How Energy Markets Are Impacted by Russia’s Plans


Dec. 29 2019, Published 12:24 p.m. ET

Any discovery of oil reserves could be critical for the global energy market. If the oil discovery is estimated to fulfill the US crude oil demand for at least 21 years, at the 2018 consumption rate, then there could be plenty of downside in oil prices.

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Russia’s influence on the Arctic rising

Last week, Andreas Østhagen of Fridtjof Nansen Institute said, “Russia is by virtue of its geography, the largest Arctic country. The fact that there are 2 million people that are Russian living there too means that the Arctic is Russia in many ways,” based on a CNBC report.

Russia’s arctic expedition started in the 18th century. In the Arctic, Russian made up 50% of the total population, based on the CNBC report.

Also, Østhagen said, “In Russia too, the Arctic resonates with people, and they have so many of their resources in that region; oil and gas, fisheries and minerals.” According to a BBC report, Arctic’s undiscovered oil reserves are at about 160 billion barrels. In 2015, Stanford’s report estimated 90 billion barrels of crude oil reserves in this region.

Further, the BBC report highlighted that the Arctic’s estimated to contain 30% of the world’s undiscovered natural gas. It also contains 13% of the world’s oil reserves. ExxonMobil (XOM) agreed with the PJSC Rosneft Oil Company to explore the Arctic’s undiscovered energy resources.

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Russia’s energy market

Russia’s GDP growth rate and crude oil prices move in tandem. In 2018, Russia was the world’s third-largest producer of crude oil. To know more, read The World’s Top Oil-Producing Countries.

Russia’s total crude oil exports exceeded 5 million barrels per day in 2016, based on the EIA data. European counties consumed around 70% of Russia’s total crude oil and condensate export.

Also, natural gas is among the country’s top exports. In 2016, European countries consumed around 90% of Russia’s total natural gas exports. Russia delivers natural gas to Europe, mainly through the pipeline.

Nord Stream 2

Nord Stream 2 pipeline project will increase Russia’s natural gas exports to Germany. However, this month, Washington passed legislation to impose sanctions on the companies that are involved in this project. However, Kremlin warned Washington on this legislation. Also, Russia’s President Vladimir Putin is confident that they would complete this project despite the US sanctions.

The US has been a long-time critique of this pipeline project. Germany is a critical ally to the US. Also, the European Union accounted for 33% of the US total LNG exports in the first 11 months of 2019. This is compared to 10% in 2017. Also, it was 11% in 2018.

As of January 1, 2017, Russia had the largest proved natural gas reserves, based on the EIA data. Russia’s Arctic expedition could raise its energy commodities reserves.

Plenty of downside for crude oil

In 2019, the global oil market is likely to be oversupplied. Moreover, the expectations of higher non-OPEC supplies would be a bearish development for oil prices. Arctic’s estimated undiscovered oil and natural gas reserves could drag energy commodities’ prices. So, this is a concern for energy investors.

Read How Will the Energy Subsector Perform in 2020? to know more.


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