Historical Context of Sustainability of Oil and Gas Production in Russia - Case Study Example

Historical Context of Sustainability of Oil and Gas Production in Russia Name Course code: Course Instructor Date Table of Contents Table of Contents 2 Executive Summary 3 Keywords 4 Overview of Russia's Energy Sector 4 Development of improved sustainable use and recommendations 8 Public-private partnerships 8 Better regulatory frameworks 9 Technology and innovation 10 Conclusion 10 Reference List 10 Executive Summary Russia is a major oil producer and exporter globally, as it provides some 12% of the world’s oil supply. Despite this, the recent history of the country’s oil development shows it faces sustainability challenges that should be addressed immediately to prevent the likely collapse of the industry. While huge amounts of unconventional oil can still be found in the Russian territory, the manner in which the oil wealth is managed -- from resource selection to environmental protection -- makes the future of oil production uncertain in the country. This is due to the poor lack of coordination between the government and oil and gas companies, poor implementation of policy frameworks for sustainability due to a lack of consistent regulations. Others include poorly coordinate efforts of the energy regulators, lack of reliable standards for sustainable oil production and export, and poor monitoring of the energy efficiency programmes. It is recommended that the energy industry and the Russian government should form public-private partnerships to encourage greater commitment environmental sustainability goals. The Russian government should come up with a more balanced and highly empowered regulatory process to oversee the efficiency of oil production and export processes used by Russian firms. The oil and gas companies should be encouraged to upgrade their technology and environmental performance improvements efforts. Keywords Russian oil sector, sustainable oil production, Russian oil history, environmental pollution, energy regulations Overview of Russia's Energy Sector During the late 1800s, the Russian Empire had listed energy as an important commodity capable of helping to attain strategic goals. In the 1950s, the energy sector became a major pillar of its political and economic power. The Russian Empire began receiving revenue from oil exports in 1800s, which comprised 7% of the earnings from export, before rising to 14% during the late 1920s, and 50% during the 1950s (Gordon & Sautin 2013; Oil and Gas Forum 2016; Goodrich & Lanthemann 2013). However, during this time, the government became hugely dependent on oil, and set up policies targeted at increasing oil exploitation (Schmidt, E 1996). As a result, tremendous booms in oil production and catastrophic declines were witnessed in the 1960s. Indeed, as far back as 1960, conventional crude oil production in the country had altered significantly (see Figure 1). Figure 1: Oil production in Soviet/Russia 1960-2011 (Gordon & Sautin 2013) During the peak of oil production in 1987, the Soviet oil production was 11.4 million barrels a day. However, in 1996 after the collapse of the Soviet Union, production declined to about 6 million barrels. The decline in production originated from the prevalent economic disorder during the 1990s, due to the decline in global oil prices (Ebel 2009). However, at the beginning of the new century, the oil industry bounced back as production catapulted after the restoration of the current capacity to levels that almost neared the 1987 peaks (Gordon & Sautin 2013). In the early 2000s, the oil production in the country persistently shot to unsustainable levels, in the face of sustainability issues (Gordon & Sautin 2013). In contrast to Saudi Arabia, Russia produces oil in full bore and has consistently failed to leave spare capacity. For these reasons, Russia’s oil industry is on the verge of a major decline. While the costs of production is on the increase, and the volume of production is stagnating (Wheeland 2015). In the mid-2005, poor partnership between the government and oil firms, reluctance to fully implement policy frameworks for sustainability due to lack of transparency, and non-specific sustainability standards led to uncontrolled oil production and transportation (Bobylev & Perelet 2013; Goodrich & Lanthemann 2013). These have instigated enormous damage to the Russian natural environmental because of pollution from oil spills and emission of associated gas in the air, particularly in Western Siberia during the last decade. Additionally, the recently constructed off -shore projects on the country’s Arctic shelf portends newer environmental risks and threats (Bobylev & Perele 2013). Figure 2: Map of Russian oil reserves In 2009, the Russian oil and gas industry has been documented to be responsible for a majority of associated petroleum gas globally. Additionally, oil explorations in the Arctic have increased the possibility of oil spills from drilling pipelines, platforms, as well as oil reservoirs when unloading oil onto tankers (Bobylev & Perele 2013). The flaring of associated petroleum gases (APG) in Russia is highest leading to high proportions of environmental damage and energy waste (Saunier et al 2013). In 2009 for instance, it was estimated that Russia burnt up to 30 billion cubic metres of APG annually. Table 1: Flaring of AGP highest in Russia – 2006-2012 (Saunier et 2013) In 2011, the most efficient companies in terms of controlling the release of APG were “Tatneft” and “Surgutneftegas,” both of which attained utilization levels of close to 94.9 % and 97.8 % in that order. The worst efficient ones were “Gazpromneft” and “Rosneft” (See Table 1). (Bobylev & Perele 2013). Table 2: APG production levels among oil firms in Russia, 2006-2011 (billions of cubic metres) (Bobylev & Perelet 2013) In 2009, former President Dmitry Medvedev pointed to associated gas flaring as demonstrating wasteful use of energy resources, hence making oil production unsustainable. By 2016, however, the problem has not been solved. Indeed, the Ministry of Energy yet again deferred the deadline for attaining 95% of energy utilization to avoid waste from 2012 to 2014, yet in 2016, Russia continues to have problems with APG emission (Bobylev & Perelet 2013). Development of improved sustainable use and recommendations The Russian government has recently attempted to shift from overdependence on oil exports by placing greater emphasis on industrial development to ensure less exploitation of the oil reserves. However, this implies that Russia would have to discontinue supplies, which is a major revenue earner. On the contrary, the Russian government has constructed Ust-Luga oil terminal on the Baltic Sea, which allows Russia and the Nord Stream natural gas pipeline under the Baltic Sea to boost its energy export to European countries. This would mean greater exploitation of the scarce energy resource. Public-private partnerships The energy industry and the Russian government should form public-private partnerships focused on encouraging greater commitment to the realisation of environmental sustainability goals and to reduce the environmental effects of recovering Russia’s oil and natural gas and resource. The Public-private partnerships can encourage the realisation of environmental sustainability objectives across the industry by engaging stakeholders in the energy industry. The government should set the expectations for the management of oil production and export companies to safeguard the environment. This would ensure that commitment should be demonstrated to ensure continuous environmental improvement and excellent environmental performance across the organisations. The government should engage the private oil companies to initiate a centralized repository for collecting, cataloguing, and disseminating sustainability standards and practices. This would provide a central repository that the industry players, the public, and government may refer to in case any of the companies contravenes the agreed standards and practices. Better regulatory frameworks The Russian government should come up with a more balanced and highly empowered regulatory process to oversee the efficiency of oil production and export processes used by Russian firms. The Russian energy regulator should be allocated to ensure it has enough technical expertise and personnel to regulate effectively natural gas and oil firms. The Russian government should encourage the creation of methodologies for evaluating environmental footprint effects on land and water. In turn, the policymakers and regulators should utilise environmental footprint analysis, as this would inform regulatory decisions on issues where energy resource choices require environmental and economic trade-offs (NPC nd). New regulations and policies on the reduction of the flaring of AGP should be firmly anchored in the legal framework. The policy should be implemented and enforced by a regulatory framework that has the capacity to work independently and avoid overlapping functions. The regulatory bodies should as well set the targets for AGP reduction, such as where companies are provided with incentives that encourage them to reveal the correct information on their levels of emission (Saunier et al 2013). Technology and innovation The oil and gas firms should be encouraged to upgrade their technology and environmental performance improvements efforts (NPC nd). The natural gas and oil firms procure own proprietary technologies. The Russian government should stipulate the standards of the technology, as well as providing funding aid to firms that need to acquire better technology. Russia should subsidize the development of less carbon-intensive fuels. It should also encourage economy-wide energy efficiency, as this would provide higher quality of oil and gas commodities to its main customers in the European and Asia. Conclusion All through the history of Russia’s oil production and export, the energy sector in the country has witnessed poor partnership between the government and oil and gas companies, poor policy frameworks for sustainability complicated by inconsistent regulations, lack of reliable standards for sustainable oil production and export, and poor monitoring mechanism for energy efficiency programmes. It is expected that greater sustainability measures could help manage the cycle. Russia should develop national strategies that encourage sustainable oil and natural production in three key dimensions: public-private partnerships, better regulatory frameworks, and technology and innovation. Reference List Bobylev, S & Perelet, R 2013, Sustainable Development in Russia, Russian-German Environmental Information Bureau, St Petersburg Ebel, R 2009, The Geopolitics of Russian Energy: Looking Back, Looking Forward, CSIS, Washington, D.C. Goodrich, L & Lanthemann, M 2013, "The Past, Present and Future of Russian Energy Strategy," Stratfor, viewed 31 March 2016, Gordon, D & Sautin, Y 2013, "Opportunities and Challenges Confronting Russian Oil," Carnegie Endowment for International for International Peace, viewed 31 March 2016, International Energy Agency 2012, Energy Policies of IEA Countries, Paris, IEA NPC nd, Operations and Environment, viewed 31 March 2016, Oil and Gas Forum 2016, Russsian Oil & Gas Industry Week, viewed 31 March 2016, Saunier, S, Pederstad, A, Holm, T, Darani, H & kertesheva, A 2013, “Associated Petroleum Gas Flaring Study for Russia, Kazakhstan, Turkmenistan, and Azerbaijan,” Associated Petroleum Gas Flaring Study for Russia, Kazakhstan, Schmidt, E 1996, "The World Bank and Russian Oil," Global Policy Forum, viewed 31 March 2016, Turkmenistan, and Azerbaijan – Final Report 2013 Wheeland, M 2015, "Russia: the unsustainable superpower," The Guardian, 31 March 2016, Read More