From the moment that Vladimir Putin gained control over Gazprom, the Kremlin has been positioning Russia as an energy superpower — a country that can dictate terms to other countries thanks to its enormous amount of raw materials. That is strange.
In 2008, Russia extracted 640 billion cubic meters of natural gas, of which 550 bcm belonged to Gazprom. In the same year, the United States extracted 580 bcm. That is less than Russia but more than Gazprom. So why is Russia considered an energy superpower and the United States is not?
The volume of gas is important for sure, but the revenues from its sale are even more important. The average Henry Hub spot price for 2008 was $323 per cubic meter. That totals $185 billion in revenues. But Gazprom earned only $47 billion by selling natural gas to Western Europe. If the United States earned $185 billion in natural gas revenues in 2008 and Gazprom pocketed just $47 billion, how did Russia become classified as an energy superpower?
The gap widened in 2009. Russian natural gas extraction fell to 575 bcm, of which 460 bcm belonged to Gazprom. Just the opposite happened in the United States where largely thanks to shale gas, the total yield rose to 620 billion cubic meters, surpassing Russia. At the same time, the price for natural gas fell in the United States, averaging $177 per 1,000 cubic meters.
How can Russia be an energy superpower if Gazprom extracted 25 percent less natural gas than the United States in 2009?
The answer is simple. Russia is an energy superpower by default. It lacks a real chemical industry.
The U.S. chemical industry is the largest in the world and consumes about 2 million terajoules of energy annually. Russia’s chemical industry is the 12th-largest and consumes 110,000 terajoules annually. Russia, with its massive territory, freezing temperatures and low energy efficiency consumes 280 bcm of natural gas on its domestic market. The United States — a country with both higher temperatures and energy efficiency — consumes 670 bcm of gas on its domestic market. Consolidated revenues of the U.S. chemical industry totaled $400 billion in 2008.
Ever since Putin gained control of Gazprom, he has been trying to gain control of Europe with the help of gas pipelines. Instead of pouring money and energy into gas pipelines that are carrying less gas every year and that were built with money that will never be recouped, why doesn’t Putin develop Russia’s chemical industry?
For Putin to develop the chemical sector requires a completely different business approach than producing gas. First, Dow Chemical and Dupont in the United States are privately held, and it will be hard to explain why Russian chemical plants must be state-owned. Second, the products of chemical plants are sold on the free market, whereas Putin’s approach is to crush markets — within Russia and abroad — using monopolies to drive up prices and generate “easy money.”
The Kremlin repeatedly assures itself that it is holding Europe hostage with the help of its gas pipelines. In fact, Russia is holding itself hostage by relying exclusively on its gas pipelines and mismanaging its energy and chemical industries on a colossal scale.
Yulia Latynina hosts a political talk show on Ekho Moskvy radio.