Russia is criss-crossed by a web of hundreds of thousands of kilometres of pipelines, most of them built in Soviet times. Obsolete equipment and human errors cause a growing number of technical failures and accidents. In northern regions, the ecosystems are more fragile and coexist uneasily with polluting industries such as fossil fuel extraction. Scenes of spilled oil along the trunklines, burning torches of oil and gas wells and traces of trucks stuck in permafrost that will remain for decades are sad reminders of the activities of the oilmen.Wear-and-tear due to corrosion leads to frequent ruptures that cause not only heavy environmental damage but also tragic accidents. In 1989, an explosion from a leaky liquefied gas pipeline caused a train disaster that killed more than 500 and wounded over 600 passengers. In 1994, a leak from a ruptured pipeline caused a large-scale environmental disaster on the territory of the Komi Republic (north-west of Russia).
The total volume of oil spilled is reported to be between 14,000 and 100,000 tons. The situation has hardly improved in recent years: about 10,000 tons of crude oil is lost annually due to thousands of accidents from ageing pipes. As oil production is increasing, so are the numbers of oil spills. According to the official statistics recorded between 2000 and 2004 there were 10,647 pipeline accidents with more than 27,000 tons of oil spills in the Khanty-Mansy region alone in north-west Siberia. The number of reported accidents has almost doubled since 2000. The bulk of oil exports (roughly 1.3 million b/d in 2007) are transported by the Druzhba (‘Friendship' in Russian) pipeline. This is the longest trunk pipeline in the world and it was built in the 1960s to supply crude oil to the ‘fraternal' states of the Eastern bloc. Today it needs significant modernisation. Any disruption caused by an accident on this pipeline could wreak havoc on oil markets. High volumes of oil have also been shipped through Black Sea ports to the Mediterranean through the narrow Bosphorus Straits. The risk of oil-spills in this vulnerable and densely populated area is high and any major tanker accident could have disastrous consequences. Transneft, the national oil pipeline operator that owns most of the country's pipeline system, is involved in several multibillion dollar projects aimed at developing new export routes and upgrading the existing pipelines. The planned joint Druzhba-Adria and Burgas-Alexondropolis projects will bypass the Bosphorus Straits. Part of the oil transported by Druzhba is being redirected to the Baltic Pipeline System. In the gas sector, over half of the transmission network is more than twenty years old.
The infrastructure requirements entail upgrading and expanding the export pipeline capacity to Europe. Consequently Gazprom has been making significant investments to modernise existing infrastructures and to build new transport routes. According to the Russian Energy Ministry, the total investments required in the energy sector should amount to around $660 and $810 billion from 2002 to 2020. The International Energy Agency estimated that over $1 trillion is necessary. Such numbers require the mobilisation of both public and private funds, including foreign investments. Undoubtedly, the vital challenge for the Russian energy sector is to define new investment policies. Without a long-term investment strategy Russia's future as an energy power and its capacity to honour its long-term contracts with its European customers will be challenged. In this sense, the energy future of Russia will depend on the outcome of public-private cooperation as well as cooperation with foreign investors. During the 1990s, foreign investment remained extremely low due to the weak protection of property rights, the baffling tax legislation and rampant corruption. Meanwhile, capital flight amounted to $150-$300 billion between 1992 and 1999.34 Some of this capital started returning to Russia later on, making offshore havens such as Cyprus for top foreign investors. As the economy rebounded and the legislation improved, foreign investment gradually started growing, amounting to $121 billion in 2007. Still, the share of foreign direct investment remained low (about $50 billion in 2007) with the bulk of it going to the oil and gas sectors. Investments in developing new fields often in partnership with foreign majors have progressed as well. In fact, the dwindling reserve base and soaring prices have stimulated multinational oil corporations to look for profits in regions where costs and risks are higher. Oil majors started facing fierce competition from national companies backed up by their respective governments.
In this context, Russia seems to be more open than most other producing countries such as Saudi Arabia, Venezuela or the United States. This is why BP, Total and Shell are striving to gain access to Russian fields, despite unfortunate past experiences and tighter rules. National companies have also increased their interest in domestic investment. In 2005, Gazprom adopted an $11 billion yearly investment programme. However, the bulk of this sum was mainly directed at foreign acquisitions, pipeline projects such as Nord or South Stream or investments in power generation. The company also spent $13 billion on the acquisition of the oil company Sibneft, making its ex-owner a multibillionaire. Even if Russian oil and gas companies today possess substantial financial resources thanks to high commodity prices, the way they are utilised often seems inefficient and mysterious.
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1. Rising oil and gas sales
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