At the turn of the twentieth century, the Russian Empire emerged as the world's largest crude oil producer and exporter with the rapid development of the oil industry in the Baku region. In Baku, a cosmopolitan city where East meets West, entrepreneurs of various national origins made fortunes out of oil while eminent scientists such as Dmitry Mendeleev brought their expertise to the needs of the oil industry. After a tumultuous century of ups and downs, modern Russia is back again on the international scene as a major oil and gas exporter, manifesting ambitions to become an energy superpower in the context of surging global demand for energy. New Russia's strategy highlights that its unique Eurasian location and vast hydrocarbon resources should be able to ensure the security of supply to both itsWestern and Eastern neighbours in the twenty-first century.
The same ambitions are cherished by the former Soviet republics around the Caspian Sea. Rich in oil and gas, they are emerging as new important suppliers of energy resources. Their full potential is still untapped. Russia is one of the largest energy producers in the world: it is the first producer of natural gas, the second for oil, and the fourth largest electricity producer after the USA, China and Japan. Unlike most other industrialised nations, Russia is self-sufficient in energy. Russia has a wide natural resource base, which includes the world's largest natural gas reserves and the second largest coal reserves. It also has an important hydroelectric potential, as the country possesses about 9 per cent of the world's hydro resources. The Russian power sector has a relatively diversified fuel mix. Conventional thermal power plants account for 66 per cent of the electricity generation, hydropower for 18 per cent and nuclear for 16 per cent. Russia produces and consumes a lot of energy. It is the second largest consumer of gas after the United States. Natural gas currently covers about half of its energy needs. Its primary energy consumption per capita is comparable to that of the EU-15 or Japan (about 4.5 Mtoe/capita/year), but it is less that of the Nordic countries or North America.
The Russian economy is characterised by its particularly high-energy intensity (about three times higher than that in Europe or Japan). At the same time, its electricity consumption per person is lower compared to other industrial countries. Note that this major oil producing country has a rather low oil consumption level per capita (0.9 tonnes). Russia ranks third for carbon dioxide emissions, after the US and China, with twice less CO2 emissions per head than the US. The specificity of Russia is that most of its population and industries are located in the European part of the country while the natural resources are found in the Asian part, thousands of kilometres away from the main consumption centres. This implies high transportation costs and requires bringing in manpower to those inhospitable regions. Production costs are also considerably higher than in Saudi Arabia or Qatar for instance. Moreover, there are wide variations in consumption levels across regions, with affluent Moscow and the industrial Urals already experiencing acute deficits of electricity supply. The fuel and energy complex - TEK in Russian - remains a key sector of Russia's contemporary economic development. The TEK provides a large share of the country's industrial output (about a quarter of the GDP) and yields the biggest tax revenue (one-third of the federal budget in 2006). Electricity and energy consumption per capita is generally correlated with living standards. But energy is much more than a base and a locomotive of Russia's economy: it is a vital sector that enables life in this vast and cold country. Any electricity blackout or shutdown in the boilers on a cold winter day could prove catastrophic: cuts to hot-water supply mean that residential water pipes and apartment radiators may simply freeze and burst, making the whole area uninhabitable.
Those unfortunate residents of Siberia or Sakhalin that experience winter electricity cut offs certainly learn at first hand what energy is. Russia is the largest net exporter of energy with oil and natural gas dominating its external trade. In fact, hydrocarbons represent over half of the external trade, a proportion that has increased significantly over the last decade. Approximately two-thirds of all the crude oil and one third of the natural gas produced in Russia are exported. The bulk of the crude oil and gas exports are delivered to EU countries and Russia is by far Europe's biggest external gas supplier. In the future, Russia may also boost exports of oil and gas to Eastern markets, such as China, Japan and India, if new transport infrastructures are built. Russia also exports electricity, mostly to the ex-USSR countries, and it is the third largest exporter of coal which represents about 10 per cent of global coal exports. The share of raw materials increased from 42 per cent in 1995 to 65 per cent of the total exports value.
Even though it is expected to decline in the long term, it is likely to remain a core sector and its natural resources wealth remains Russia's only ‘competitive advantage'. With only 2 per cent of the world population, 3 per cent of the world's GDP and the economy dependent upon the trade of raw materials, modern Russia may not regain its superpower status. However, in the current context of growing demand and limited supply, energy has become not only the most important strategic commodity but also a powerful geopolitical tool. Energy is a means for Russia to restore its lost influence and to play an increasing role on the international scene.
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