“…He opened his eyes, and everything was gone. It hadn’t been a different world—it was this world turning a new, unknown side to him. This side was revealed to him for a second and then disappeared, before he had time to figure it out…”

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The shale gas revolution and Russia

Interesting article by John Helmer on the US shale gas revolution and its likely impact on Russia. He cites a new report by the Stockholm-based Actagon Research Institute, which pours a bit of cold water on recent claims  that the recent massive increase in US natural gas supplies will result in a drastically-altered energy market in Europe. According to the report, the high prices associated with transporting gas will mean that Russia will retain its dominance of the European energy market. It will have to adjust its pricing model, but it has a lot of room to do this, given potential efficiency gains and the high cost to Europe of any LNG imports.

This is in stark contrast to a chorus of US/European analysts, who have made sweeping statements like:

No longer able to sustain internal weaknesses and mounting political dissent despite rising oil and gas income, the country collapses into a loose series of warring autonomous federations and loses all credibility as a gas supplier.

Anything could happen, I suppose, particularly if prices collapse, but that seems a bit extreme.

There are many roadblocks to the shale gas revolution drastically altering the energy relationship between Russia and Europe: the extremely high cost of building LNG infrastructure, the European regulatory system (eg mineral rights, fracking being banned outright in some countries, etc), uncertainty surrounding any potential European gas supplies, and finally the potential efficiency gains in the Russian energy extraction and transportation system. It’s worth considering that a massive change in any of those impediments could change the landscape, and it is without a doubt that increased worldwide LNG supplies will create a bigger spot market for natural gas, eroding some market share of Gazprom et al.  Still, as pointed out by the article, the Russian energy sector has shown flexibility lately, indicating that it will be able to react to changing situations.

The Russian government is also focused on building its own LNG export infrastructure, which will allow it to provide to faster-growing Asian economies.  The above quote is very important in this context–Russia’s ability to develop this infrastructure will be dependent on its ability to send the right market signals (eg encouraging joint ventures/ investment programs with foreign companies, perhaps ending Gazprom’s export monopoly etc–see this report)

This leads me to believe that (as usual) the story is more complex than it initially appears; the ‘shale revolution’ will doubtlessly impact the pricing situation Russia faces, but these changes will be a long time coming and will allow for room to maneuver. Russia loses some of its ability to lock in longer term contracts and market power in Europe generally, but remains the major European supplier while also potentially gaining new Asian export markets.  All of this will depend on the policy decisions made by the Russian government; I guess the takeaway is that it’s not a foregone conclusion that they’ll screw that up.

(Thanks to MM for the link)

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Gazprom v Ukraine, round 3

Ouch. Just after Ukraine signed a big shale gas exploration agreement with Royal Dutch Shell, Gazprom hit Ukrainian state-owned Naftogaz Ukraine with a $7bn bill for failing to buy the agreed-upon import volume of natural gas.  Gotta love the passive aggressive language like this:

It was unclear why Gazprom would demand $7 billion for the gas Ukraine did not use, a price that is approximately twice that of the gas Ukraine did not use.

Yet another example of the complicated relationship between the two countries, as well as the uses of energy as a political tool. I’m not an expert on long-term gas contracts, but I know that take-or-pay contracts are pretty standard (especially with Russia), so I wonder how predictable this was given usage trends, or if it really was the almost cartoonishly dick move that it’s being portrayed as in the press. Gazeta.ru notes that Russia has offered Ukraine bigger discounts if they agree to provide Gazprom access to Naftogaz Ukraine’s distribution network or join the Customs Union with Russia, Belarus and Kazakhstan.  Ukraine has resisted such a move so far, hoping to continue its balance between growing closer to the EU and maintaining good relations with its eastern neighbor.

In any case, it seems obvious that Russia has some serious leverage here, and that Ukraine will have to work something out–as the FT notes, $7bn represents 4% of Ukrainian GDP; furthermore, the country has $10bn in maturing sovereign debt that it needs to roll over this year. Ukraine is also looking for a $15bn bailout from the IMF, while the domestic economy continues to suffer from low export demand. This amount probably doesn’t factor in payments to Gazprom; additionally, it will likely push the government to raise gas tariffs (which the IMF has been demanding for a long time). Can’t  say I envy the leader that has to wade through these issues, this guy:

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Putin’s confessor

Really interesting story in the weekend FT on Tikhon Shevkunov, an Orthodox priest close to Putin. Link

“At Mount Athos they only just got electricity, and at Sretensky [monastery] the monks all have iPads,” laughs Yevgeny Nikiforov, a friend of Tikhon’s and head of Orthodox radio station Radio Radonezh, referring to the Greek monastery which is the Orthodox religion’s gold standard in terms of cloistered asceticism. “Of course, they need these [iPads] for their proselytsing work,” he says, turning serious when he sees that I am writing this down.”

The historical relationship between the Orthodox church and political power is complex–as noted by the author (in reference to the monastery in which Shevkunov resides):

Placed in its present spot in 1995, the cross seems to exist in oddly tragic symmetry with the building just a block away at the other end of Bolshaya Lubyanka street – the eponymous headquarters of the former KGB, an organisation which in various incarnations has killed or imprisoned more than 300,000 church workers in the name of official atheism since 1917. During Soviet times the 600-year-old monastery was closed and housed an NKVD (precursor to the KGB) barracks. It is said the premises was even used for executions.

Though this guy likely has an axe to grind, this struck me:

No one knows more about this painful episode of the church’s history – the co-operation between top-level clergy and the KGB – than Father Gleb Yakunin, a former priest and liberal reformer who was excommunicated in 1997 partly for his criticism of the church….

Yakunin himself spent five years in a prison in the 1980s. Then, in 1992, under pressure from then President Boris Yeltsin, Yakunin was granted access to the archives of the KGB’s fifth directorate, fourth department, which dealt with religious groups, and spent a month going through the agent reports. While he was never given the card file with the identities of the agents, he was able to glean from the patterns of their reports who they were by comparing their codenames with information on the activities of top-level clergy…

According to Father Yakunin, the church was so thoroughly infiltrated by the KGB that “virtually the entire episcopate were recruited as informers”.

Orthodoxy has been closely linked with Putin and the current political elite since the early 2000s, lending additional resonance to the Pussy Riot actions last year. As noted in the article, the church offers a sense of identity and ideology that the government finds useful to exploit as its own support wanes. On the ground level, I know that the Orthodox church is critical to providing for the sick, needy etc. I would be curious if there are any outspoken regime critics within the church.

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A year (and some change) later

December marked the year anniversary of the protest explosion that followed the 2011 Duma elections, offering an opportunity to reflect on those events, why they happened, and what (if any) changes have resulted. I think the large-scale protests happened for a variety of reasons–the flagrantly ridiculous results of the Duma election in many areas, an escalating series of government statements/actions that insulted the intelligence of upper-middle class Muscovites, who increasingly see themselves as part of a wider global social stratum, and finally the much-discussed expansion of social media and internet connectivity, which allowed for the documenting of flagrant election fraud and rapid coordination of such meetings.

Having spent time in Moscow in 2009-11, I was struck by the images of thousands of formerly politically passive Muscovites out in the streets demanding their political rights. It was also striking how ephemeral the protests turned out to be. Having failed to produce any real leaders or develop specific and implementable policy demands, the movement lost steam, particularly after the violence that accompanied the May protests before Putin’s inaugeration. The anniversary protest in December 2012 was only attended by about 3,000 people, a far cry from the approximately 100,000 who took to the streets in December 2011. This was not the least due to the fact that the majority of those who protested are not revolutionaries and still benefit from the status quo to some extent, or due to fading novelty of the movement among the so-called ‘creative class’.

But perhaps it’s expecting too much of the opposition movement. According to journalist Leonid Radzikhovsky, political change in Russia tends to result from the inability of the government to manage a crisis situation, resulting in collapse. This hasn’t occured yet, though the country’s dependence on high oil prices  to maintain its spending commitments and living standards makes this more likely.

In any case, the protests did show the powers that be that there is a limit to what the urban elites are willing to put up with. This social group is essential to running and further developing the nascent modern economy that exists in the country, a fact that the Kremlin seems to recognize on some level. I don’t think it’s a coincidence that the following year saw a number of nominally democratic moves
1) Easing of restrictions on registering political parties
2) Discussions around reinstating elections for local governors
3) An anti-corruption campaign that resulted in a few high-profile arrests and the public shaming of at least one minister

Of course, there are many Kremlin insiders who stand to benefit from these developments, which also may have the effect of further fragmenting the opposition. As Edward Lucas pointed out, this could result in a situation where competing factions within the Kremlin attempt to co-opt and exploit the opposition for their own ends.
This would still represent a shift to me–the mere fact that Putin & Co. feel the need to respond with such rhetoric signals a more developed civil society in which issues cannot be ignored.

I think there is a strong chance for a more sustainable opposition movement to emerge, given the right circumstances. This will become more likely as the economic growth of the 2000s becomes harder to sustain, increasing the likelihood of such a crisis. It’s worth bearing in mind that prior to the December 2011 protests, turnout of more than a few hundred people was a rarity at any opposition event. From this perspective, even the 3,000 that turned out  last month reflects a more engaged public. The fact that 20,000 turned out to protest the anti-Magnitsky/Dima Yakovlev law shows that people are willing to express their opposition to specific issues. All of these developments mean that the only thing predictable about Russian politics will continue to be their unpredictability.

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After months of emails between friends and colleagues, I’ve come to the realization that I need an outlet for various observations and thoughts on what’s happening in Russia and the ex-USSR more generally. Now that I’ve spent a few years following developments in this part of the world, I increasingly realize that there’s a lot of conventional wisdom thrown around and echoed ad nauseam; I’ve decided to add be yet another relayer of the conventional wisdom. My intention is to explore various issues related to the former Soviet Union: political, economic, historical and cultural. Russia will doubtlessly be the main focus, as I’m more familiar with that country, but I hope to bring up some issues related to other countries in the region as well. Posts will vary from simple reports about recent news to longer analysis of specific issues.

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