weekly response

The President-elect's Choices
By Leo Brown
[President Obama's Weekly Address]

In the last decade, the Russian government has expanded their web of gas and oil pipelines to such a degree that domestic production will soon be unable to maintain full export capacity. This problem will worsen as western Siberian oil fields, the wellspring of Russian oil since the 1970s, run dry. But instead of investing in new technology to extract oil from other regions, the government will continue to funnel resources into the state-owned pipeline operator, Transneft, and ambitious expansion projects. Though new pipelines will be born, they might well sit underutilized and decrepit.

The muddy economic rationale for these projects caves under the realities of Russia's rising energy needs and finite production capacity. These pipelines are built primarily to allow Russia greater geopolitical leverage and flexibility. The idea is that when a 'transit nation' hosts a Russian pipeline, that nation profits as Russian energy flows. But if Transneft and the government have options of simply doing business elsewhere and rerouting through a different pipeline, the transit nations have much less political leverage. They have a choice of either not dealing with Russia at all, or doing so according to Russia's political, economic, and military conditions.

For these strategic reasons, Russia has, and will continue to have, more pipelines than are economically viable. However, it is still possible for Russia, the world's leading oil producer, to have it both ways.

The Russian economy is quite energy intensive compared to other European nations, and its rapidly expanding auto market is a major contributing factor. Regulation of Russian auto industry standards are lax and, as a result, the potential to fill the new pipelines with oil exports is lost to domestic consumers driving inefficient vehicles. If President-elect Putin sees to fruition President Medvedev's modernization program, the Russian market might be able to function on significantly less oil and gas, thereby freeing up Russian reserves to be strategically exported.

President Obama notes that American fuel efficiency standards are tighter than ever, and the Big Three auto makers are building vehicles that produce many more miles to the gallon. This may bode well for American efforts to develop energy independence while investing in alternatives to fossil fuels. But if President-elect Putin is serious about growing the Russian economy while maintaining a sophisticated network of energy security, he will make a case to his people that the push for energy efficiency is not a Western plot connected with a global warming hoax, but rather a vital component of national security and geopolitical influence.

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For a full analysis of Russia's energy choices, refer to Adnan Vatansever's Russia's Oil Exports (or the abstract), published in 2010 by the Energy and Climate Program of the Carnegie Endowment for International Peace.