This fascinating 2012 book is about the Russian oil industry since the collapse of the Soviet Union. At the time of publication, Russia accounted for 13% of world production and 22% of non-OPEC oil. However, as North American energy production skyrockets, those percentages are reducing monthly. Russia is unique among energy exporting countries because the industry has developed indigenously and the oil industry is part and parcel of a large industrialized economy. Dependency on a commodity, though, has assured that Russia is a petro-state with the same ailments as any other country suffering from the "oil curse". Corruption is rampant and the industry is not prepared for the modernization required to continue to maintain its position.
When the USSR fell apart, it was the legal/administrative/management system that disappeared. The physical plant stayed in place. The 1992 Mineral Resources Law affirmed the state's ownership of the underground assets and authorized production, refining and distribution of oil and gas by licensees. As the industry scrambled to reorganize itself, production in 1996 fell to half of the Soviet peak year of 1987. Having studied the west, they realized they needed integrated oil companies. Lukoil, Yukos and Surgutneftegaz were the first Russian "majors". Of the three, only Yukos was wrenched from the hands of the old "oil generals" and was taken over by one of the famous financial barons known as oligarchs, Mikhail Khodorkovsky. After a near collapse of the state, when it defaulted on its bonds in the late 90's and the impact of the 'Asian flu' financial crisis, oil prices rebounded and Russian production grew from 3.3 million barrels per day to to 6 million between 1998 and 2004. Leading the increase in volume was Yukos, where Khodorkovsky turned over production responsibility to an American. The Russian miracle was a typical oil industry boom/bust cycle, and this time one that revitalized the Russian state in conjunction with the introduction of a man who wished to reestablish central control in Moscow. Strengthening the state was the mission of Vladimir Putin and those from St. Petersburg who came to Moscow with him. In 2003 Putin struck, Khodorkovsky went to jail, and Yukos was dismantled and renationalized. The reason was that for those around Putin -- many civil servants from St. Petersburg and veterans of the security service -- the oligarchs had trumped the state and we're using their wealth and power for personal goals and not to help revitalize the Russian nation. Yukos was selected because, "it was more aggressive and more radical, than the other oil companies". Khodorkovsky personally challenged Putin on a number of fronts and came close to merging Yukos with Chevron, an unthinkable outcome for those resentful of the oligarchs. While Khodorkovsky went to jail for a decade and Lukos was dismantled, Rosneft hurtled to the front of the Russian pack. It had barely survived the end of the USSR as a state-owned catchall and wound up as the state oil company, sponsored by Putin and one of the largest in the world. However, the size and national strategic importance of the oil industry have not been enough to accelerate progress away from the infrastructure and habits of the old Soviet Union. The state has made it extremely difficult for foreign investors, oil companies and technical specialists to participate and move the industry into this century. Thus, the frontiers of Arctic oil and extracting tight oil, as is being done in Canada and the US, remain the challenge, but one at which the system isn't prepared to succeed. The system requires increasing oil prices for the Russian petro-state to prosper and the author does not believe that is in the cards. Between 2001 and 2011, oil prices quadrupled, allowing a nine-fold increase in the Russian state budget and the accumulation of an $800 billion surplus. That cannot be repeated and the state is likely to progressively and systematically decline. Gustafson, who is a professor at Georgetown, prescribes a litany of positive thinking reforms of the nature often suggested in the 'Economist' and 'Foreign Affairs'. My suspicion is that Putin's Ukrainian activities have already put those possibilities to rest. This is a superb book, very well-written and packed (and I mean packed) with detail. He is best when painting the big picture.
No comments:
Post a Comment