North-West Russia As a Gateway in Russian Energy Geopolitics

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North-West Russia as a gateway in Russian energy geopolitics

MARKKU TYKKYLÄINEN

Tykkyläinen, Markku (2003). North-West Russia as a gateway in Russian energy geopolitics. Fennia 181: 2, pp. 145–177. Helsinki. ISSN 0015-0010.

This paper examines Russian energy development and plans and their geopolitical implications around the turn of the new millennium. Argumentation is founded on the interpretation of the impacts of stakeholders’ interests on geopolitics under new societal conditions and the legacy of past energy production and logistics. Empirical evidence consists of material from the projects of Russian companies and the plans and politics of the Russian Government for developing the energy sector.

The redefined borders and the geographical shifts of energy production have brought about the orientation of Russia’s energy development and interests towards the north. The former empire’s parts bordering on Russia in the west, Belarus and first of all Ukraine, have become problematic due to transit payment conflicts. Consequently, Russian companies develop ports in North-West Russia as well as plan the construction of new oil and gas pipelines through the Baltic Sea Region. On the other hand, the northern location of the infrastructure plans is a geographical necessity, in the way that new oil and gas deposits lie in northern high-latitude zones. Energy stakeholders’ market-oriented interests greatly influence the country’s economic orientation to the advanced economies and the global economy. Thus, Russia’s new energy geopolitics means economic integration and networking with partners (companies, nations and economic areas) that are able to co-operate successfully in the economic sector. In all, the energy projects and plans in Russia are de- rived from these restructured, pragmatic and market-led economic interests, which have led to the growing significance of gateways in North-West Russia.

Markku Tykkyläinen, Department of Geography, University of Joensuu, P.O. Box 111, FIN-80101 JOENSUU. E-mail: [email protected]. MS received 11 September 2003.

Aims and research area changes in accessibility to the export market that influence Russian business and power interests, Tracing new energy geopolitics as well as current geopolitics in Russia. The study shows the geographical shifts in energy produc- This paper analyses Russian energy development tion and the changing importance of regions and and its geopolitical implications in the recent past, logistic gateways in Russia. Secondly, the market- from Soviet times to the post-1998 growth peri- led interests of the export sectors influence the od. The geographical focus of the paper is on new geopolitics of Russia. For instance, energy North-West Russia and its adjacent areas in the producers may have considerable influence in European North. The hypotheses of this study are policy-making. Furthermore, this paper evaluates that the current energy development is explained Russian energy plans and trends up to 2030 and both by the past Soviet legacy, including its geo- aims at assessing their repercussions on Russian graphical dissolution, and the interests of the energy integration with advanced countries. stakeholders in the new Russian market-oriented This article looks more closely at the new con- economy. Furthermore, these corollaries have figurations of the Russian energy system and the bearing on Russian geopolitics. First, there have geopolitical aspirations boosted by energy inter- been locational changes in energy production and ests. The study consists of 1) scrutinising the main 146 Markku Tykkyläinen FENNIA 181: 2 (2003) locational developments in energy production, North-West Russia’s location relative to the cen- 2) elaborating on the new market-led economic tre has changed. The dissolution of the Soviet environment and foreign trade relations in the en- Union led to the Russian energy sector being al- ergy sector, and 3) examining the changes in Rus- lowed to operate in part under the rules of inter- sian geopolitical thinking, partly as the result of national business. Furthermore, when the Soviet points 1 and 2. All these factors bring about a new Union shrank and became just Russia, both the geopolitical situation in North-West Russia and geographical centre and population centre shift- the Baltic Sea Region. From a practical viewpoint, ed northwards, 333 and 389 km respectively this paper helps to understand the significance of (Lynch 2002, 41). Large energy production and the Baltic Sea transport routes for Russia, the ques- infrastructure systems have been constructed dur- tion of Baltic oil transport safety in the contexts ing the last decades. Coal, gas and oil have been of Russian oil transport, the development of north- extracted from various locations, and considera- ern gas pipeline systems as a part of the Russian ble shifts in the geography of energy production energy apparatus, and the nature of the linkages have taken place in the past few decades. The of the Russian economy to the world geo-econo- changes in the expanse of territory and the de- my. velopment of energy production (based on the location of reserves) are physical factors, and they North-West Russia’s position have impacts on geopolitics in addition to new actors, technology and institutions. The major research area is North-West Russia. To present North-West Russian energy development as part of the Russian energy system, which con- Theoretical and methodological sists of the country’s energy production and ener- arguments gy transport, this paper refers in many cases to energy production, logistical solutions, plans and Formation of geopolitics and geo-economic projects elsewhere in Russia and in the former competition Soviet Union. There are many definitions of North-West Russia or North-Western Russia (e.g. Geopolitics considers that the constitution of in- Blakkisrud and Hønnesland 2001, 9). In 2000, all ternational relations is bound to geographical Russian regions were grouped to form new mac- space. It is also bound to time. Theories based on ro-regions, Federal Okrugs. The North-West Fed- a static world-view or the perpetual fundamen- eral Okrug consists of the Northern and North- tals of geopolitics are hardly explanatory because Western Economic Regions and the enclave of institutional restructuring occurs at all times. Kaliningrad Oblast (Andreev & Olsson 2002, 1, Many events, such as the collapse of the Soviet 5). The Northern Economic Region includes the bloc, the socio-economic integration of many na- Republic of Karelia, Murmansk Oblast, Arkhan- tion-states into larger economic areas, the grow- gelsk Oblast (including the Nenets Autonomous ing dominance of global economic relations, the Okrug), the Republic of Komi and Vologda Ob- emergence of regionalism and separatism, the rise last. Five million people reside in this Region, and of multinational business and communities and the area of the territory is equal to the five Nor- the global war against terrorist organisations, dic countries and the Baltic States together. This show that the everyday geopolitics can change region stretches as a 800 kilometre-wide belt from rapidly. There are new contents and new reason- the borders of Finland to the Ural Mountains. The ing why conflicts emerge. The actors are chang- significant oil, gas and coal producers of the ing as well. It is no longer self-evident and valid Northern Region are located in Arkhangelsk’s that the premise of geopolitics (denoting a funda- Nenets Okrug, bordering on the Barents and the mental actor and its borders) is a nation-state Kara Seas, and in the Republic of Komi. The where the political elite of the state alone deter- North-Western Economic Region includes St. Pe- mines international relations based on a national tersburg, Leningrad Oblast, Pskov Oblast and ideology. The world has become more complex, Novgorod Oblast. More than half of the region’s networked, interdependent and fragmented. New eight million residents live in St. Petersburg. There interests and coalitions emerge. Agnew (2001, 13) are several important ports in St. Petersburg and says that world politics “is the outcome of socio- Leningrad Oblast. logical praxis based on rules, practices, and ide- FENNIA 181: 2 (2003) North-West Russia as a gateway in Russian energy geopolitics 147 as that are not set for all time but change as a re- bal and sub-global trade systems. Geo-economic sult of the contingencies of world history.” Con- competition on markets amidst companies and tents and actors change. Political turns, tensions governments prevails. and controversies in Russian geopolitics give rise Russia’s future geopolitical status is challenged to new interpretations. It is relevant to say that the by various political groups and movements. The geopolitical elite in Russia – and in many other main divide is between Atlanticists and Eurasian- countries – is a formation of diverse actors situat- ists. Yeltsin adopted Western principles and sought ed in various economic, political, ethnic and ide- to make Russia a part of the West (Huntington ological networks, and geopolitical decision-mak- 1993, 43). Putin’s regime is more pragmatic in ing consists of a sequence of time-bound deci- searching for Russia’s economic interests, but the sions made in evolving economic, societal and geopolitical outcome is similar. A new and emerg- political contexts. Thus, to understand the deci- ing factor is the war against terrorism that unites sion-making and geopolitics dealing with Russian many Russian and Western politicians. For the energy, the analysis is justifiably based on histor- Russians, the fundamental ideological issue is ical development and the influence of the new whether Russia should be a Eurasian power with power structures in Russia. its own mixed identity between the East and the If energy is the main source of foreign curren- West, or should it be a European nation amalga- cy, as it is in Russia, it is certainly in a central role mated to European culture and traditions (Tsy- in geopolitics. Energy commodities constitute a ge- gankov 2003). Both opinions have support in Rus- opolitical instrument. Under monopolistic circum- sia, although the Eurasian superpower concept stances an energy-producing country can use en- appears to be more unrealistic due to economic ergy as a regulative instrument, as happened dur- and cultural reasons (cf. Huntington 1993). ing Soviet times. In market-economy conditions As seems apparent, the new semi-capitalist or- the abundant supply of energy leads to a situation der will prevail in Russia for a long time. That where customers can, to a great extent, select from clearly means new economism in Russia, in the whom they buy, which kind of commodities and sense that economic interests steer the develop- which quantities. Under the global market econ- ment of society. It is evident that the energy busi- omy, suppliers have to compete in the market, and ness, as the most important source of foreign cur- Russia is clearly a partaker in this respect. rency, will influence the contents of geopolitics. It is in the interest of a Russia recovering eco- Geopolitical thinking and boundaries are social- nomically that domestic companies earn more ly constructed. Thus, if taking into account this foreign currency by selling energy. To boost eco- fact and its implications, the Russian geopolitical nomic growth, the Russian Government is eager orientation can be explained and anticipated as to improve the institutional framework for promot- a function of the interests of energy companies ing investments and benefits obtained from pro- and Russian energy apparatus. Nevertheless, the duction sharing and joint ventures. The impor- course of geopolitics is the result of political de- tance of institutional modernisation has increased, cisions. Tsygankov (2003, 103) says, “the post- because it has become clear that many energy Soviet geography [Russia’s spatial thinking] is be- projects have not progressed as fast as expected. ing reconstituted as a result of discursive strate- For instance, during the 1980s and 1990s Norway gies chosen by Russian intellectual and political succeeded in developing its offshore hydrocarbon elites, rather than of some fixed or ‘natural’ geo- production and logistics to Europe and the world political interest.” This paper does not go into in- market more efficiently than Russia. Investments depth discussion of Russian geopolitical thinking, did not flow to the Russian energy sector in the but attempts to analyse the geographical interests 1990s, and now the country attempts to attract of the stakeholders of the energy (and export) sec- investments more actively. Russian energy com- tor and transmit this viewpoint into academic ge- panies are also anxious to develop their produc- opolitical discourse. tion chains by investing abroad. The country must compete and have good relations with customer Methodology: unravelling the key structures, countries. Russia has lost its power, former Sovi- processes and actors et states, and ideological and political arguments for carrying out the old politics of supremacy, but The methodological principles of this study are it strives to operate as a part of the integrating glo- based on a holistic approach applying different 148 Markku Tykkyläinen FENNIA 181: 2 (2003) methods and data material. The starting point is when compared with other parts of the world, but very much inspired by findings that a proper anal- Russia’s low population density, long distances, ysis of essential geo-economic phenomena de- energy exports and challenging natural conditions mands process-based analysis grounded in the add to the importance of the energy sector (i.e. multifaceted mix of methods and tracing impor- industries producing energy). The vast expanse of tant actors involved in the process (Yeung 2003). territory and the principles of economic develop- The empirical study attempts to trace the geo-eco- ment inherited from the post-revolution years nomic structures, processes and actors that result- caused energy production and its logistics to be- ed in the late-transitional (post-1998) energy de- come large-scale projects already during the so- velopment and geopolitics based on energy inter- cialist era (Eronen 1999). The significance of ests. It is clear that Russian geopolitics as a whole North-West Russia as a gateway has increased is a much broader and more complex issue than since the dissolution of the Soviet Union. Much the outcome of the nation’s energy interests, but of the energy is conveyed through North-West at least in order to understand geopolitics rooted Russia via pipes and ports and much of it is con- in energy interests, it is important to unravel the sumed in the region’s large industrial enterprises linkages between geopolitics and energy. On the and in St. Petersburg. other hand, energy practices, programmes and The Soviet economy collapsed at the beginning plans represent more than just the policy of the of the 1990s, after which the economic situation energy sector, because of the country’s resource- deteriorated year after year through 1998. The based economic structure. The Russian economy question whether Russia is changing from a mod- is largely based on the processing of natural re- ern society to an anti-modern one was raised sources, the production of which is operating in when Russian economic development and mate- a world market comparable to that of energy com- rial welfare were observed to decline, barter ex- modities. Nevertheless, in a strict sense, the va- change to replace trade and the economy to dis- lidity of this research is restricted to energy geo- integrate (Rose 1998). As for the energy sector, politics. however, the issue is more ambiguous. Part of the The process-based approach has given the free- energy production rests solely on outdated indus- dom to design tailored in-depth inquiries into var- trial capital, i.e. worn-out machinery and equip- ious data sources. The flexibility of methods is a ment and obsolete transport networks. Many ac- necessity because of the complexity of the web tors of the economy were being left in a disinte- of causal powers, liabilities, contingent condi- grating and redundant state. On the other hand, tions, structures and human choices. This study is part of the energy sector was capable of being primarily based on secondary data focusing on developed, and its top companies strove to invest the historical development of the energy sector in new businesses, modernise the old industrial and energy plans and outlooks. Furthermore, the capital and explore for energy resources. study utilises the databases, reports and pages Russia was ranked third in the world after the published on the Internet. Most large companies USA and China in energy production in 2000 (IEA publish their reports and plans on the Internet, 2003a, 48–57). Russia’s standing as a big energy and these data sources have been used to apply producer rests on its abundant natural resources, data triangulation. The pages published in print- e.g. gas, oil, coal, hydroelectric power, and ura- ed form have been considered reliable as such, nium. In addition, there are great quantities of and the data of unprinted sources have been con- wood and peat in the coniferous forest zone in firmed through several sources. the north, though they are not utilised to any significant extent as sources of energy. Until recently power production based on bio-fuels (such as Energy and Russia’s transition wood and peat) has not been competitive under in the 1990s Russian conditions. Large-scale production and specialisation explain the technical and commer- Decline, recovery and global geography cial properties of the energy system. Russia’s energy consumption can be explained by the coun- In the economy of Russia, as well as in that of try’s degree of industrialisation, specialisation in the former Soviet Union, energy production has processing natural resources, and its northern and been of primary importance. This is not unique continental location. Energy is greatly needed FENNIA 181: 2 (2003) North-West Russia as a gateway in Russian energy geopolitics 149

Table 1. Energy consumption in million tonnes of oil equi- (tonnes of oil equivalent per capita), energy con- 2 valent (Mtoe) . Source: World Bank 2000, 292-293; IEA sumption in Russia is not particularly high and has 2003a, 50, 52, 54, 56. even decreased during the economic transition. 1990 1997 2000 Change in %, Consumption per capita, i.e. the energy intensity, 1990–2000 in Russia decreased from 6.1 toe per capita in 1990 to 4.0 in 1997 (World Bank 2000, 293) and Russia 906 592 614 –32 USA 1926 2162 2300 19 recovered slightly to 4.2 toe per capita in 2000 China 867 1113 1142 32 (IEA 2003a, 55). The level of carbon dioxide emis- Japan 439 515 525 20 sions also decreased. The energy consumption per India 360 461 502 39 capita in the USA (8.4 in 2000) and Canada (8.2) Finland 29 33 33 14 was clearly higher than that in Russia (Fig. 1). In 2000, northern Europe’s energy consumption was also higher, being 5.4 toe per capita in Sweden and 5.7 toe per capita in Norway. Finland’s ener- both for production and the maintenance of trans- gy consumption was also higher than Russia’s and port, housing and communal services. it grew from 5.8 toe per capita to 6.4 toe per cap- After the late 1980s, Russia’s importance as an ita during 1990–2000. At the turn of the millen- energy consumer weakened. The collapse of the nium Russia’s energy consumption per capita Soviet economy deteriorated the entire energy matched Europe’s average level, and was lower system. Energy consumption1 fell at the same rate than that in North America and northern Europe as the activities of the energy-utilising sectors but higher than that in southern Europe. The en- slowed down. By country comparison as of 1990, vironmental pollution caused by the energy sec- the United States was the world’s largest energy tor in Russia was reduced due to the reduction in consumer. Still in 1990, the economic area of the energy consumption and structural changes in the present Russian Federation was the world’s sec- 1990s (Fig. 1). In China, the energy intensity was ond-largest energy consumer (Table 1). All the much lower, 0.9 toe per capita, than in Russia in Russian figures in Table 1 refer to the present area 2000 (IEA 2003a, 51). of the Russian Federation. The comparison of countries roughly speaking The rapidly growing Asian economy has reveals that the higher the energy consumption changed the global division of energy consump- the better the standard of living. On the other tion. Nowadays China is the world’s second-larg- hand, high figures indicate that such economies est energy consumer. Russia’s declined energy are largely based on material consumption or are consumption has primarily been caused by the hubs of resource-processing industries. Such economic transition in the 1990s, when produc- economies also can be inefficient and poorly sus- tion fell to half of the level of production at the tainable. Thus, the welfare impacts of high ener- beginning of the decade. In the majority of coun- gy consumption are not self-evident. Although the tries, however, economic activities increased, thus volume of energy consumption in Russia is at the also increasing energy demand. European level, the living standard of the popu- The comparison of energy consumption chang- lation clearly falls behind that of the developed es taking place in 1990–97 illustrates the deep industrial countries (IEA 1995, 44–45). In this re- economic recession in Russia (Table 1). Despite gard the Russian economy could be more effi- this, Russia is still a very large energy consumer. cient, sustainable and post-industrial. If the country will be hit by economic turmoil The share of energy exports from the total Rus- again and India’s and Japan’s energy consumption sian exports increased in the 1990s (European continue grow as in the 1990s, Russia may end Commission 2001, 164), and over one-third of all up behind these countries in energy consumption. Russian energy production was exported in 2000 By 2000, energy consumption in Russia had (IEA 2003a, 54). Energy became more important grown by 3.7% from 1997 indicating economic than ever as a source of hard currency, because recovery. The respective figures for the USA were out of all the production of the Soviet Empire, 6.4%, China 2.6, Japan 1.9% and India 8.9%. mainly oil and gas production remained compet- Russia’s production structure, regional energy itive. The dissolution of the control of the com- demand and transport needs determine energy mand economy enabled the Russian companies consumption. Measured by energy intensity that had become prosperous through energy ex- 150 Markku Tykkyläinen FENNIA 181: 2 (2003)

Russia is a developing country rather than an industrial one, because its own industrial production is only partly able to utilise the energy supply. Thus energy is being sold abroad. Russia produces especially natural gas for the European market. Around the turn of the millennium the country produced 20% of the gas utilised in the European Union and 15% of the oil imported by the European Union (Liuhto 2002, 4). According to the import statistics of the European Union, Russia was the largest natural gas supplier and the second-largest oil supplier (after Norway) to EU countries. On the other hand, Russia’s hard currency income, as well as citizens’ welfare, de- pends greatly on revenues coming from energy exports (Rautava 2002). The positive talks in Rus- sia and the EU about the economic co-operation between each other are very understandable in this context. The spatial configuration of the Russian energy cluster (i.e. energy-producing industries, support- ing industries and services, energy transport, enterprise structures and institutions), distances and borders, the size of the European market and built infrastructure bring about favourable conditions for exporting energy to Europe. The pipeline and power cable networks enhance the dependence on European exports. The former CMEA’s3 oil and gas pipelines transport energy westwards to the EU-integrating East Central Europe and further to the core of Europe. The production of oil and gas for export was significantly invested in already during the Soviet period. While the geopolitical circumstances have changed, this legacy still mat- Figure 1. The dynamics of energy consumption and carbon ters. dioxide emissions in 1990–2000. Source: World Bank 2000, 292–293; IEA 2003a, 48–57. The impacts of the growth and decline of the Russian energy cluster are geographically uneven, being very scattered and creating pockets of development or decline. Lynch (2002) warns that ports to consolidate their positions in the econo- without state intervention the Russian geo-econ- my. Although the losses suffered during the reces- omy is not competitive and refers to poor acces- sion of the transition period are still clearly visi- sibility and huge distances. Many will agree that ble in the energy sector, energy production has there are numerous declining localities and un- increased during the past few years and the de- competitive plants and factories, but there are velopment prospects in the energy system rest on signs of long-term growth and development as its anticipated growth. well. Investments take place under liberal eco- Russia is a leading energy exporter. At the be- nomic auspices, but their geography is less antic- ginning of the millennium it was the largest gas ipated than in the former command economy. exporter, third-largest crude oil exporter and sixth- Population growth in the Khanty-Mansi Autono- largest coal and electricity exporter in the world mous Okrug beyond the Ural Mountains in the (IEA 2003a, 13, 11, 15, 27). Whereas many other 1990s (when other northern regions of Russia suf- industrial countries are net importers of energy, fered population losses) is a good example of the Russia is a net exporter of energy. In this regard spin-offs from successful energy companies (Hele- FENNIA 181: 2 (2003) North-West Russia as a gateway in Russian energy geopolitics 151 niak 1999, 172). Energy companies operating in Russian energy decline in comparison the export markets have been able to modernise their production and utilise foreign technology Table 2 presents the main developments of the and capital, as well as be competitive in world Russian energy sector in the 1990s’ declining markets. This restructuring in production is not in phase in a comparative setting. Energy production any way unexceptional: companies have to adapt declined, and Russia’s share in global primary during economic transition, and only the most energy production decreased from 14 to 11 per competitive sections of the economy will grow cent (Table 2). Energy production bottomed out and develop. The rouble devaluation of 1998 (and in 1997. In the subsequent years energy produc- the high price of energy) brought economic tion grew slightly; in 1998 it was 0.7% higher growth and new wealth to Russian export com- than in 1997, and production in 1999 was 2.4% panies. These funds were transformed into invest- higher than the previous year (IEA 2002a, 275). ment in equipment, pipelines and transport facil- Natural gas is clearly the most important ener- ities at the beginning of the millennium. The out- gy resource in Russia, and it became even more come is geographically uneven but the total sum significant over the 1990s. It has not always been of investments has grown. that way: the Russian gas sector has been devel-

Table 2. Russia’s energy sector during the 1990s’ transition. Primary energy production in Russia, the USA, China and Finland; the countries’ share in global primary energy production and consumption. Source: United Nations 1996; Uni- ted Nations 2000; United Nations 2001.

Country Primary energy Country’s share Proportion of Proportion of – Year production, in global primary natural gas energy million tonnes of energy production of consumption of oil equivalents, production, primary energy primary energy (Mtoe) % production, production, %% Russia 1992 1107.0 13.8 44.5 64.9 1993 1036.0 12.9 46.7 67.3 1994 945.0 11.3 50.3 63.0 1995 999.0 11.6 54.3 64.6 1996 978.0 11.1 54.1 61.7 1997 956.0 10.7 53.1 60.9 1998 965.0 10.8 54.5 60.2 USA 1992 1604.0 19.9 28.9 119.6 1993 1555.0 19.3 30.2 124.6 1994 1708.0 20.5 29.1 121.7 1995 1720.0 20.0 29.2 122.6 1996 1753.0 19.8 29.2 123.8 1997 1755.0 19.7 29.3 124.6 China 1992 726.0 9.0 2.0 93.8 1993 749.0 9.3 2.1 94.5 1994 800.0 9.6 2.0 95.6 1995 866.0 10.1 1.9 94.6 1996 896.0 10.1 2.3 95.8 1997 890.0 10.0 2.6 95.1 Finland 1992 7.6 0.09 0.0 303.9 1993 7.1 0.09 0.0 335.3 1994 8.2 0.10 0.0 318.9 1995 8.2 0.09 0.0 317.1 1996 8.3 0.09 0.0 333.4 1997 9.1 0.10 0.0 291.3 152 Markku Tykkyläinen FENNIA 181: 2 (2003) oped during the past few decades. The stagnation in all fuels utilised in Russia accounted for 60% of the Soviet Union’s economy in the 1980s did (Bater 1996, 224). By 1980, the share of coal as not affect the energy sector greatly; on the con- a primary source of energy decreased to 25% trary, energy production grew year by year in the (Sagers & Green 1986, 91), and it continued to 1980s. Primary energy production in the Soviet fall until the latter part of the 1990s. Production Union was 1590 million toe (converted from Rus- volumes started to decrease significantly already sian fuel equivalents to oil equivalents) in 1989 in the early 1980s, and continued to decrease in (Bater 1996, 224). the early and mid-1990s and by 1998 it was only Industrial development during the socialist pe- 56% of the production of 1990 (IEA 2002a, 153). riod expanded the oil and gas production net- Inefficient mines have been closed. For instance, works to Siberia and northern Russia, and also 140 coalmines were closed by 2000 (IEA 2002a, made Gazprom the most important company in 154). Loss-making and marginal mines still exist. Russia. The role of the economic elite, such as the The coal exports of 1990 (59 million tonnes) leaders of Gazprom, in Russian politics of the decreased by half in 1993 (27 million tonnes; IEA 1990s was significant, reflecting that which was 2002a, 167). Since 1998, export activity has re- considered important in society. The network of covered significantly. Coal export has grown the gas pipelines is of the same importance for strongly at least up to 2002 (Hernesniemi & Russia as the Autobahn motorways are for Ger- Dudarev 2003, 52). The share of coal in Russian many. energy exports is negligible. The share of solid fu- As seen in Table 2, Russia and China are self- els (in this case, coal) in the energy consumption sufficient in energy use whereas the USA is a net (TPES) of Russia accounted for 17% in 1997 (IEA importer of energy. China is dependent on coal, 2002a, 183), and even less in the total primary and it was a growing economy in terms of prima- energy production. Brown coal (lignite)4, which ry energy production during the Russian transi- is not as valuable as anthracite, makes up one- tion of the 1990s. China’s oil demand outstripped third of coal production. The majority of the mines production in the 1990s and the same will hap- (65%) are open-pit mines (IEA 2002a, 183). pen to natural gas. China will become a large en- As a result of the collapse of socialism, almost ergy buyer in the coming decades as strong eco- half of the former Soviet Union’s coalmines were nomic growth drives up energy demand and im- lost to the newly-formed independent republics. ports, which impacts on Russian energy plans (IEA This loss concerned mainly coal production, and 2002b, 237–268). oil and natural gas production only marginally. In Russia’s strengths in energy production are 1992, Russia’s coal production yielded 337 mil- clearly visible when energy figures are compared lion tonnes, while Ukraine produced 134 million with Finnish ones, and the 1990s transition did tonnes and Kazakhstan 127 million tonnes (Bater not alter this relation between Russia and Finland 1996, 228). According to the data for the coal pro- significantly. Finland is dependent on imported duction of 1992, only 56% of the former Soviet energy, because its domestic energy production Union’s coal production remained in Russia (Bater compared to energy consumption is very small. 1996, 228). Nevertheless, Finland’s location near to Russian In the early 1970s, the Donets Basin of Ukraine energy reserves and energy transport routes is ad- was the largest coal-producing area where, in vantageous. Finland can buy Russian energy pro- 1970, one-third (216 million tonnes, i.e. 34.6%) duced relatively close to Finnish consumption of the Soviet Union’s coal was extracted (Sagers sites. For Russia, Finland’s energy market is not & Green 1986, 92). Since the beginning of the very large, but Finland’s location along the ener- nineteenth century this region has played the gy routes is notable in a geopolitical sense. main role in coal and steel production. Anthra- cite and other coals have been extracted from underground mines. When the reserves in the Energy production and consumption Urals and the European part (the Moscow Region and the eastern parts of the Donets Basin) had run Coal low, coal production was increasingly developed in Siberia. As a result of the Soviet Union’s col- Coal was the backbone of Russian energy produc- lapse, the coal-producing regions of Kazakhstan tion until the 1950s. At that time the share of coal and Central Asia were lost. In the European part FENNIA 181: 2 (2003) North-West Russia as a gateway in Russian energy geopolitics 153 of Russia, only in the coal-producing Pechora re- tion and logistics and the poor ability of the coal gion (Inta and Vorkuta) coal production was in- sector to attract investments prevent the imple- creased in the 1970s and 1980s. mentation of such plans. Similar aims to increase The Kuznetsk Basin (Kuzbass) of Western Sibe- coal production with a view to decrease crude oil ria is the most important coal-producing area and consumption emerged in the 1970s, but with the mines there produce most of Russia’s coal meagre results (Sagers & Green 1986, 91). Al- (44.6 per cent in 2000; IEA 2002a, 151). These though there are some efforts to increase the uti- coal reserves and production areas are situated lisation of coal as a primary source of energy, its southeast of Novosibirsk (south of 55˚N) and usage has clearly declined. stretch towards the northern parts of the Altai Coal production bottomed out in 1998. In Mountains along the border with China and Mon- 1999, the share of coal in the energy consump- golia. The growth of coal production in the tion of Russia reached 19% (IEA 2002a, 275), hav- Kuznetsk Basin was initiated in the period of rail- ing left the production figures of the previous year way construction in Siberia and continued dur- behind. New mine constructions are planned for ing Stalin’s industrialisation period. In the 1970s, Siberia and the Russian Far East. More cost-effi- Siberian coal production left the Donets Basin’s cient quarry-type open mines are planned. If the production behind. Coal is transported by rail, Russian economy developed more intensively in and the largest volumes of coal move towards the the direction of Siberia and the Russian Far East, production plants in the Urals and the European which abound with coal, the growth of coal con- part of Russia. The volumes of transported coal sumption would be possible and even probable. are significant and the transport distances long. The future of coal utilisation is highly dependent During the Soviet period, the average distance of on the price development of not only coal but coal transport was 800 km. also other primary energy commodities and on Coal fields to the east of the Urals, the Kuznet- the logistics of supplying the commodities to the sk Basin together with Kansk-Achinsk in Central market. Siberia (15.7% in 2000), the coal fields of East- ern Siberia (14.2%) and the fields in the Russian Oil Far East (11.1%) produced 85.6% of Russian coal in 2000. Out of these production areas, Kansk- Crude oil production is clearly more dynamic Achinsk, also known as KATEK, lies closest to Eu- than coal production. Oil production has in- rope. Brown coal, or lignite, is extracted in quar- creased over the last decades. It played a grow- ries and open mines around Krasnoyarsk situated ing and increasingly central role in the Soviet 500 km northeast of the Kuznetsk Basin. The most economy as the source of hard currency from the significant resources and reserves of coal are lo- early 1970s onwards (Considine & Kerr 2002, cated in Siberia and the highest consumption po- 138). The geography of the oil industry has great- tential is on the European side. The most efficient ly changed over the last thirty years. At the same mines are located in southern Yakutia (the Repub- time as oil production in the European part of lic of Sakha-Yakutia) and in Kansk-Achinsk. Out Russia decreased, in Western Siberia it increased of the most important coal-producing areas, only tenfold. The Khanty-Mansi Autonomous Okrug the Pechora coal basin (7.2% of the country’s to- has become the main oil production area. The tal coal production in 2000) lies in the European Khanty-Mansi Autonomous Okrug5, lying on the part of Russia. Coal lost its former significance for eastern side of the Urals (523,000 km2; 1,358,000 the country’s economy as gas production, with its inhabitants in 1998; Heleniak 1999, 172), is situ- network of gas pipelines, expanded, and the Rus- ated on the same latitude as southern Finland. The sian economy has had to adapt to the current sit- capital of the Okrug, Khanty-Mansiysk, lies at the uation. junction of two rivers: the Ob and the Irtysh. The Gazprom has been attempting to persuade the geographical co-ordinates of the city are 61˚00’N Russian Government to change the relative pric- and 69˚06’E, and the great circle distance from es of gas and coal in the way that coal would be- the easternmost point of the EU border is come more utilised in domestic power stations 1943 km. The estuary of the River Ob is on the (IEA 2000, 184; Moe & Jørgensen 2000, 125). In Arctic Circle, and the journey along the Ob from such an eventuality, more natural gas could be Khanty-Mansiysk to the Arctic Ocean is about one exported. However, the problems of coal produc- thousand kilometres. The most important cities, 154 Markku Tykkyläinen FENNIA 181: 2 (2003) besides the capital, are Nefteyugansk, Surgut and Siberian Plain, being Russia’s main oil-production Nizhnevartovsk. area but lying in the backwoods of the country, is During the post-socialist economic crisis, Rus- by pipeline. Crude oil transport to the CMEA sian oil production remained a significant source counties of East Central Europe was arranged in of foreign income for the country. Since the late the same way, by pipelines. The Druzhba/Friend- 1990s, the high price of oil and the devalued ex- ship pipeline carries oil westwards via Brest (Be- change rate of the rouble brought high profits to larus) and Uzhgorod (Ukraine) (Fig. 2). companies and benefits to communities where oil The Soviet Union’s oil production, in compari- production took place. In 2000, the Russian com- son with coal production, was developed more in panies Lukoil and Yukos yielded the largest prof- Russian territory than on the union’s fringe. Con- its in Russia, 3400 and 3200 million US dollars sequently, the collapse of the Soviet empire did respectively (Statistics Finland 2001, 98). not take away from Russia as many oil enterprises Russian oil production came into being in the as those of coal. In 1996, Russia produced 89.6% Caucasus. Baku and Grozny in the south were the of all CIS, while only one-tenth by the former So- centres of oil production before the Second World viet republics. Already during socialist times the War. In the 1950s, oil production rapidly in- focus of oil production was directed to Western creased, expanding from the Caucasus to the Vol- Siberia, along the River Ob, in particular. ga-Urals regions; the latter area is known as the The oil production of the Soviet period peaked Second Baku (Considine & Kerr 2002, 311–313). in 1987, reaching 569.5 million tonnes (Sagers In the 1960s, the Soviet Union was the world’s 2001, 153). Oil production dropped drastically in second-largest oil producer after the USA. In the Russia at the beginning of the transition. Produc- 1990s, as a result of the Soviet Union’s collapse, tion bottomed out at 301.2 million oil tonnes in Russia lost the oil production of Baku (Azerbai- 1996 (Sagers 2001, 153). At that time only Saudi jan). Arabia and the USA were bigger producers than In the 1960s, oil production was rapidly devel- Russia. Thus, even during the crisis of the transi- oping on the River Ob and its tributaries in West- tion when production figures had fallen to half of ern Siberia (Considine & Kerr 2002, 95–100). the 1980s figures, Russia still was a significant oil Transport was problematic but gradually the po- producer. In the late 1990s, the county’s oil pro- tential of production was significantly enhanced duction grew rapidly. In 1999 it reached 305.2 by the construction of oil pipelines. First, the million tonnes and in 2000 increased to 323.2 crude oil of the West Siberian Plain was convert- million tonnes (Sagers 2001, 162), with growth ed into fuel products at Siberian refineries in continuing in 2001–2003 (IEA 2002b, 274; IEA Omsk and Angarsk, to where oil from Russia’s 2003b, 146). Russia exports a significant part of European areas was being pumped earlier. At the its oil output. In the late 1990s, the share of oil beginning of the 1970s the direction of the oil exports varied from 55 to 62 per cent of the total flows reversed; Siberia became a large production oil production (IEA 2002a, 275), and since 1995 area providing the Volga area’s refineries with oil. oil exports have steadily increased. Besides Siberia and the Caucasus, oil produc- Russia has an extensive – and according to tion exists in the north in the Komi Republic and many, efficient – network of crude oil transport in the Nenets Autonomous Okrug, as well as in pipelines (Sagers & Green 1986, 143), but the the Urals and in the Russian Far East. Compared pipes are partly worn out because of insufficient with Western Siberia, these areas are of relatively replacement investments. However, the basic minor importance. As the units of oil production, transport infrastructure from the fields to refiner- refining and consumption are spread across the ies, harbours and markets abroad has been con- country, construction of long pipelines has been structed. On the other hand, the distribution of necessary. Pipelines stretch from the Caucasus to- petroleum products takes place by land convey- wards the Arctic Circle on the western side of the ance. The refineries are large and distances are Urals, and from Lake Baikal towards the borders long. Condensates and some refined products can of Western Europe. The construction of pipelines be transported by pipelines between industrial connecting oilfields with refineries has been a centres in the Central, Volga-Vyatka, Urals and precondition for cost-efficient oil deliveries and Northern Caucasus Economic Regions, as well as exports. The only practical way to transport the to some export harbours, but otherwise products large volumes of oil from the oilfields of the West have to be transported by rail or tank lorries. FENNIA 181: 2 (2003) North-West Russia as a gateway in Russian energy geopolitics 155

Figure 2. Oil export flows and oil-exporting ports. Source: Bellona 1997; Sagers 2001; IEA 2002a; Khodor- kovsky 2003.

Russian oil production (including refining and terprise (Table 3). In 2000, the 11 largest oil com- distribution) has been mostly privatised and it has panies of Russia produced 88.2% of the oil, and expanded into the international market. The oil their refineries received 78.8% of the country’s industry almost entirely rests on seven large ver- total oil deliveries (Sagers 2001, 156). At the be- tically integrated companies (VICs). The verticali- ginning of the millennium the number of compa- ty of production can be described by the motto nies decreased due to takeovers and mergers. of Lukoil’s production philosophy: “From the oil- At the beginning of the millennium, the rapid- field to the petrol station.” Out of all these com- ly developed Yukos Company was the second- panies only Rosneft is a purely state-owned en- largest amalgamation including Yuganskneftegaz, 156 Markku Tykkyläinen FENNIA 181: 2 (2003)

Table 3. The most important oil companies of Russia in 2003. State ownership share, oil and gas production and refined oil production in 2000, and the number of petrol stations in 2000 and 2003. Source: Sagers 2001, 155 and 156.

Company State Oil Gas Refined oil, Petrol Petrol ownership production, production, in million stations stations share, in million in thousand tonnes 2000e 2003e in % tonnes million m3 YukosSibnefta 2500f – Yukos 0b 50b 1.6b 23b 1278b – Sibneft 0b 17b 1.4b 13b 859b – Slavneftb 75b 6b 0.4b 5b 9b Lukoil 14b 62b 3.6b 23b 850b 1691f TNK-BP 1216f – TNK 0b 36b 2.9b 12b 200b – Sidanco 0b 11b 1.3b 4b 40b – ONAKO 0b 7b 1.5b 4b 70b – Slavneftb 75b 6b 0.4b 5b 93b Surgutneftegaz 1b 41b 11.1b 16b 470b 302f Rosneft 100b 13b 5.6b 7b 1087b 610f Tatneft 31c 24b 0.7b 6b 100b 362f Bashneft 100d 12b 0.4b 19b 90b 90f Notes: aYukos and Sibneft announced on 22 April 2003 that they were merging (Sibneft 2003); bthe state’s shares in Slavneft were auctioned off on 18 December 2002 and transferred to Sibneft and TNK (TNK-BP 2003a) in the proportion of 50:50, accordingly, the figures that appear in the above table have been divided in half; the owners are the governments of cTatarstan and dBashkortostan, autonomous republics that are members of the Russian Federation (Liuhto 2002, 10); epetrol station figures are from: Lukoil 2003, 9; Misamore 2003, 20; Rosneft 2003a; Sidanco 2003; Surgutneftegas 2003, 14; Tatneft 2003, 11; fno new data obtained.

Samaraneftegaz, Tomskneft, VSNK (Vostochno- turn of the millennium. Langepasneftegaz, Ukrai- Sibirskaya Neftyegazovaya Kompaniya/Eastern-Si- naneftegaz and Kogalymneftegaz were incorpo- berian Oil-Gas Co.) and Manoil. As the result of rated into Lukoil in 1991. In the late 1990s, Lu- the merger agreement with Sibneft in 2003 (Sib- koil had 120,000 employees and the company’s neft 2003), the company is the largest in Russia. share in Russian crude oil production accounted Priobskoye, lying 65 km east of Khanty-Mansiysk, for 24 per cent (Lukoil 2001a). The production is the largest oilfield of Yukos as well as the main capacity of Lukoil is comparable to that of many target of the company’s investments. Yukos par- large Western companies. In the late 1990s, Shell, ticipates in joint-venture projects in Western Si- BP and Exxon left Lukoil behind in oil produc- beria and is developing Eastern Siberia’s production, but Chevron, Texaco, Mobil and ELF fell be- tion so that crude oil can be transported to the hind Lukoil (Lukoil 1999). Lukoil also acts out- Chinese market by pipelines. Together with the side Russia, mainly in the independent states of Hungarian company MOL, Yukos organised a the former Soviet Union and East Central Europe. joint venture for developing the Zapadno-Malo- It has developed its downstream business active- balykskoye (Western Malobalykskoye) oilfield on ly, and according to this business strategy, it has the Ob in the eastern part of the Priobskoye oil- acquired refineries and petrol stations abroad. At field (Yukos 2001). Oil reserves are located near the end of 2000, it purchased Getty Petroleum Nefteyugansk, from where oil is transported into Marketing Inc, a North American company run- other parts of the country. The conglomerate’s Sa- ning 1260 petrol stations in 13 north-eastern maraneftegaz is the only oil company acting states of the USA. The number of Lukoil’s petrol mainly in the European part of the country. The stations grew to 3544 at the end of 2001, of which Yukos Company has international projects in are- 1384 were in Russia (Lukoil 2002, 18). as of the Caspian and the Black Seas, as well as TNK-BP was established in 2000–2003. TNK in Africa. (Tyumen Oil Co.) bought ONAKO (Orenburg Oil Acting in Western Siberia, Lukoil was the larg- Co.) in 2000. The company received a loan of 700 est joint enterprise out of the oil companies at the million US dollars from international banks to fi- FENNIA 181: 2 (2003) North-West Russia as a gateway in Russian energy geopolitics 157 nance the cash acquisition of ONAKO at 1100 to the open markets. Although the recovery of oil million US dollars (TNK 2002, 19). Slavneft be- deposit exploration and oil production develop- came part of the company when the share the ment began in 1999 and 2000 (Sagers 2001, 163), state had in Slavneft was auctioned 18 Decem- the process of oil production growth is rather la- ber 2002 and transferred to Sibneft and TNK borious because of exhausted oilfields, obsolete (TNK-BP 2003a). As a result, TNK and Sibneft facilities and transport bottlenecks. However, Rus- each own 48.5% of Slavneft. TNK-BP is a joint sian companies have many plans and strive to in- venture owned by British Petroleum and the Rus- vest. According to company reports, investment sian Alfa and Access/Renova groups in the pro- activity recovered at the turn of the millennium portion of 50:50, and it comprises the assets of (Lukoil 2003; Surgutneftegas 2003; Yukos 2003). TNK, Sidanco, ONAKO and half of Slavneft (TNK- Western Siberian oilfields comprise the prima- BP 2003b; TNK-BP 2003a). BP paid 6150 million ry oil production area. Companies acting in the US dollars for a 50% stake in the new company area have been created on the basis of large pro- (TNK-BP 2003c). So far, it is the largest investment duction organisations that remained as part of the of foreign capital in the Russia economy and the inheritance of the socialist period. American and merger has been fully supported by Putin’s re- European companies have participated in oil pro- gime. duction by establishing joint ventures with Rus- Surgutneftgaz acts mainly in Western Siberia. sian companies, but Russian oil production as a The production facilities of the company have whole has been able to attract very little foreign been constructed on the River Ob for exploiting capital. The formation of TNK-BP is one of the first oilfields near the town of Surgut. The company’s signs of the growing attractiveness of the Russian oil refinery is located in Leningrad Oblast in Kiri- investment climate. The misappropriation crisis shi, 140 km from St. Petersburg. This KINEF refin- around the largest oil conglomerate YukosSibneft ery is the largest refinery in North-West Russia, in late 2003 put this development on hold for a refining 10% of crude oil in Russia and exporting while. 60–70% of its production (Filippov et al. 2003, Joint ventures operating in hydrocarbon fields 48). Like many other Russian oil companies, Sur- demonstrate the possibility of co-operation and gutneftegaz is attempting to act everywhere in technological transfers at a grassroots level. The Russian territory. The company’s oil production Russian Federation approves licences for oil com- has been steadily increasing, and its share in the panies, as well as for domestic and foreign oil total crude oil production of Russia reached 13% companies’ consortiums, to explore oil layers, at the turn of the millennium (Surgutneftegaz develop oilfields and make investments. In prac- 2001). tice, being a shareholder means that the compa- The restructuring arrangements in 2000–2003 ny has become an actor and investor in a consor- resulted in four large private companies that are tium. increasingly integrating into the global economy. In the 1990s, foreign companies faced many Rosneft remains under the control of the federal legal, fiscal and institutional problems in collab- government, and two smaller companies, Tatneft oration despite the Russian authorities’ attempts and Bashneft, are regionally controlled compa- to develop proper legislation and a system of pro- nies. Tatneft and Bashneft operate also in the ex- duction-sharing agreements (Sagers 2001, 164). port market. Joint ventures have been realised to a greater ex- The 1990s transition hindered development. By tent in the northern European parts of Russia and the mid-1990s, investments in oil production had in the Russian Far East than in the other parts of decreased to fewer than 50% of the 1990 figures the country. The Far East is attracting business to and drilling to a third. Exploratory drilling satisfy the increasing crude oil demand of the dropped even to one-fifth of the 1990 level in Asian market. In the Barents Sea Region, produc- 1999 (Lynch 2002, 35). Despite the positive out- tion could be based in part on joint ventures and look presented by the oil companies at the turn production sharing, because multinational com- of the millennium, there were still many problems panies possess offshore technologies as well as such as insufficient investment activity and de- offshore work experience in the North Sea, the creased exploratory drilling. These were the long- Norwegian Sea and the Caspian Sea. It would be lasting consequences of fallen domestic energy reasonable to utilise this experience, knowledge demand, institutional uncertainty and adaptation and know-how in regards to the Barents Sea. 158 Markku Tykkyläinen FENNIA 181: 2 (2003)

Granting the licences for exploration and devel- to small fields south of the Rivers Pechora and opment to national companies, such as to Usa. In the 1960s, oil drilling moved 300 km Rosshelf in the north, has not brought about the north of Ukhta, and the oilfields of Usinsk and anticipated development (Moe & Jørgensen 2000, Vozey were put into production. These two oil- 105–119). fields yielded more than 60% of oil produced in The oilfields of the southern and central parts Komi. In 1991, Usinsk produced 44% and Vozey of the Timan-Pechora Basin are located in the Re- 32% of Komi’s oil (Sagers 2001, 194). The next public of Komi, and the oilfields of the northern step farther north took place in the 1980s when, part of the basin are in the Nenets Autonomous in 1987, Kharyaga’s oil deposits were developed. Okrug, which itself is within the administrative The oil deposits of Kharyaga are located north jurisdiction of Arkhangelsk Oblast. The Okrug of of the Komi Republic in the Nenets Autonomous 176,700 km2 had a sparse population in 1998 of Okrug (Fig. 2). From Kharyaga, oil runs 80 km 47,000 inhabitants (Heleniak 1999, 172). Out of along pipelines to Vozey in Komi, continues along all Russia’s oil production areas, the Timan-Pecho- pipes to Usinsk, and then through the Usinsk- ra fields are geographically nearest to Finland. The Ukhta-Yaroslavl pipeline to refineries and to mar- closest distance from the Usinsk oilfields to the kets. The oil spillages of 1994 and resultant pol- border between the EU and Russia is 1205 km. lution reported widely in the press concerned the The Finland-based Fortum energy company has a Vozey-Usinsk part of the pipeline. shareholding interest in the area. In the 1990s, the Numerous oil companies compete for the re- Finnish construction company YIT built commu- sources of the Timan-Pechora area. While in 1990 nities and infrastructure in this area. The signifi- Komineft produced 96% of the Timan-Pechora cance of Timan-Pechora on the federal scale is not Basin’s oil, in 2000 its successor’s share of pro- great, because it yields only from three to four per duction decreased to 31.6%. Oil production has cent of the total Russian oil production. expanded to the north of Komi to the Nenets dis- The geological sediment formation6 of Timan- trict. There are ten joint enterprises in the area, Pechora containing oil deposits runs from the out of which the Polar Lights Company, estab- slopes of the Ural Mountains towards the Barents lished by the American oil company Conoco (now Sea and covers about 320,000 km2. The continu- ConocoPhillips) and the Russian companies ation of the sediment formation containing oil lay- Arkhangelskgeodobycha and Rosneft, is the most ers extends under the Barents Sea and covers significant in the area. Polar Lights is divided about 800,000 km2. Timan-Pechora’s sediment for- amongst ConocoPhillips, Arkhangelskdobycha mation lies north of latitude 60˚N, and the rich- and Rosneft in the proportion of 50:30:20 (Cono- est oil and gas fields are located above the Arctic coPhillips 2002, 22). Lukoil is a partner, owning Circle. This area is rather difficult for oil produc- 74.1% of Arkhangelskgeodobycha (Filippov et al. tion as the largest part of it is covered with marshy 2003, 42). The licence area, which is under the forests and the northernmost parts are sub-arctic control of the joint venture, includes numerous tundra with permafrost in places. As a result of oil deposits in the Nenets Autonomous Okrug this, oil layers in Western Siberia in the conifer- north of Vozey and northeast of the oilfields of ous forest zone were exploited earlier than those Kharyaga. The most significant oilfields of the li- in the northern parts of Timan-Pechora. In the cence area are Ardalinskoye, Vostochnaya/East southern part of Timan-Pechora (in the Komi Re- Kolvinskoye, Dyusushevskoye and Oshkotyn- public), oil production has already existed for skoye (Sagers 2001, 194); Ardalinskoye is the best- decades. During the Soviet era, the main actor in known field. The Finnish construction company the area was Komineft, which became a part of YIT has carried out building projects in the area. Komi-TEK in 1994. Both were incorporated into ConocoPhillips operates in Ardalinskoye. Orig- Lukoil in 1999. Oil production has decreased in inally, Conoco aimed to open 24 oil wells and the Timan-Pechora oilfields in the Komi Republic build a refinery, but the production target reached since 1983, thus increasing the pressure to devel- was just fifteen oil wells. The first borehole was op the more northern oil deposits to production drilled in 1993, production amounted to 346,400 stage. tonnes of oil in 1994, and in the subsequent year Oil production was initiated in the oilfields near oil production increased to 1,213,300 tonnes the town of Ukhta (63˚33’N, 53˚41’E) already in (Sagers 2001, 195). Since 1997, oil production the 1930s, and afterwards production expanded has fluctuated between 1.7 and 1.8 million FENNIA 181: 2 (2003) North-West Russia as a gateway in Russian energy geopolitics 159 tonnes, which is clearly higher than anticipated. Federation on the development of Kharyaga’s oil ConocoPhillips achieved the initial aims of the deposit and the division of oil production amongst project, and it is now developing satellite fields. the participants of the contract. The Kharyaga oil The first is Oskotynskoye and it was put into pro- deposit was put into production already during duction in 2002 (ConocoPhillips 2002). In Fin- the Soviet period. In the oilfields of Kharyaga, the land, ConocoPhillips is known for its Jet petrol sta- joint venture produced 72,300 tonnes of oil in tions. 1999 and 525,4800 tonnes in 2000, and the 2001 However, ConocoPhillips has more ambitious production was estimated to be 600,000 tonnes plans. The company is negotiating about produc- (Sagers 2001, 195). The total estimated oil pro- tion in a licence area that is known as the Sever- duction of this project is 45 million tonnes over naya Oblast/Northern Region, north of the com- 33 years with investments of 700–1000 million pany’s present oil production area. To realise the US dollars. project, an investment of 5000 million US dol- Numerous foreign companies are exploring and lars is envisaged (Sagers 2001, 195). The project searching for oil in Timan-Pechora (Jumppanen is dealing with four oil deposits: Inzyreyskoye, 1999, 103). The areas licensed for oil exploration, Yareyuskoye, Yuzhnyy/Southern Khylchuyuskoye as well as areas planned for licensing, cover the and Khylchuyuskoye (Fig. 2). The estimated vol- distance of 250 km eastwards from the Gulf of ume of these oil deposits is 440,000 million Pechora to the Ural Mountains. For instance, the tonnes. The oil deposits stretch in strips north- Finland-based Fortum energy company partici- wards from Kharyaga, and the northernmost de- pates in the development of the Yuzhnoye/South posit is Khylchuyu, situated on the very shore of Shapkino oil deposit that is situated 85 km from the Pechora Sea. Lukoil is ConocoPhillips’s part- the Kharyaga deposit. The decision to bring the ner in this project. The development of the four oil field into production was made in 2001. deposits will bring a pipeline from Usinsk via SeverTEK constructed and now operates the field’s Vozey and Kharyaga to the coast of the Arctic production facilities (Fig. 3). Fortum Oil and Gas Ocean, 120 km west of the oil port of Varandey Oy and Lukoil own SeverTEK in the proportion (Fig. 2). of 50:50. Besides ConocoPhillips, another significant The hydrocarbon reserves of the Barents Sea company developing the area is the French com- were explored in the 1970s and 1980s. Accord- pany TotalFina-ELF that, in late 1995, signed a ing to the explorations up to 1997, the estimated business co-operation contract with Komi-TEK, gas and oil resources in the Russian sector of the the predecessor of Lukoil-Komi, and the Russian Barents Sea and the Pechora Sea are 4500 mil-

Figure 3. Oil production facilities, storage halls, heliport in front and accommodation complexes in South Shap- kino. Crude oil production is estimated to reach 6800 tonnes per day by the end of 2004. Photo: Fortum Oil and Gas Oy. 160 Markku Tykkyläinen FENNIA 181: 2 (2003) lion tonnes of oil equivalent (Moe & Jørgesen tic States. In this way it will be possible to avoid 2000, 100). The results were partly based on the the high transit and port payments, including utilisation of technology developed and built in amongst others those of Ventspils (Latvia) and the West. Drilling vessels (the Valentin Shashin Butinge (Lithuania), and to decrease logistic de- and Viktor Muravlenko) and jack-up rigs (the Kol- pendence on the Baltic States (IEA 2002a, 97). The skaya and Murmanskaya) built in Finland explored pipeline built from Kirishi to Primorsk annually the reserves in the seabed of the Barents Sea (Moe transports 12 million tonnes of oil exports. The 2001, 134). Three rigs built in Vyborg also took expansion of the capacity of this pipeline network part in the exploration. The largest oil deposits are (via Usinsk) from the Kharyaga oilfields to Pri- located near the shore of the Pechora Sea – two morsk will allow the export of 30 million tonnes oilfields are a little over 20 km and one field of oil annually. 57 km from the coastline – while gas fields are Oil is also shipped from the Barents Sea. In Au- farther north. All of the deposits belong to the Rus- gust 2000, the first ship left the oil harbour of Var- sian Federation, because they lie over 12 nauti- andey. This port was founded to compete with cal miles from the coast. The reserves of 400 mil- pipeline transport. The hinterland of the port con- lion tonnes of oil available for production give the stitutes a licence area where there are several de- potential for 15–20 million tonnes per year. Ten posits. The Polar Lights Company’s oil production years ago, great expectations were placed upon area lies to the south of it. The target of this trans- the oil and gas of the Barents Sea. Nevertheless, port system known as the Northern Gateway is to the large oil reserves so far discovered have not annually export 5–6.5 million tonnes of oil, pos- been brought into production, and development sibly even 15 million tonnes, to the international projects have advanced slowly. market (IEA 2002a, 97). Other transport projects Offshore oil production is developed only on are also planned. The port of Vysotsk (in Finnish: Kolguyev Island. Lake Peschanoye oilfield was put Uuras) on Vyborg Bay is also being converted to into production in 1987 and it produces less than an oil harbour, and the port of Murmansk has 50,000 tonnes of oil annually (Sagers 2001, 196). been considered for oil transport. The port of Mur- In 1998, production yielded 22,000 tonnes. mansk can tranship oil that is first conveyed by Russian oil production was in crisis during the smaller tankers from the Prirazlomnoye field in transition when domestic oil demand decreased the Pechora Sea. A more significant plan propos- and enterprises experienced payment problems. es a pipeline from Nefteyugansk in Western Sibe- The network of pipelines, built during the social- ria via the Republic of Komi to Murmansk. Known ist period, is still in use and is the most important as the Murmansk Pipeline Project, this YukosSib- system of crude oil transport in Russia. The com- neft pipeline may be routed either across the bined length of the pipelines is 46,700 km, and White Sea, or may circumvent it via a longer route 294.6 million tonnes of crude oil and 23.1 mil- through the Republic of Karelia. A viable propos- lion tonnes of refined oil products were transport- al is to construct a new port in the estuary of the ed by this pipeline system in 2000 (IEA 2002a, Indiga, where ice-conditions are much more tol- 88). The pipeline network could not have been erable than in Varandey (Bellona 1997; Alekseyev built under the conditions of the transition econ- 2002, 2). Indiga is located 320 km west of Varan- omy. dey. The geographical positions of the Arctic ports Since the late 1990s Russia has been attempt- are more advantageous than those on the Black ing to set up a system of more direct access to Sea when oil and gas condensate are shipped out- the Western market. An example of such pursuit side Europe, especially to the United States. is the development of the Baltic Pipeline System. The oil production of Russia brings welfare The oil port of Primorsk (known in Finnish as mostly to the oil cities of Western Siberia, espe- Koivisto) was constructed as part of this plan and cially to Khanty-Mansi. Siberian production is sit- put into operation in late 2001. The port and the uated in a strategically secure area, far from Rus- pipelines leading to it are meant to serve the ex- sia’s borders and in almost inaccessible locations. ports from the Timan-Pechora fields. The oil port The oil reserves of Russia’s northern European ar- of Primorsk is being developed with the view of eas play an important role for the economic de- it becoming a very large port that can handle velopment of North-West Russia. Until recently, more than the annual exports of 20 million tonnes the export of those resources directly influenced that previously went via the harbours of the Bal- the Baltic States, especially because the produc- FENNIA 181: 2 (2003) North-West Russia as a gateway in Russian energy geopolitics 161 tion of the Timan-Pechora oilfields was exported Natural gas via Ventspils and Butinge. The stoppage of oil transport via Ventspils in winter 2003 caused by Measured by energy content, natural gas produc- the disagreements between Russia and Latvia tion became the most important source of prima- about the privatisation of the port is indicative of ry energy during the 1990s transition. Through- the politico-economic fragility of the situation. out the economic decline, the natural gas con- The alternative route via Primorsk is not unprob- sumption of the country stayed at a relatively high lematic; oil transport via Primorsk has been criti- level. As a result, the significance of natural gas cised by Finland because of the environmental to the Russian economy has grown (see Table 2). risks, especially under icy winter conditions, and Moreover, natural gas exports did not plunge as because the largest oil tankers are too big for Pri- badly as oil exports in the 1990s transition, and morsk. gas exports gradually increased in the period In as much as Russian companies are increas- 1993–99 (IEA 2002a, 275). ing their oil-refining capacity, the export harbours The gas supply of the country is monopolistic. will increasingly ship petroleum products as the Gazprom controls 90% of gas production in Rus- proportion of crude oil decreases. The petroleum sia. The four Western Siberian companies under product terminal of Batareinaya Bay located Gazprom’s control are Urengoygazprom, Yam- southwest of St. Petersburg is under construction. burggazdobycha, Nadymgazprom and Surgut- The annual export capacity of this port is planned gazprom, and together they produce most of Rus- to be 15 million tonnes, expanding from an ini- sia’s natural gas. For example, in 2000, the gas tial 5 tonnes per year (Filippov et al. 2003, 46). production of Gazprom in Western Siberia com- Furthermore, there are plans to construct refiner- prised 83% of the total Russian gas production ies to Murmansk and Primorsk. (IEA 2002a, 112). In addition to Gazprom, Itera, The growth of oil transport and environmental established in 1992, operates mainly in CIS coun- risks in the Gulf of Finland were the main con- tries and near its production area in Yekaterinburg cern in Finland in the winter of 2003. For Russia, (IEA 2002a, 116–117). The most significant gas this traffic is of vital importance, as is transport fields are in Urengoy, Yamburg and Medvezhye through Finnish harbours, a viewpoint that was near the Arctic Circle, on the Yamal Peninsula in not much considered in the media. Along with the Yamal-Nenets Autonomous Okrug (750,3000 risks, oil production and transport may produce km2; 497,000 inhabitants in 1998; Heleniak 1999, positive effects on the Finnish economy by in- 172) (Fig. 4). In late 2001, gas production in the creasing demand for construction projects, invest- Zapolyarnoye gas field was initiated. Natural gas ment goods, transport services and environmen- is tapped also in Eastern Siberia and in the Euro- tal know-how, as has already happened in the pean part of Russia in Orenburg. In addition, nat- Sakhalin projects, for which parts of oilrigs and ural gas is obtained as a side product from oil pro- two icebreaking vessels were ordered from Finn- duction. The length of Gazprom’s gas pipelines is ish companies (Quattrogemini 2003; Kvaerner 150,000 km. The share of gas production in pri- Masa-Yards 2003). Many Western companies take mary energy production is more than half (Table part in northern Russian oil projects. The viability 2). In the manufacturing system of Russia, natu- of Russian oil production is important for many ral gas is of primary importance. If pipelines run- European countries consuming Russian oil. It is ning from Western Siberia were cut or gas pipes anticipated that in the future Russian oil compa- closed, it would cripple the Russian economy as nies will become more integrated into the global well as affect much of the EU’s economy. market. Russians would like to develop petrole- The gas fields of the West Siberian Plain are lo- um production and to increase the distribution of cated far from the centres of consumption and the refined products transnationally. Lukoil’s invest- European market. The gas fields lying along the ments in the West are good examples. Recipro- Ob and the lower reaches of the Taz and the Pur cally, EU- and US-based companies have oppor- Rivers are situated on the same parallel as Oulu tunities to act in Russia. The integration of Russia and southern Lapland, but the winters are colder into the European market is undoubtedly consid- than in the European North. India is 4000 km ered positive: Arab and African oil production is south of this area. In the early 1970s, two cities – a more risky alternative for supplementing the Novyy Urengoy (90,000 inhabitants) and Nadym EU’s own production. (50,000) – arose in the centre of the Siberian gas 162 Markku Tykkyläinen FENNIA 181: 2 (2003)

Figure 4. Gas pipelines westwards. Source: Finnbarents 1996; Wingas 2000; IEA 2002a; Gasum 2003.

fields. Both cities have modern infrastructure and Uzbekistan (16%), Turkmenistan (7%), Azerbaijan housing, and there is an international airport in and Kazakhstan (Sagers & Green 1986, 18). In the Novyy Urengoy (66˚05’N, 76˚31’E), 80 km south 1970s and 1980s, the gas production of Western of the Arctic Circle. Another site, Yamburg, is not Siberia rapidly increased. Gas production com- a centre of permanent settlement. The city’s apart- menced in the Urengoy gas field in 1978, and in ments and vast infrastructure are intended for the 1984 it accounted for 36% of the total gas pro- temporary accommodation of almost 10,000 em- duction of the Soviet Union. The development of ployees. The distance from Novyy Urengoy to the the area was rapid. At the same time the distanc- Finnish border is around 2000 km, equal to dis- es that gas was transported grew; from 1975 to tance from the Finnish border to the main oil-pro- 1983 the average distance of transport doubled ducing area in Khanty-Mansi. from 1200 km to 2400 km (Sagers & Green 1986, The history of Western Siberia’s gas fields is 16). The pipeline that runs via Perm and Kazan short. In 1970, the West Siberian Plain yielded became the main transport route. The other, more only five per cent of the total gas output of the northernly one, transports gas to the West via Soviet Union, and the total production of Siberia Ukhta (Fig. 4). did not account for more than six per cent of the Russia’s dependence on natural gas increased country’s gas production (Sagers & Green 1986, in the 1990s (Table 2). At the turn of the century, 18). The northern Caucasus, the Volga region and gas generated almost half of the electric power Komi produced 35% of the natural gas. The re- and more than half of the heat. It is difficult to maining share of the gas was produced outside satisfy the seasonally oscillating fuel demand of the present Russian Federation in Ukraine (31%), power stations only by gas without an extra fuel FENNIA 181: 2 (2003) North-West Russia as a gateway in Russian energy geopolitics 163 supply. The fuel demand of power and heat-gen- Table 4. The most important purchasers of Russian natural erating plants is supplemented by oil during wingas. Exports in thousand million cubic metres. Source: IEA 2002a, 137. tertime. In the 1990s, the capacity of gas storage was increased in order to flexibly react to the fluc- 2000 1996 Change in % tuating energy demand. Russia’s domestic gas prices and payment system create problems for Germany 34.1 32.9 4 Italy 21.8 14.0 56 Gazprom, which is striving to increase its profits France 12.9 12.4 4 in the export market. Turkey 10.3 5.6 84 Natural gas is delivered to Europe by two main Austria 5.1 6.0 –15 routes consisting of several parallel pipes. The Finland 4.3 3.7 16 Other Western Europe 1.8 0.4 350 northern pipeline comes to Ukhta, from where gas Western Europe, total 90.3 75.0 20 is pumped along the Northern Lights/Severnoye Slovakia 7.9 7.0 13 Siyaniye pipeline to Yaroslavl located north of Hungary 7.8 7.7 1 Moscow. In Yaroslavl the gas pipeline bifurcates The Czech Republic 7.5 9.4 –20 west to St. Petersburg (and further to Finland and Poland 6.9 7.1 -3 Romania 3.2 7.2 –56 Petrozavodsk) and southwest via Belarus to Cen- Bulgaria 3.2 6.0 –47 tral Europe. The other gas pipeline traverses the Ex-Yugoslavia 2.2 4.1 –46 Urals south of the northern route, crosses the up- East Central Europe 38.7 48.5 –20 per reaches of the River Kama and continues via Europe, total 129.0 123.5 4 Perm and Kazan towards Moscow, and further via Kiev (Ukraine) to Slovakia. The decades-old main production areas of the south are joined to the main network by pipelines. Although there are a great many pipelines, in its present state the nat- to south-eastern Finland, from where gas goes ural gas trunk pipe network is vulnerable; produc- southwards to Helsinki as well as northwards to tion is virtually dependent on Western Siberia’s Tampere. In Finland there are 1000 km of high- production and the pipelines reaching Europe run pressure trunk pipes and 1000 km of distribution through former Soviet republics that, naturally, pipes. The pipeline is being expanded westwards, endeavour to improve their own economic stand- via Forssa to Turku. ing by transit fees. As Table 4 shows, gas exports to Europe in- In addition to a 90% market share in gas pro- creased by four per cent from 1996 to 2000. The duction, Gazprom in practice oversees all gas reason for this relatively slow growth of exports transport along the large-diameter high-pressure is due to the decreased gas consumption in the pipes. Gazprom is completely responsible for former CMEA countries. In Western Europe, on Russian gas exports to Europe and thus has almost the contrary, gas purchases increased by one-fifth. monopoly rights over Russian gas production, Norwegian gas competes with Russian gas. From transport and exports. Gazprom plays a significant the EU’s perspective, the problem with the gas role in the Russian economy, and it accounts for market has been the high dependence on the pro- 20% of incomes to the federal budget and 20% ducer-owned gas pipeline. On the one hand the of hard currency revenues (IEA 2002a, 111). The EU is striving to open the European gas market to Russian Federation owns 38% of the company, business competition (KOM 2001), and on the other Russian organisations 34%, the Russian pri- other hand to increase joint projects with Russia vate sector 18% and foreign investors 10%. The to ensure the availability of natural gas. In Rus- largest foreign owner is Ruhrgas, which has 3.5% sia, Gazprom is ready to develop and expand nat- of the shares (IEA 2002a, 111). ural gas production. In the future the Shtok- Germany is the most important purchaser of manovskoye gas field in the Barents Sea will be Russian natural gas (Table 4). Gazprom has joint- put into production, an investment that will also ly-owned marketing and distribution companies affect Finland. A Murmansk-Petrozavodsk-Peters- in the gas importing countries. Examples of such burg trunk pipeline would transport gas to con- joint ventures are: Wingas in Germany, Gasum in sumers. For the natural gas infrastructure of north- Finland, Promgas in Italy and Panrusgas in Hun- ern Europe, the more significant project is the gary. Gasum imports gas to Finland and then dis- construction of a new gas pipeline across the bot- tributes it. Natural gas is transported via Vyborg tom of the Baltic Sea to the centres of consump- 164 Markku Tykkyläinen FENNIA 181: 2 (2003)

Figure 5. Russia’s nuclear power plants (NPPs) in 2002. Anticipated completion dates of new reactors by location until 2010 and the seven regional grids (Energy Systems). The types of reactors are explained in the text. Source: Bater 1996, 223; IEA 2002a; Minatom 2002.

tion in Europe. Russia strives to remain an impor- tricity. Nuclear energy is not utilised for heat-gen- tant actor in the gas market of the European Un- eration or steam production in Russia. The prin- ion. ciple of the nuclear power plant is simple: when the nuclei of an atom are split, the binding ener- Nuclear energy gy of the atomic nuclei transforms into heat and is then converted into steam, which rotates the In the late 1990s, Russia was the world’s fourth- turbines of electrical generators. In Russia, there largest producer of electricity, after the USA, Chi- are four types of reactors for power generation na and Japan, although Russian electricity gener- (IEA 2002a, 174). In a RBMK (Reaktor Bolshoy ation decreased by one-fifth in the 1990s (IEA Moshchnosti Kipyashchiy/High Power Boiling Re- 2002a, 191). Russia is divided into seven region- actor), graphite is used as a moderator. The VVER al grids, also called Energy Systems (ES). The sev- (Vodo-Vodyanoy Energeticheskiy Reaktor/Water- en regional grids are Central, North-West, Volga, Cooled and Water-Moderated Energy Reactor) is North Caucasus, Urals, Siberia and Far East (Fig. a pressurised water reactor, in which water is used 5). RAO UES operates the electricity production as a moderator. There exists one BN reactor (na and grids, with the exception of nuclear power Bystrykh Neytronakh), which is a breeder reac- plants, which are under the control of a separate tor. The working principle of Bilibino’s very small authority, the Ministry for Atomic Energy of the EGR reactors is the same as in RBMK-type reac- Russian Federation. tors. In Russia, nuclear energy is the fourth most im- Russia is well known for its nuclear power portant energy source after natural gas, coal and plants (NPPs). However, the share of nuclear en- hydropower, important in the generation of elec- ergy in the country’s electricity generation is lower FENNIA 181: 2 (2003) North-West Russia as a gateway in Russian energy geopolitics 165

Table 5. Electricity generation in 1998 in selected countries. Source: European Commission 2001, 69–167; IAEA 2003; Bassan 2003, 1, 3.

Country Electricity generation Nuclear electricity Nuclear electricity’s Nuclear electricity’s in TWh, 1998 in TWh, 1998 share in %, 1998 share in %, 2002 Russia 833 109 13 16 EU 2490 854 34 34 France 510 388 76 78 Germany 557 162 29 30 Japan 1036 332 32 35 USA 3804 714 19 20 Finland 70 22 31 30

than that of many other industrial countries (Ta- and the first reactor of the Rostov NPP, which ble 5). In 2000, the share of nuclear electricity commenced operations in 2001 (IAEA 2002a). accounted for 15% of the country’s total electric- The NPP at Sosnovyy Bor west of St. Petersburg ity generation. This is clearly less than in Finland, is called the Leningradskaya AES/Leningrad NPP. where in 2000 the share of nuclear electricity ac- In 2001, the power output of all Russian NPPs counted for 32%, matching the average Western accounted for 21,242 MW (IEA 2002a, 193), ex- European level (KTM 2001, 27). cluding the output of the first reactor of the Ros- The first reactors for power production were tov NPP, which was being tested at that time. In connected to the grid near Saratov (Beloyarsk 1) Finland, the power output of its four reactors is and Voronezh (Novovoronezh 1) in 1964 (IAEA 2656 MW, i.e. 12.5% of Russian NPP output. 2002a). Both already have been decommis- However, the utilisation rate of Finnish nuclear sioned7. The first reactors in North-West Russia power plants is higher than in Russia and, as a were connected to the grid in 1973 when Kola 1 result of this, the annual electricity generation of and Leningrad 1 started to deliver electricity com- Finnish power plants accounts for one-fifth of Rus- mercially (IAEA 2002a). The geographical pattern sian nuclear electricity generation (European of NNPs indicates that power plants serve the en- Commission 2001, 74, 167). ergy demands of large population centres and in- During the economic recession of 1990–98, dustrial districts in areas where other sources of NNPs’ production decreased slower (12.5%) than primary energy are not abundant. other electricity generation (22%; IEA 2002a, Nuclear energy production is concentrated in 171). The recent recovery of the Russian econo- the European part of Russia. In the North-West my has caused a strong increase in NNP electric- regional grid (including, amongst others, St. Pe- ity generation. The record level of electricity out- tersburg, Karelia and the Kola Peninsula) in 1999, put from 1992 was reached again in 1999 (122 41% of the electricity generated came from NPPs TWh). In 2000, Russian NPPs produced 131 TWh (IEA 2002a, 171). In the Urals regional grid (ES) (IEA 2002a, 177). From an economic perspective, in 1999 (Fig. 5), almost all electricity was gener- nuclear energy is a competitive mode of electric- ated by thermal power plants using fossil fuels ity generation in Russia. Russia has plans to in- (90% in 1999; IEA 2002a, 194). In Siberia’s ES, crease the levels of nuclear electricity generation, electricity is generated by using hydropower (49% unlike many other Western countries, though such in 1999) or fossil fuels (48% in 1999; IEA 2002a, a strategy is not exceptional as nuclear power 194). plants are being built in many counties9. At the beginning of the millennium, Russia had The different generations of nuclear reactors in 30 nuclear reactors for energy production and Russian NPPs vary in technology and safety. The they were built between 1971 and 2001 (Fig. 5)8. 12 first generation still operational nuclear reac- The small reactors of Bilibino are located in the tors were built before the implementation of safety Arctic region near the Bering Strait and are thus regulations concerning NPP construction. Some outside the map in Fig. 5. The newest NPPs are of the first-generation nuclear reactors are locat- the fourth reactor of the Balakovo NPP (southern ed close to the border regions with Finland: Kola Russia), which was put into operation in 1993, 1 and 2 in Polyarnye Zori and Leningrad 1 and 2 166 Markku Tykkyläinen FENNIA 181: 2 (2003) in Sosnovyy Bor. The reactors’ lifetime will be over tural changes. IEA has increased the estimated in the nearest future; they are being renovated and energy consumption figures in its latter outlook. their safety increased. In the main, both institutions result in similar ge- Authorities in Russia accept the further devel- opolitical developments and geographical macro opment of nuclear energy. The cornerstones of the structures. nuclear strategy of the country are 1) the safe and The Russian Energy Strategy, presented in the effective use of NPPs, 2) the modernisation of ob- Main Provisions, expects the economy to grow solete NPPs with the improvement of their safety (under favourable conditions) five per cent annu- and productivity, and 3) the development of new ally. Such an economic growth rate would shrink technically advanced nuclear reactors and their the differences in the standard of living between production (IEA 2002a, 183). According to plans Western Europe and Russia in the long run. This through to 2005, the reactors of Kola 1 and 2, scenario, however, conjectures that energy effi- Leningrad 1 and 2, Novovoronezh 3 and 4, as ciency will improve substantially and will result well as Bilibino 1–4 will be renovated. At the from growth in the service sector, which does not same time, new NPPs are being built and use much energy. Thus the scenario arrives at rath- planned. Kalinin 3 and Kursk 5 are soon to com- er moderate energy growth figures. In this scenar- mence construction (Fig. 5). In 2001, Rostov 1 io, Russia’s energy consumption would grow to was plugged into the Russian grid. A proposed 884 million tonnes of oil equivalent (Mtoe; IEA NPP in Karelia will not be included in the Rus- 2002a, 51)10, and energy production would reach sian energy strategy – at least not during this dec- the pre-transition level (Fig. 6). Energy consump- ade. On the other hand, heat and electricity gen- tion would only grow by 36% when compared eration in Arkhangelsk will probably be devel- with the figures of 2000, when without growth in oped with the help of a NPP. In comparison with energy efficiency the energy consumption would the planned projects of the Soviet Union, the Rus- have to almost triple (IEA 2002a, 50–51). In the sian Federation has stopped, at least for now, the late 1990s, the Russian economy was highly de- NPP construction projects not only for Karelia, but pendent on natural gas. According to the Main also for the northern Caucasus, and for Yaroslavl Provisions, this situation is to be changed. The and Nizhniy Novgorod along the upper reaches Government’s scenario assumes a shift away from of the Volga (Fig. 5). natural gas to coal in electricity generation and an increase in the share of nuclear power. By 2020, the share of nuclear power in electricity Energy and changes in the geo- generation is projected to increase to 21% while, economic structure in 2000, it accounted for 15% (IEA 2002a, 56). According to the IEA’s scenario issued in 2000, Energy projections and geography the Russian economy will grow considerably slower (2.9% annually), and the anticipated an- Since the crisis of 1998, the Russian economy has nual growth in energy production will be 1.5% been growing and developing. During the past up to 2020. The energy efficiency of the econo- few years, several projections of Russian energy my will increase, but not as rapidly as suggested supply and demand have been published. In No- in the Main Provisions. As a result, energy con- vember 2000, the Government of the Russian Fed- sumption would reach 802 Mtoe. The IEA’s sce- eration approved the energy programme “The nario published in 2002 (IEA 2002b) is more op- Main Provisions of the Russian Energy Strategy to timistic about Russian economic growth than the 2020” (IEA 2002a). The Main Provisions represent outlook issued in 2000. The 2002 outlook as- the energy interests and energy geopolitics of the sumes that economic growth will accelerate from Russian Government and energy players. The In- 2.9% a year in 2000–2010 to 3.5% in 2010–20 ternational Energy Agency (IEA) has issued two (IEA 2002b, 271). The scenario assumes that volumes of World Energy Outlook (WEO) in 2000 growth will decrease to 2.6% in the period 2020– and 2002 (IEA 2000 and 2002b). Both the Rus- 30 as the economy matures. Under these condi- sian Energy Strategy and IEA’s outlooks have giv- tions, the scenario foresees that total energy con- en growing figures for primary energy production sumption would be 841 Mtoe in 2020 and 918 to 2020, but the projections are based on signifi- in 2030 (IEA 2002b, 454). The two outlooks of IEA cantly differing views of the energy sector’s struc- do not assume considerable growth in the con- FENNIA 181: 2 (2003) North-West Russia as a gateway in Russian energy geopolitics 167

Figure 6. Energy consumption and energy sources in Russia. Future projections according to IEA’s calculations and the Russian Energy Strategy. Source: IEA 2000, 177; IEA 2002a, 47, 51; IEA 2002b, 273.

sumption of coal and nuclear energy. Both coal sian programme (Fig. 7). In the Main Provisions, consumption and the production of nuclear en- the oil exports of 2020 will be at the same level ergy are assumed to start to decline before 2030. as those of the late 1990s (Fig. 7). Measured by An increase in the share of coal is considered lo- transport capacity the two largest pipeline con- gistically difficult, as reserves are located mostly struction projects are the Baltic Pipeline System in Siberia and the Russian Far East. The present and the Angarsk-Daqing (from Eastern Siberia to gas and oil pipelines also provide the domestic China) system (IEA 2002b, 274–277). The third transport infrastructure, the maintenance of which largest is the construction of an export terminal is paid for not only by domestic income but also on and pipelines from Sakhalin. If planned logis- by export income. Thus, the argument for a large tical development is realised and new oilfields increase in coal consumption can be approached receive investments, the growth of oil exports will with scepticism. be possible, particularly if many oil companies Russia’s strategy in regard to coal aims to in- compete in the oil sector. Besides the logistical crease its production in the Kuznetsk Basin, investments for the oil harbours of the Arctic Kansk-Achinsk region, as well as in the Russian Ocean and the Baltic Sea (such as Varandey and Far East. Other production areas are only of local Primorsk), and the investments in the Eastern Si- and regional importance. Near the Estonian bor- berian and Russian Far East hydrocarbon projects, der, coal is exported from the port of Ust-Luga ly- repairs to the Druzhba pipeline and a pipeline by- ing west of St. Petersburg, and the capacity of the pass of eastern Ukraine are under construction. port can be increased by eight million tonnes. The growing usage of the ports of Vysotsk, Mur- Ust-Luga is planned to be a big, but not the only mansk, St. Petersburg, and some others will con- coal exporting harbour, as coal can be exported tribute to the transport of oil and petroleum prod- from various harbours on the Gulf of Finland and ucts (Hernesniemi & Dudarev 2003, 51). Never- the Barents Sea (Hernesniemi & Dudarev 2003, theless, the port of Primorsk will be the largest oil- 51). Long rail-transport distances weaken the loading port. Some of the new transport capacity competitiveness of coal exports, which affects the replaces the obsolete and problematic sections of competitiveness of Siberian coal. Coal exports to the export pipelines. In the future the realisation Japan have taken place from the Russian Far East, of the recently proposed Murmansk Pipeline where coal production and its logistics have been Project may increase export capacity clearly more competitive. than any of the above-mentioned pipeline invest- Russia aims to increase oil production at a ments (IEA 2003b, 150). moderate rate. Oil companies carry out test drill- The oil harbours of the Black Sea will be ex- ing and develop new oilfields to replace deplet- panded, although Turkey does not want to in- ing ones. Oil production grows more dynamical- crease oil transport via the Bosphorus. The port ly according to IEA’s prognoses than in the Rus- of Novorossiyskiy greatly needs to be expanded, 168 Markku Tykkyläinen FENNIA 181: 2 (2003)

Figure 7. Projections for crude oil production according to IEA’s calculations and the Russian Energy Strategy. Source: IEA 2000, 180; IEA 2002a, 52, 61; IEA 2002b, 276.

partly because oil is shipped to this port also from Siberia and other areas. This aim is primarily in- Kazakhstan. The pipeline connecting Odessa to fluenced by a gradual decrease in the production the Druzhba pipeline was ready in December volumes of the present fields, which are already 2001 and it is now possible to transport oil to Eu- beyond the halfway mark of their lifetime. In Rus- rope through it, first shipping it by tanker across sia, many development projects aim to guarantee the Black Sea (Fig. 2). Besides Russia’s own pro- the future gas supply. These are of great impor- duction, the oil of other CIS countries cross the tance also for the development of the northern Black Sea. Russian companies also are develop- areas of Russia. There are plans for new producing Caspian production and they are participat- tion in the lower reaches of the Ob and the Taz, ing in the Caspian Pipeline Consortium by utilis- near the gas fields of Yamburg and Urengoy, and ing Kazakhstan’s Tengiz production. Oil transport thus also close to present production and trans- from Azerbaijan will be developed by the con- port infrastructure. The gas production and trans- struction of an oil pipeline via Georgia to Chey- port to Europe in the Nadym-Pur-Taz region is less han, on the coast of Turkey. Consequently, there costly than the future production of Yamal, and will be fewer oil deliveries from the independent especially of Shtokmanovskoye in the Barents Sea southern Caucasian republics to the oil harbours (IEA 2002b, 190). The new fields are planned for of the Black Sea. development at a radius of 300 km from Nadym According to the prognoses, oil consumption (Fig. 4). in Russian domestic markets will grow owing to A notable new site on the European side is the increasing traffic and freight. The transport sector’s Shtokmanovskoye gas field in the Barents Sea. The proportion in total final oil demand is estimated licence holder of the field was Rosself for 1993– to grow from 51% in 2000 to 59% in 2030 (IEA 2002. The project did not progress as scheduled 2002b, 274). Other types of energy sources in- (Moe & Jørgensen 2000, 118). High gas produc- creasingly will substitute part of the oil consumption and transport costs make the investment less tion, e.g. in district heating. In North-West Rus- lucrative (IEA 2002b, 190). The licence was rereg- sia, wood and wood residue may be used for the istered in 2002 in the name of Sevmorneftegaz, generation of energy instead of oil, for instance formed in accordance to Rosneft and Gazprom’s in saw and pulp mills. As a result, the structural commitment to jointly explore the northern gas changes in production and refining, as well as the and oil fields (Rosneft 2003b). Gas production is increasing consumption of petroleum products scheduled to begin in 2006, which would mean will bring about growth of 85% to Russia’s oil re- construction of a pipeline south to the Kola Pe- fining capacity by 2020 (IEA 2002a, 54). ninsula although gas may first have to be con- Russia is aiming to gradually reduce its depend- veyed as condensate by ship. The gas fields on ence on the present gas fields in Western Siberia the Yamal Peninsula are planned to be in produc- by developing new production both in Western tion probably after 2015. These fields are located FENNIA 181: 2 (2003) North-West Russia as a gateway in Russian energy geopolitics 169 in an Arctic environment north of the present northernmost areas of St. Petersburg and to Greif- Western Siberian fields. swald in Germany. The pipeline will stretch across The expansion of gas production is planned for the bottom of the Baltic Sea and it would have a the gas fields in Siberia north of Irkutsk, where connecting pipe to Sweden. If this project is real- the Kovytkinskiy field and other fields along the ised, Russian natural gas could be sold to the Lena are located. The Eastern Siberian fields will Swedish market as well. Sweden has had many be developed in so far as consumers of natural reservations about Russia’s plans for increasing gas are found in Asia. The Lena-Tunguska fields the supply of natural gas; it is not considered to can provide gas to Mongolia and China. The first be an environmentally-friendly alternative source trunk line is planned from Kovykta to Daqing via of energy. Thus, the plan may be realised without Irkutsk (IEA 2002a, 142). The pipeline could be a connection to Sweden. extended later to Beijing and the Korean Penin- The Nordic countries’ gas market could be sula. An optional route is from Kovykta via Irkutsk broadly set up along with Russian gas pipeline and Ulaanbaatar to Beijing (IEA 2002a, 14). Jap- construction. If Norwegian gas pipes were en- anese-Russian consortia are developing the utili- larged and connected to the trunk pipes coming sation of Russian gas (and oil) from Sakhalin in from Russia, multiple-actor markets would the Russian Far East. On the European side, emerge. Such a gas market structure is the target Gazprom and the Italian company ENI complet- for the European Union. The EU is attempting to ed the Siniy Potok/Blue Stream gas pipeline across open formerly monopolistic markets with the as- the Black Sea to Turkey in October 2002 (Spies sistance of deregulating directives. According to 2003). The gas of Western Siberia will run through these directives, the owner of the gas pipeline and this pipeline. the distributor are to be judicially separate actors. The Russian gas pipeline network is not in good This promotes competition and, at the same time, condition. Seventy per cent of the large-diameter increases the reliability of the operations. Conse- trunk pipes were constructed before 1985, and quently, gas markets could not be monopolised. 19,000 km (13%) of the pipelines have passed The modernisation of the nuclear energy sec- their estimated lifetime (IEA 2002a, 118). Conse- tor should be rapidly realised in Russia (IEA quently, considerable investments have to be 2002a, 182–186, 188). Plans exist to replace the made in the replacement and renovation of worn- old first-generation reactors and to modernise sec- out pipes. In addition, new fields require invest- ond-generation reactors so that their lifetimes will ments in trunk pipelines. The construction of the reach 50 years. Replacement investments are tar- pipeline near the Barents Sea and the pipeline geted at the first-generation reactors (40% of all connecting the Yamal fields with Ukhta are the reactors), which were put into production in most challenging technically. Both of these 1971–79. These are still in operation and require projects affect neighbouring areas; pipes will go renovation over the next years. As the lifetime of from the Shtokmanovskoye gas field via Karelia, the first-generation reactors is 40 years (their orig- and the pipeline to be built from the Yamal Pe- inal lifetime of 30 years has been prolonged to ninsula will be connected with the Northern 40), the last of the 12 first-generation reactors Lights pipeline that transports gas southwest to the should be replaced by 2020. At the same time the European market. Russia plans to increase gas second-generation reactors should be modernised transported to Europe by circumventing Ukraine. and new capacities created. The plans to expand A new trunk pipeline via Belarus and Poland is nuclear energy rest mainly on the carrying out of to be developed before the gas of Yamal will be projects not implemented since 1993. New nu- put into production. At the same time it would clear power plants are planned for central and be possible to develop a connecting pipeline from southern Russia, outside North-West Russia (Fig. Poland to Slovakia, i.e. to the Bratstvo/ Brother- 5). Plans concerning the modernisation of the nu- hood pipeline in the south. This connection would clear power plants close to the border areas of also pass Ukraine. Finland are not far from realisation11. Russia is developing plans concerning the ex- Various security aspects (e.g. the military action pansion of gas pipelines through the Baltic Sea. in Chechnya) appear to promote the energy sec- This plan is partly an alternative to the Belarus- tor’s growth in the north. Northern transport routes Poland pipeline project. The North Transgas also are being explored. Ukraine has increased project aims to construct a gas pipeline from the transit and transport rates to such an extent that 170 Markku Tykkyläinen FENNIA 181: 2 (2003) the northern routes are beginning to attract invest- velop oil exports from Eastern Siberia and the Rus- ments (Martelius 1999, 159). The Ukrainian Gov- sian Far East. The Northern Economic Region is ernment is an active actor in regulating the use the largest net exporter of oil and gas after West- of pipelines (e.g. Interfax 2003). Belarus also has ern Siberia. The Urals and the Volga-Vyatka Eco- been able to pay its energy debts to Russia nomic Regions will change from net exporters to through transit charges. Against this background, net importers when the oil resources of these ar- attempts to expand the system of transport north- eas are depleted. The export volumes of coal pro- wards can be well understood. The shortest way duction in Western Siberia, and particularly in from the Siberian gas and oil fields to the centre Eastern Siberia, will grow. of Europe is via North-West Russia and the Baltic The implementation of the Russian Federation’s Sea Region. From the Barents Sea the shortest way Main Provisions calls for considerable investments is through Fennoscandia. Russia is striving to re- in the Northern Region. The aim of the strategy is duce dependence on the Baltic States. Latvia and to increase both continental and offshore oil and Lithuania are important for oil transport, but Rus- gas production (IEA 2002a, 58). This means in- sia has negatively viewed the development creased production in the Timan-Pechora Basin project of Ventspils oil harbour, referring to secu- and the start of Barents Sea and Yamal gas pro- rity risks (IEA 2002a, 98). In truth, the ownership duction. In the north, the aim is to develop elec- arrangements of the harbour are in contention. tricity generation based on various energy re- However, the strategic importance of the Baltic sources and to improve the power grids, as well States may grow when these countries join the as to modernise the four nuclear reactors on the European Union in 2004. Kola Peninsula. The Main Provisions support the upkeep of coal and steam production, as well as Russia’s energy policy in the Northern and the respective transport network. This means sup- North-Western Economic Regions port for Russia’s preferred utilisation of coal. The Main Provisions’ strategy focuses on the energy In the Main Provisions, the Russian Federation is needs of industrial enterprises and the develop- divided into economic regions and Russia’s re- ment of proper conditions for their operations in gional energy strategies are based on this geo- the future. Gas supply networks will be developed graphical division. The division into economic re- in the Republic of Karelia, in Arkhangelsk and gions significantly differs from the country’s divi- Murmansk Oblasts, as well as in the Republic of sion into the seven regional grids (see Fig. 5). The Komi; this refers to the Petrozavodsk-Murmansk Main Provisions’ geographical division in the Eu- gas pipe construction. ropean North matches in full the area of the In the North-Western Economic Region, the North-West Federal Okrug, which consists of the Main Provisions recommend the modernisation of Northern and North-Western Economic Regions electricity-generating and heat generation plants and the Kaliningrad Oblast enclave. From the be- and logistical investments. In line with the Main ginning of the millennium these areas have be- Provisions, it is planned to develop electricity come more important to energy conveyance. For generation by renovating conventional thermal instance, the Gulf of Finland, Finland and even and nuclear power plants, as well as construct- the Arctic Ocean are becoming increasingly im- ing new units (IEA 2002a, 58). The four reactors portant channels of energy exports to the West. Is of Sosnovyy Bor are to be replaced with new re- this a temporary phenomenon or does it reflect a actors. Heat generation with gas will be particu- new, more stable geopolitical arrangement? larly developed in St. Petersburg. The energy de- The Main Provisions to 2020 assume that oil pendence of Kaliningrad Oblast will be decreased and gas production will decrease in Western Si- by the versatile development of heat generation, beria and increase in the European North. Accord- as well as the development of local energy pro- ing to this strategy, the Northern Economic Re- duction. Thus Lukoil’s efforts to open the small gion (as well as Eastern Siberia and the Far East) Kravtsovskoye offshore oilfield near the border will become a net exporter of gas (IEA 2002a, 57). with Lithuania is in accordance with this energy The Northern Region, in regard to oil, is already strategy (Lukoil 2001b; Kaliningrad Regional Ad- a net exporter, and there are plans to increase oil ministration 2003; Baltenergy 2002)). The con- production in the area. Growth is anticipated in struction of a new oil harbour on the Baltic Sea Asia as well. For this reason, it is planned to de- is also mentioned in the Main Provisions, and was FENNIA 181: 2 (2003) North-West Russia as a gateway in Russian energy geopolitics 171 realised with the completion of the Primorsk fa- est level, imports were equal to 59%. At the turn cilities. of the millennium, the Russian electricity compa- If all the Main Provisions’ steps are realised in ny RAO UES increased the capacity of the St. Pe- the Northern and North-Western Economic Re- tersburg–Vyborg trunk line (IEA 2002a, 215). The gions, there will be a versatile energy system that electricity company has made contracts concern- will promote the welfare and competitiveness of ing electricity exports to Poland, Germany and the country’s regions. With the development of the Austria. Projects in electric power grid construc- energy system, the forest and mining industries of tion are being planned in the northern parts of the Northern Region, as well as the competitive Europe, and they will pave the way for Russian advantages of the heavy industry in this area, will electricity exports to the European market. For in- be improved, and a more stable energy supply stance, the Kola nuclear power plant would like will be ensured. In this way, it is possible to slow to sell its excess electricity abroad and to St. Pe- down the depopulation of the Northern Region. tersburg. The question, however, is whether Rus- The efficiency of electricity and heat generation sians are able to modernise their old power plants is of great importance for St. Petersburg. Logistic and set up transmission systems. Moreover, North- investments assist in obtaining export income, West Russia’s electricity generation is needed to which will have considerable multiplier effects on satisfy local demand. North-West Russia’s multi- the Russian economy. The renovation of nuclear faceted industry, infrastructure and households power plants reduces risks connected with nucle- need much electricity in high-latitude conditions, ar energy. but geographical changes in demand are antici- According to the Main Provisions, the share of pated. the Northern and North-Western Economic Re- The aims of Russia’s energy plans are to in- gions and Kaliningrad Oblast in the total energy crease and ensure energy supply and the systems production of the European part of Russia ac- of transport. The logistic importance of Fennos- counted for 18.7% in 2000, and it is expected to candia is becoming more significant than it has increase to 19.7% by 2020 (IEA 2002a, 57). This been. The construction of the gas pipeline net- will happen mainly because of the utilisation of work opens new potential and expands gas sup- new oil and gas fields. Regional demand also ply in the Baltic Sea Region. Various investments gives a boost to the growth of energy production: as well as R&D and technological improvements Russia’s industry is built on the sizable utilisation are necessary to realise the steps of the Main Pro- of natural resources that will continue to require visions. New technology is needed for the in- large energy inputs. Energy consumption can be crease of energy efficiency as well as for environ- controlled with the assistance of modern technol- mental safety. Russian energy measures rest on ogies, to which the Main Provisions’ strategy national interests. For example, in logistic ar- strives. The use of environmentally-friendly ener- rangements, Russia is striving to keep all benefits gy resources can be increased with the assistance and control over exports inside the country. Part- of technological solutions. Modernisation requires ly because of this, the Main Provisions support the investment activities in order to rejuvenate ener- increased activities via the Baltic Sea. gy production based on obsolete equipment. The The goals of the Main Provisions support the development trends of Russian energy consump- growth of the Russian economy and the improve- tion are highly dependent on energy efficiency, ment of its economic performance. The Russian i.e. technical-economic solutions, and the work- economic structures are expected to change sig- ing order of the production plants and the con- nificantly with the growth of services, private consumer sector utilising the energy. sumption and transport. Russians strive to create Besides oil and gas, Finland imports electricity a more efficient and sustainable economic system from Russia. For Russia, Finland is the largest elec- out of an economy using energy wastefully. Such tricity purchaser. In 1990–2000, Finland’s net im- intentions narrow the gap of the economies of ports of electricity annually accounted for 5–17% Russia and the EU-Europe. North-West Russia, of the country’s total electricity supply (KTM aided by its geography and European legacy, con- 2001, 27), and almost all of these imports came tributes in no small measure to Russia’s transfor- from Russia. At its lowest level, annual imports mation and economic evolution. were equal to one-fifth of total Finnish nuclear power’s electricity generation, while at its high- 172 Markku Tykkyläinen FENNIA 181: 2 (2003) Conclusions: geo-economic general. Due to locational factors the main mar- restructuring and future visions ket of Russian energy is in Europe. Nevertheless, the improving infrastructure enhances Russia’s opportunities to sell oil worldwide. The Asian Geographical shifts of energy production and market for Russian hydrocarbon resources is de- the new regional growth pattern veloping but the capacity to deliver energy to these markets is still rather small and will contin- Eronen (1996, 44) has estimated that 40% of Rus- ue to be for some time to come. sian purchasing power is within the radius of Market forces increasingly determine trade and 1000 km from the southern corner of the Finn- business connections with remote districts inside ish-Russian border. The majority of people live on the country. Production closures and the invest- the western edge of this large country, but its en- ments of the energy sector have strengthened this ergy resources are located across eleven time market-led geographical restructuring. Some zones. During recent decades there has been a structures have reversed; for example oil and gas considerable geographical shift in the extraction pipelines, which ensured economic co-operation of energy resources. Oil, gas and coal are extract- between small CMEA countries and the Soviet ed increasingly from Siberian sources and this Union, nowadays have become export channels trend continues in addition to the opening up and that earn revenues from the market. Nevertheless, utilising the resources of the Arctic. The second this Central European gateway is losing it signifi- shift is the decreasing significance of energy pro- cance as Russia constructs new ports and pipe- duction and networks, which included the south- lines in the northern parts of the country. The re- ern areas that were part of the Soviet Union. All organisation of transport does not decrease the the restructuring of production and networks de- significance of European actors as trade partners, mands considerable infrastructure (Table 6). but Russia is merely less dependent on old ex- The outcome of the shifts and anticipated en- port routes to the European and world markets. ergy production changes is that the geographical Both human-made and physical contingencies, focus of Russia’s energy-driven geopolitics is re- manifested in production systems and transport turning to the north and high-latitude zones in practices, change slowly.

Table 6. Geographical shifts of Russian energy production. Main production areas and the targets of logistical investments.

Source of primary Soviet Union since Russia at the turn of Russia during the early decades energy (and the Second World War the millennium of the 21st century logistics) Coal Donets Basin, southern Kuznetsk Basin, Kansk- Kuznetsk Basin, Kansk- areas of the FSU Achinsk, Eastern Siberia, Far Achinsk, Eastern Siberia, East, some European areas Far East (Pechora, Moscow, Donets Basin) Oil Caucasus, Volga-Urals West Siberian Plain West Siberian Plain, Sakhalin, Timan-Pechora Gas Caucasus, southern areas West Siberian Plain West Siberian Plain, Sakhalin, of the FSU, Volga-Urals Barents Sea, Lena-Tunguska, Yamal Peninsula Nuclear European parts, some pilot European Russia European Russia plants on the Asian side Logistics Construction of internal Baltic Pipeline System and North Transgas, Baltic Sea pipeline network, Bratstvo Northern Gateway: pipes and pipelines and ports, Barents and Druzhba, Black Sea ports ports, Black Sea ports, Caspian Sea and Yamal pipelines and Pipeline Consortium, ports and ports, pipeline from Eastern pipes in Russian Far East Siberia to China, pipes and ports in the Far East, Arctic Ocean transport systems FENNIA 181: 2 (2003) North-West Russia as a gateway in Russian energy geopolitics 173

Impacts of new borders pling in Asia is not likely to lead to the disinte- gration of the Federation or to other conflicts, but Russia’s energy strategy supports the country’s the economic development of the regions will be economic orientation to the advanced economies uneven. and global economy but, on the other hand, it attempts to develop production and logistics for the Stakeholders and mutual interests needs of the domestic market. Due to the changing geopolitical conditions (such as new borders), Under the influence of enterprises, policy mak- the resource-rich northern areas of Russia’s Asian ers (from the new shrunken Russian territory) and and European territories are of great importance inherited structures, Russia’s orientation towards for the Russian Federation. These high-latitude re- Europe is in the current interests of stakeholders. gions and their localities have greatly differing fu- Europe is now relatively more important to Rus- ture prospects (Heleniak 1999), and they are sia than earlier when the country included large mostly explained by the potential of the energy southern republics located in Asia and had thus sector’s regional development and logistical po- stronger Eurasian cultural attributes. One of the sition both in Europe and Siberia. latest signs of this Europe-oriented policy was the Russia has lost its control in the southern former proposal of the Common European Economic Soviet states. Clearly, there are cultural grounds Space (CEES), which would comprise both the EU to assume that this divide is fundamental and per- and Russia. This was adopted at the EU-Russia sistent (e.g. Huntington 1993). Having achieved Summit in May 2001 and has been developed fur- independence, the former Soviet republics creat- ther in the Co-operation Council between the Eu- ed their own profiles both in the economy and ropean Union and Russia. It also was highlighted foreign policy. For example, nowadays the USA in the 300th Anniversary of the Foundation of St. and China are, more than earlier, visible in the Petersburg in 2003 (e.g. Prodi 2003), which indi- oil and gas market of the southern independent cates its importance. republics (Martelius 1999, 157–163). The USA The geographical characteristics of the world has supported the Cheyhan (Turkey) oil pipeline energy market and the development of the ener- project, which is being developed by, amongst gy transport system promote the integration of others, the independent republics. The northern Russia with Europe. Economic development is Caucasus is not a peaceful area, which creates binding Russia and Europe together through eco- difficulties for economic development and ener- nomic reasons: the economic connection be- gy production. tween Russia and the advanced industrial coun- The geography of Russia is different compared tries is profitable for both sides because their pro- to the geographical domain and power of the So- duction systems are complementary to each oth- viet Union and its sphere of influence. The core er. The viability of the Russian energy cluster of the Russian economy is formed around Mos- brings benefits both to the EU and to Russia, and cow and St. Petersburg as well as around the rich the stability of Russian energy production bene- oil and gas areas (Sutherland et al. 2000). The fits also the US economy. The formation of such nucleus of growth of the Russian economy is in mutual interests causes new security configura- the industrial urban agglomerations, in which the tions in the foreign policies of these countries. This population has concentrated already since the is seen, for example, in the relations between Rus- beginning of the Soviet period. The industries of sia and NATO and in Russia’s attempts to abolish these agglomerations act to meet the needs of the visa requirements between Russia and the EU. their domestic markets or strive to enter the glo- Instead of being trusted companions in business bal market. Industrial investments, political steps co-operation, the former empire’s regions border- and restructuring programmes support, in the ing on Russia in the west – Belarus and particu- main, the existing geo-economic structures (i.e. larly Ukraine – have become problematic due to production, communities and logistics). transit and transport payment conflicts. Conse- In the regions of Eastern Siberia and the Rus- quently, the focus of logistic visions has geograph- sian Far East, the energy strategy is developed to- ically moved farther north. Russian companies are wards the markets of China and Japan, because developing the existing northern pipelines and those economies demand energy from the east- ports as well as planning the construction of new ernmost regions of Russia. This economic cou- oil and gas pipelines through Fennoscandia. On 174 Markku Tykkyläinen FENNIA 181: 2 (2003) the other hand, these northern infrastructure plans to places where it is relatively easy to transport. are also a geographical manifestation in the way This direction is also positive from the political that new oil and gas deposits lie in northern high- perspective, because through energy sales Russia latitude zones. Logistic investments near the bor- can be seen as an important trade partner in Eu- der regions of Finland are supported by the fact rope. This also increases the political importance that the shortest way for gas (and partly oil) trans- of Russia in Europe. Close co-operation between port to Central Europe is through the Baltic Sea Russia and the European Union in the energy field area. will bring the former East Central European countries and the Baltic States, when they take EU Logistic advantages membership, back into the energy system from which they wanted to be separated when the So- Russia’s continuing efforts to avoid the ports of viet Union collapsed. However, conditions for this other countries means that logistic decisions for integration have changed. For example, gas direc- energy production will not significantly change tives create totally different markets, in compari- when the countries of East Central Europe become son with the command economy period, for these members of the EU in 2004. In regards to exports former Soviet energy purchasers. to Western Europe, however, changes may take During the past few years, energy companies place. As the new members enter the EU, direct have played a central role in the Russian econo- land access from Russia to the heart of Europe will my as sources of hard currency. These revenues become available through the Baltic States and can be increasingly spent on purchasing produc- Poland, but the shortest routes from the Barents tion technologies from the West and on invest- Sea to Western Europe will continue to run ments in other economic sectors. If this mecha- through the Baltic Sea Region. Moreover, Fin- nism works, the potential of economic develop- land’s logistic location is favourable also from the ment in the country is highly dependent on the point of view of the gas and oil projects in the success of its energy production. Timan-Pechora and Yamal Peninsula. In any event, The energy sector with its multiplier effects will Finland can take part in the construction projects continue to be an important economic cluster. The of the energy industry and its infrastructure. investment behaviour at the beginning of the The energy infrastructure of Russia has been twenty-first century indicates that the energy sec- created in a way that it serves energy transport to tor’s revenues are invested in the maintenance the West. Industrial investments are required for and modernisation of its energy infrastructure. upgrading Russia’s energy system. The potential Restructuring processes in the Russian economy growth of primary energy production is limited in also have an effect on refining and petrochemi- Europe, and for this reason energy exports, and cal production. New production capacities are to gas exports in particular, to Europe are anticipat- be created and the old – renovated or closed ed to increase (IEA 2000, 146–148). Russia will down. Moreover, Russia’s attempts to increase be able to supply large volumes of gas if the coal and nuclear energy consumption, partly as planned investments are realised. Russian activi- part of the Russian trade policy, are very ambi- ties in the oil market create common European tious. energy markets, thus decreasing energy depend- The adaptation to new market and institutional ence on Persian Gulf countries’ and African oil12. conditions inevitably means the emergence of The EU countries also purchase Russian electrici- new geopolitics. Otherwise, trade relations suf- ty, and for this reason electric power lines to the fer. The new post-socialist reality differs very much EU are being developed. In Europe, electric pow- from the past, but still debated doctrine, which er grids are utilised for distributing electricity from emphasised the role of superpower, non-Western one state to another on a co-operative and trans- Eurasian cultural identity and unique anti-capital- fer-contract basis. Russia is attempting to join this ist institutions. That time is over for the time be- integrating electricity market. ing. In a globalised and capitalist world, geopolitics means a constant competition between alter- The network of actors and geopolitics natives in the search for the most useful external relations. Energy is part of this network of actors Co-operation with European actors makes sense and relations. For Russia, this game means inte- for Russia. Russian companies can export energy gration with partners (companies, nations and FENNIA 181: 2 (2003) North-West Russia as a gateway in Russian energy geopolitics 175 economic areas) that are able to co-operate suc- (1964–83) and 2 (1967–90) (IAEA 2003b). These re- cessfully in the economic sector and to maintain actors were built in the 1950s and 1960s. 8 unproblematic socio-cultural relations. The new The information on reactors is updated by the IAEA (IAEA 2002b), Ministry for Atomic Energy of the Rus- Russian geopolitics and the Russian initiatives of sian Federation (Minatom 2002), and Institute for integration and co-operation are understandable Physics and Power Engineering (IPPE 2002). in this context. 9 Nuclear power plants under construction in 2003: 8 units in India, 4 in China, 4 in Ukraine, 3 in Ja- pan, 3 in Russia, 2 in South Korea, 2 in the Slovak Republic, 2 in Iran, 2 in Taiwan, 1 in Argentina, 1 in ACKNOWLEDGEMENTS North Korea and 1 in Romania (IAEA 2003c). The total power of the 33 NPPs under construction is The contributions of Paul Fryer and Sisko Porter in 27,112 MW in 2003. composing the English manuscript are acknowl- 10 The original units of data, the coal tonne equiva- edged. lent (Mtce) used by Russians, have been converted into toe, tonnes of oil equivalent. Energy consumption is measured by Total Primary Energy Supply NOTES (TPES) in the IEA’s calculations. 11 1000 MW VVER reactors are planned to replace 1 Energy consumption consists of energy used in pri- the reactors of the Kola NPP and the Leningrad NPP mary production, in manufacturing, services (e.g. (VTT Energy 1999, 254). transport) and households. Energy consumption is 12 Oil is imported into Europe from CIS countries usually estimated by Total Primary Energy Supply (29%, 1999), Saudi Arabia (14%), Libya (13%), Iran (TPES), which is made up of indigenous production (10%), Iraq (9%), Algeria (6%), Nigeria (5%) and Ku- + imports – exports – international marine bunkers wait (2%) (IEA 2000, 145). Russia is the leading gas “ stock changes (IEA 2003a, 62). The concept com- importer into Europe (65%, 1999), followed by Al- mercial energy use is defined in the same way geria (32%) (IEA 2000, 148). Europe is defined here (World Bank 2000, 323). as OECD-Europe with 22 countries. 2 One oil tonne equivalent (toe) is equal to the heat energy of one tonne of crude oil. For example, the heat energy of a coal tonne in Russia is 0.545 toe (IEA 2003a, 59). The conversion factor varies by REFERENCES country and the quality of coal. 3 CMEA and Comecon are abbreviations for the Agnew JA (2001). 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