Russian Natural Gas: Regional Dependence

Russian Natural Gas: Regional Dependence

Order Code RS22562
Updated January 18, 2007
Russian Natural Gas: Regional Dependence
Bernard A. Gelb
Specialist in Industry Economics
Resources, Science, and Industry Division
Summary
Russia is the dominant natural gas supplier to Europe and neighboring former
Soviet states, as well as a major provider of oil. Some countries are entirely or largely
dependent upon Russian energy supplies, particularly other Soviet successor states. As
such, Russia has some ability to dictate natural gas prices. Russia cut off the gas supply
to Ukraine and to Moldova in January 2006 and threatened to cut off gas supplies to
Belarus and Georgia during late 2006 price negotiations. These and other actions in the
interim damaged Russia’s reputation as a reliable energy supplier, spurred importing
countries to seek other sources, and provoked criticism that it is using energy as a
political tool.
Russia is the world’s largest exporter of natural gas, the dominant gas supplier to
Europe and neighboring former Soviet states, and a major provider of oil. Some countries
are entirely or largely dependent upon Russian natural gas. Of Russia’s total natural gas
exports of 7.1 trillion cubic feet (tcf) in 2004, 6.7 tcf went to European countries,
including destinations in Eastern Europe.1 (In comparison, the United States consumed
an estimated 22 tcf in 2006.)
Moreover, Russian natural gas is imported in large quantities by European countries
and represents very high percentages of the total gas consumption of a number of them.
(See Table 1). For example, Russia exported 1.3 tcf of natural gas to Germany, 0.9 tcf
to Italy and to Ukraine, 0.7 tcf to Belarus, 0.5 tcf to Turkey, and 0.4 tcf of gas to France
in 2004; and Russian gas represented 98% to 100% of the total natural gas consumed by
Belarus, Bulgaria, Estonia, Finland, Georgia, Latvia, Lithuania, Moldova, and Slovakia.
Non-Russian Soviet successor states tend to be particularly dependent upon Russian gas.
Ukraine’s 40% “dependence” shown in the table is deceptively low. A substantial portion
of its natural gas supply comes from Turkmenistan through Russian-controlled pipelines,
giving Russia additional leverage.
1 Energy Information Administration, Russia Country Analysis Brief, “Natural Gas,” January
2006; Eni, World Oil & Gas Review 2006, at [http://www.eni.it/eni/images_static/wogr/pdf/
wogr2006.pdf], viewed Dec. 21 and 27, 2006.

CRS-2
Table 1. Dependence Upon Russian Natural Gas
by Selected European Countries, 2004
Natural Gas Imports from Russia
Quantity
% of Domestic
Country
(billion cu. ft./yr)
Consumption
Germany
1,290
39%
Italy
855
31
Ukraine
850a
40a
Belarus
698
99
Turkey
506
65
France
406
24
Hungary
318
64
Czech Republic
253
77
Austria
212
69
Poland
212
43
Finland
163
98
Romania
138
22
Lithuania
103
100
Bulgaria
99
99
Netherlands
94
6
Greece
78
82
Moldova
77
100
Latvia
62
100
Georgia
39
100
Sweden
39
b
Estonia
34
100
Slovenia
20
52
Belgium
7
1
Denmark
c
b
Ireland
c
b
Portugal
c
b
Spain
c
b
United Kingdom
c
b
Sources: Energy Information Administration, Southeastern Europe Country Analysis Brief; Eni,
World Oil & Gas Review 2006, at [http://www.eni.it/eni/images_static/wogr/pdf/wogr2006.pdf],
viewed December 21 and 27, 2006; International Energy Agency, IEA Statistics, at
[http://www.iea.org/Textbase/stats/index.asp], viewed Dec. 27, 2006.
a. Estimate by CRS based on several disparate published and Internet sources.
b. Zero or less than 0.5%.
c. Zero or less than 500 million cubic feet.

CRS-3
As a major supplier of natural gas to European countries, Russia has some ability to
set prices. Gazprom, Russia’s 51%-owned state-run natural gas monopoly, briefly cut off
gas to Ukraine and, separately, to Moldova in January 2006 because they did not agree to
greatly increase what they were paying for the gas.2 As 2006 ended, Russia appeared to
be preparing to cut off natural gas supplies to Belarus and Georgia unless the two former
Soviet republics agreed by the year-end to pay much higher prices in 2007.3
The cutoffs to Ukraine and Moldova in price-dispute contexts damaged Russia’s
reputation as a reliable energy supplier and reportedly have prompted former Soviet
Union and West European countries to investigate where they might obtain non-Russian
gas.4 Also reportedly, during late 2006 price negotiations, Gazprom warned Belarus that
its failure to agree to higher prices could jeopardize the country’s energy supply.5 6 In
addition, the actual and threatened cut-offs have provoked criticism that Russia is using
energy as a political tool.7
2 Much of Russia’s gas exports to Europe pass through Ukraine. Russia restored supply after
other European countries complained. The dispute has been resolved temporarily by a few
compromise agreements. Moldova and Russia reached an interim agreement mid-January 2006.
3 Neil Buckley and Arkady Ostrovsky, “Gas dispute threatens Belarus, Georgia,” Financial
Times, Dec. 13, 2006.
4 “Russia Turns up the Gas,”Guardian Weekly, Dec. 23, 2005, Jan. 5, 2006, p. 41; Peter Finn,
“Russia Reverses Itself on Gas Cuts,” The Washington Post, Jan. 3, 2006, p. A12; Andrew E.
Kramer, “Russia Restores Most of Gas Cut to Ukraine Line,” The New York Times, Jan. 3, 2006,
at [http://www.nytimes.com/2006/01/03/international/europe/03ukraine.html?pagewanted=print],
viewed Jan. 3, 2006.
5 Yuras Karmanau, Associated Press, “Belarus Braces for Russia to Turn off the Natural Gas
Spigot, The Washington Post, December 26, 2006; “No Deal for Gazprom, Belarus,” Oil Daily,
December 27, 2006.
6 On January 1, 2007, Belarus and Gazprom signed a five-year contract providing that Belarus
will pay increasingly more for gas (starting at more than twice the old price) and Gazprom will
purchase 50% of Belarus’ gas pipeline network. Alan Cullison, “Belarus Yields to Russia,” The
Wall Street Journal, January 2, 2007, p. A4; “Belarus, Russian Firm Sign 5-Year Deal for Gas,”
The Washington Post, January 2, 2007, p. A10.
7 Ed Reed, “Shtokmnanovskoye: the Wait Continues,” NewsBase CIS Oil & Gas Special Report,
July 2006; “G8 Adopts Energy Plan; Shtokman Slipping Away from U.S. Firms?” Oil Daily, July
18, 2006; “Russian State Interference” and “Test Drilling on Shtokmanovskoye Begins,” FSU
Oil & Gas Monitor, July 26, 2006.