A Very Quick History. . .
Russia is the world’s largest country covering an area of 17 million square kilometres, being almost double the size of the United States. It supports about 150 million inhabitants, being rather sparsely populated. It may be divided into two broad physiographic regions: a western area of plains and lowlands; and a more mountainous east. Much of it lies within the Arctic Circle.
Over its long history, the country was occupied by Slavs, Huns and others, migrating from the plains of Mongolia, which seems to have been one of the cradles of mankind. The western part of the country came under the control of the Varanginians, who may have been related to the Vikings, establishing a trade route from the Baltic to the Black Sea. The country adopted the Christianity of Byzantium from around 1000 AD.
Later came in turn Mongol and Tartar invaders, but they were generally assimilated into the growing number of principalities and petty kingdoms that were developing in Western Russia, including Muscovy on the site of the present capital. Ivan the Terrible began to expand Muscovite influence in the 16th Century. He was largely the pawn of his elite factions, and espoused European influences, including the construction of the Kremlin with the help Italian craftsmen. He in turn was succeeded by the Romanov dynasty which continued in power to the 20th Century. Peter the Great (1689-1725) consolidated power, settling disputes with Turkey to the south and Sweden and Poland to the west, paving the way for the expansion of the nascent Russian Empire. His greatest achievement was the establishment of a competent administration and an improved educational sys tem. He also established St Petersberg on the shores of the Baltic, giving Russia an outlet for world trade. The next luminary was Catherine the Great, the German widow of an ineffectual Czar who came to power in 1763 after a coup d’état, organised by her lover, Count Orlov. Her reign was marked by both amorous and territorial conquests. A general state of tension persisted after her death in 1796 with various wars against Turkey and the European powers, which resulted in the ill-fated invasion by Napoleon who was defeated at the gates of Moscow in 1812.
Financial-Industrial Revolution hits Russia
The Czars faced great difficulty in administering their vast territories, which they sought to do by the establishment of a ruling nobility and an under-class of serfs. But the 19th century also saw the development of industry, mining and railways, with the emergence of prosperous capitalists. What we may term the Financial-Industrial Revolution began to take a grip of Russia. It was driven by banks that loaned money in excess of what they had on deposit, charging interest on it which created money out of thin air. The resulting economic growth provided the collateral to the extent that the growth was backed by confidence in future expansion.
The Crimean War of 1853-56 found Russia in conflict with Britain, France and Turkey, who were resisting the threat of Russian expansion into the Middle East. Its importance then lay not in its oil as today but in its strategic position facing the British Empire. Defeat led the reigning Czar to move towards the liberation of the serfs, which was naturally resisted by his nobility. Progress was slow, however, sowing the seeds of revolution, in some cases encouraged by sympathetic intellectuals. Russia’s large Jewish population was mistrusted by both the officials and the serfs alike, who were no doubt reacting to the hidden pressures of usury, which in those distant days was widely perceived to be in some way underhand and sinister. Waves of anti-semetic progroms swept the country, forcing many Jews to emigrate.
The Lure of the East
Russia’s eyes turned eastward during the early years of the 20th Century where, in company with Britain, France and Germany, it sought to capture the markets of China and Japan, exploiting also the conflicts between those countries. The trans-Siberian railway was constructed. But a surprise attack by Japan in 1904 led to the Russo-Japanese war, in which Russia suffered several defeats, in turn stimulating more domestic unrest. In 1905, workers in St Petersberg marched to deliver a petition to Czar Nicholas, but they were brutally cut down in what was known as Bloody Sunday. The Bolshevik movement, amongst others, gained strength, pressing for reform.
Meanwhile in Western Europe, a newly united industrial Germany was challenging the mercantile empires of Britain and France. That led to the erection of a complex set of alliances, including a pact of mutual assistance between France and Russia. The catalyst for the outbreak of the ensuing world war in 1914 was a move to secession from the Austrian Empire by Serbia, whose Slav population was backed by Russia. With the outbreak of hostilities, a Russian army marched into East Prussia, but was repulsed. The privations of war exacerbated the tensions at home, which erupted in February 1917 in a spontaneous popular outburst against the government that was soon exploited by the Bolshevik leaders, Trotsky and Lenin, who proposed a Soviet government. A civil war followed in 1918 between the so-called Red and White armies. Czar Nicholas and his family were arrested and later mur dered, and an oil workers’ leader from Baku, later known as Joseph Stalin, came into prominence, eventually taking control of the government after Lenin’s death in 1928. The Czar and the Aristocracy were the palpable targets, but in fact they were little more than figureheads for the underlying Financial-Industrial System, that creamed off financial wealth in excess of the physical wealth created by labour. The Communist system was supposed to prevent this abuse and return justice to all through central planning. In practice, it proved difficult to achieve, its aims, and the pressures gave rise to purges and the wholesale relocations of communities involving massive loss of life.
The Soviet Experiment
The inter-war years saw Russia, now known as the Union of Soviet Socialist Republics (USSR), develop largely in isolation with all strands of its economy under state ownership and control. Stalin proved to have an iron hand, suppressing any hint of opposition by ruthless means. Even so, the Soviet experiment, whatever its shortcomings, did appeal to many intellectuals in other countries, inspiring the socialist movement as a milder variant. The Second World War was essentially an extension of the first, and after an initial alliance with Germany under a non-aggression pact, Russia again joined the Allies. After initial successes, the German army was repulsed from the gates of Moscow, and in 1945 Russian troops raised the Hammer and Sickle over the ruins of Berlin. Russia had suffered grievously in the war, and was not about to give up the territories it had conquer ed in East Europe, where puppet Communist regimes were established. Its intelligence service proved effective in securing access to details of western nuclear research, being facilitated by socialist sympathisers. Mr Wilson, Britain’s Prime Minister, is said to have enjoyed a particularly close relationship. The Soviet Union also led the world into the space age.
Cold War Extends Western Economic Hegemony
The British and French empires were extinguished by the war leaving the United States and the Soviet Union to glower at each other for the next forty years in what became known as the Cold War. In seems in hindsight that it was a somewhat contrived conflict to extend Western economic hegemony. The Soviets were depicted as bent on world domination, although their only notable convert was the island of Cuba, while Russia for its part found itself ringed by threatening military bases containing nuclear weapons aimed at it. Actual conflicts were confined to endeavours to partition Korea and Viet Nam, although Soviet forces were not deployed in them
The Soviet epoch ended in 1991 when the moderate Communist leader, Mikhail Gorbachev, was ousted by Boris Yeltsin, who in turn gave way to the current President, Vladimir Putin in 1999.
Enter Mr Khodokovski
The Soviet Empire was dismembered: with many of its component parts becoming independent countries with their own internal conflicts, and a new capitalism, complete with robber barons, came to Russia. The oil sector provided rich pickings for enterprising financiers to acquire State assets paid for by loans from the State in the confused process of privatisation following the fall of Communism. None was more effective than a Mr Khordokovski, who built up the Yukos Oil Company.
President Putin enjoyed a landslide victory in the last election, allowing him to take a stronger control of the reins of power. He had much popular support because many Russians looked back with a degree of nostalgia for the good old Soviet days when they knew where they stood, however difficult their circumstances. The Duma, which had no doubt become filled with lobbyists for vested interests masquerading under the cloak of democracy, was largely side-tracked.
Pendulum swings towards Putin
Putin has proved himself to be a very intelligent leader both at home and abroad. At home, he curbed the oil barons in moves that amount to the progressive re-nationalisation of the oil business. Mr Khordokovski finds himself in jail, and his company is in a form of liquidation. In terms of foreign policy, Mr Putin steered a fine course succeeding in opposing the invasion of Iraq without alienating its architect in the White House too seriously. It was a brilliant strategy for he is now in the process of forgiving Iraqi its huge debt which the shattered country has little chance of re-paying in return for re-validation of promising oil rights negotiated with the previous government. Russian oilmen will likely receive garlands of flowers from a grateful people if and when they move in on the ignominious departure of the occupying forces.
Russian Oil
It is difficult to summarise the geology of this huge territory, but we may identify the main provinces:
· The Western basins between the Barents and Caspian Seas with their Silurian source rocks
· The West Siberian basins with the Jurassic source rocks
· The Arctic domain
· The locally productive Tertiary deltaic basin of Sakhalin on the Pacific margin
Exploration commenced in the 1840s in the vicinity of Baku on the Caspian, but lapsed during the early years of Communism, until it was revitalised after the Second World War. In fact, the Soviet explorers proved to be highly efficient, being able to apply scientific methods, free of commercial constraints. Boreholes were drilled for geological information, and Russian explorers pioneered the geochemical breakthrough that identified the source rocks and generating belts. Accordingly, discovery at least in sub-Arctic Russia peaked around 1960, with the corresponding peak of production following in 1987. Exactly how much was found is hard to know, because the Soviet classification of reserves ignored commercial constraints. Decline curve analysis shows that the reported reserves of most Russian fields have to be reduced by about 30% to obtain realistic estimates.
Production crashed on the fall of the Soviets, but later rebounded to around 8.2 Mb/d in 2003 in part making good the production that would have already been secured but for the dislocations accompanying the fall of the Soviet regime. Accordingly, there may be a second peak around 2010 perhaps at about 10 Mb/d, although Russian officials now speak of minimal increases. Consumption stands at about 2.5 Mb/d yielding exports of 5.7 Mb/d. On balance it seems likely that Russia can hold close to the present level of exports only to around 2010 before decline sets in.
It is clear that the reserve estimates of around 50 Gb as reported previously by the Oil & Gas Journal were too low, but it is not easy to know by how much. We tentatively favour a figure of about 60 Gb, (excluding the Arctic) still giving a fairly low depletion rate of 3%, which is one argument against higher estimates. We add to this 30 Gb of Arctic oil, together with substantial deposits of heavy oil in Eastern Siberia and NGL from gasfields, which are here excluded from Regular Oil by definition. The total therefore approaches the 100-120 Gb, as reported by Yukos. The jury is still out but we think that this assessment is reasonable in terms of order of magnitude.
Russian Gas
Russia also has large deposits of natural gas, here estimated to total about 1800 Tcf, of which about 1100 Tcf remain to be produced from known discoveries, discovery having peaked in the early 1970s. Production has been about flat since 1990 at about 20 Tcf/a of which 14 Tcf/a are consumed internally. Production is not expected to increase significantly, both because of the natural decline of the ageing fields, some of which were over-produced in the latter days of the Soviet regime, and the limited incentive to build new pipelines when the country is better served by conserving its resources. More may be found in the Arctic, including the offshore if that extremely hostile environment should eventually be accessed. Plans for the export of LNG from the Yamal Peninsula have been under consideration, although calling for the construction of special ice-breaker tankers.
Putin’s hand on Europe’s lightswitch
Europe is increasingly dependent on Russian gas as North Sea production, especially in Britain, declines steeply, and tends to assume that it will be readily made available under the blandishments of liberalised markets. But Mr Putin is no fool, having even, it is said, received some geological training, and is likely to recognise that the resource is finite and that his country has prime claim on what remains. Furthermore, as he becomes more aware that he has his hand on Europe’s light switch, given that so much electricity is now generated from natural gas, he may come to recognise that starving his country’s industrial competitors of energy will give its domestic manufacturing base a decided advantage. Russia may come to see advantage in embracing the euro as a natural currency for trade, opening the final chapter in the postscript to the Cold War.
