, Russia and Gulf energy producers have a common and powerful competitor in US shale production, so they have a strong incentive to work together. Moreover, Gulf producers and Russia compete with each other for export markets, with Asia and particularly China emerging as the main battleground. Chinas imports of Russian oil grew from 9% to 15% over the past six years, with a consequent decline in imports from Saudi Arabia to under 13%. Similarly, Qatar and Russia are competing in natural gas exports to China. Qatar is ahead on LNG, having signed in 2018 a 22-year export agreement with China. But Russia dominates in pipeline exports, with over 90% of Russian gas to China delivered in that way. Though there is room for both, given Chinas rapidly growing demand, Russia is hamstrung by its limited LNG export capacity. In this context, President Putin signed earlier this year an update of Russias Energy Security Doctrine. The Doctrine underlines the importance of energy as a key source of Russian power and influence. It examines the geopolitical and external economic challenges Russia faces in maximizing production and export of its energy resources. These include Western sanctions following Russias annexation of Crimea and the war in eastern Ukraine, consequent production difficulties due to restrictions on import of Western extraction technology, and an international trend towards greener economic models. Among solutions, the Doctrine stipulates that Russia must become a global player in LNG markets, particularly through major gas extraction projects in the Arctic. Associated with this is the goal of enhanced technological independence through use of Russian developed technology and equipment in energy investment projects. The proposed paper will examine how Russian and Gulf energy strategies are likely to impact on each other over the coming 10 years. In particular, it will analyze the likely effect of Russias new Energy Security Doctrine on the Gulf energy market, and the scope for cooperation between Russia and Gulf hydrocarbon exporters including in terms of reciprocal investment (taking the Qatar Investment Authoritys investment of $11.3 billion in Russias Rosneft as a model). The paper will also examine the export potential for Russia and Gulf energy producers in Asia, and the risks and likely consequences of competition between them in exploiting these markets.