Russia is Europe’s largest supplier of oil and natural gas. As such, it remains one of the most important countries in global energy markets, something that has generated concern in the West amid Russia’s pursuit of an aggressive foreign policy. People fear that Russia will attempt to leverage its energy exports to sway European decision-making and gain influence in the Continent’s periphery. Though many in Europe hope that new production technologies will improve the Continent’s energy security by opening up alternative routes for importing natural gas, they are more important for their contribution of additional natural gas output to the global supply.
Russia is the third-largest oil producer in the world, behind only Saudi Arabia and the United States. In 2013, its output averaged 10.5 million barrels per day. Only one-third of Russia’s oil supplies the country’s domestic market; the rest secures Russia’s position as a major exporter of oil and petroleum products in the global market.1 Russia also controls the world’s largest natural gas reserves, estimated at around 1,688 trillion cubic feet, or nearly one-quarter of the world’s total proved reserves.2
The Russian government relies heavily on revenues from oil and natural gas sales, which account for about 52% of the federal budget. While the country’s two primary energy companies, Rosneft (oil) and Gazprom (gas), do have some degree of autonomy from the government, the state is the majority owner in both companies and its control over policy keeps them in line. Unlike the upstream sector, which has some level of independence, the midstream (transport) sector is completely owned and operated by the state;3 state-run Transneft pipelines move almost 90% of Russian crude.4 The state’s dominance in the midstream sector affords the Kremlin control over both foreign and domestic upstream activities without owning the assets in question, since it can govern where products can go within the country and the amount that can be exported.5
Because conventional production in the country’s major basins is declining, Russia’s ability to access and implement new production technologies could have substantial consequences for its economy in the long run. Western sanctions, which target Russia’s energy sector, among other areas of the economy, will only exacerbate Russia’s financial troubles while they remain in place. Still, the country’s West Siberian Bazhenov Shale Basin is estimated to contain as much as 360 billion barrels of oil, most of which is tight oil. If this figure is accurate, the basin would boast the world’s largest shale oil reserves, a significant boon to the cash-strapped Kremlin if it proves able (both technically and economically) to recover them.
People frequently talk about Russia in discussions of states that threaten U.S. security. Russia has pursued an aggressive foreign policy in recent years; its 2008 invasion of Georgia and 2014 annexation of Crimea are often held up as clear evidence of this. Furthermore, Russia continues to test the mettle of NATO by pursuing an asymmetrical strategy against U.S. allies, including its unofficial support for Ukrainian rebels,6 cyber attacks (notably against Estonia in 2007)7 and incursions into the air space of numerous U.S. allies.8
Many also fear that Russia will attempt to use its natural gas exports to strong-arm U.S. allies in Europe. A number of European countries rely heavily on Russian gas; Poland, Slovakia, Hungary and Lithuania each depend on Russia for more than 85% of their gas supplies.9 While the historical efficacy of using gas as a political weapon is questionable, the widespread perception that Europe is vulnerable to gas shocks that Russia can instigate at will exists nonetheless. This perception has led the European Union to look for ways to diversify its gas imports away from Russia. Many hope that as new oil and gas technologies continue to open up new production opportunities worldwide, the Continent may find itself with more alternative sources of energy to choose from. While this may be true, the specific route used to pump natural gas to Europe — whether through Russia or not — is not especially important to European energy security. What is more significant is that new producers’ added contribution to the oil and gas markets will boost global supplies, in turn driving down prices for European consumers.