Natural Gas

Natural gas is mainly methane that occurs in bogs. Fossil natural gas deposits exist in many of the same places where oil does. Basically, when oil is produced underground from the remains of the microscopic marine plankton, some of the shortest molecules escape and remain trapped underground in gaseous form right above the liquid oil. In cases where oil-producing rock has sunk very deep in the earth's crust and has been exposed to very hot temperatures, only gas is produced. Russia is exceptionally fortunate in having the largest gas deposits in the world. According to various sources, it has between 30 and 40% of all proven natural gas reserves on the planet, or about 48 trillion m3.

Natural gas is the cleanest fossil fuel; when it burns, only carbon dioxide and water are produced. However, it can explode and therefore must be shipped with utmost caution. Usually it is shipped under pressure in pipelines, similar to oil. It must be shipped overseas in liquid form via specialized, very expensive tankers. This limits its applicability worldwide, because petroleum can be shipped anywhere in the world in regular (i.e., cheaper) tankers without liquefaction. Although gasoline or jet fuel cannot be made directly from natural gas, it can be used in its liquid form as a fuel for specially modified engines. Also, natural gas makes a great alternative to dirty coal in modern electricity-generating plants, and it is used widely for home heating and cooking. Natural gas must be liquefied and kept at low temperatures (at an energy cost) for long-term storage. So usually once it is released from underground, it goes immediately into the pipelines to the consumers. Because of this, its production and consumption are tightly intertwined. Even a short interruption in supply is immediately felt down the pipelines—something Europeans have learned to fear after several pricing disputes between Russia and Ukraine in recent years.

Just like the petroleum fields, most of the Russian gas fields are in western Siberia (60% by number of fields and 91% by volume of production). However, the gas fields there are generally located even farther north, near or on Yamal Peninsula (Urengoi, Yamburg, Zapolyarnoe). These are areas above the Arctic Circle, where summers are short and winters are long and bitterly cold. Additional large reserves exist in the Stockmann field in the Barents Sea, and in Orenburg Oblast in the Urals. Small deposits are found near the Caspian Sea. In the rest of the FSU, significant gas reserves are found only in Turkmenistan. According to the U.S. Energy Information Administration, in 2006 Russia produced 656 billion m3 of natural gas, with the United States producing about 525 billion m3. Three countries in Europe (the United Kingdom, Norway, and the Netherlands) collectively managed to produce about half of Russia's total output, and all of the Middle Eastern countries, including extremely gas-rich Qatar, produced about half of Russia's output as well.

Although the privatization of oil fields and refineries was allowed under Yeltsin, no privatization of the natural gas industry was allowed. Long-time Prime Minister Chernomyrdin (who had close ties to the gas industry) and a few other members of Yeltsin's inner circle ensured that the entire industry remained mostly in state hands, although partial private ownership of gas stock was allowed. Virtually all gas production in Russia today is controlled by one company: Gazprom, the country's largest corporation. Slightly over 50% of its stock is controlled by the state, and much of the rest is publicly traded. In 2007 Gazprom was ranked only 52nd in the Fortune Global 500 list by revenue ($81 billion)—somewhere along with Hitachi, Samsung, Nestl?, and Deutsche Telecom, but quite a bit behind such giants as Walmart, ExxonMobil, Royal Dutch Shell, or BP. In mid-2007, however, it was close to becoming one of the top five companies by market capitalization on the planet ($254 billion vs. $426 billion, for ExxonMobil and less than $200 billion for Walmart). The new president of Russia, Dmitry Medvedev, has expressed a wish to see it become the biggest company on the planet one day. Some political observers even joke that the true name of the ruling party, United Russia (the predecessor of which was Our House Russia), should instead be “Our House Gazprom” because of the heavy presence of Kremlin insiders on the company's board.

Gazprom has been active in maintaining existing gas pipelines and building new ones. The Blue Stream pipeline connected Krasnodarsky Kray in Russia and Turkey under the Black Sea in 2005. This gas line is the world's deepest (about half of it runs at depths close to 2000 m), and its underwater section is over 300 km long. A similar, but even longer and much more controversial, Northern Stream pipeline is being built from St. Petersburg to Germany under the Baltic Sea. Poland and other countries that are being bypassed criticize the project on both economic and environmental grounds, while Germany is naturally in favor of it. Its recently announced Southern Stream cousin will cross the Black Sea into the Balkans and will compete directly with the Western-backed Nabucco pipeline coming from Azerbaijan into Turkey. Another major international project is a future pipeline to connect Kovykta in Irkutsk Oblast to China. Yet another gas pipeline may be built across the Altay Mountains from central Siberia into western China across the scenic Ukok Plateau, despite the vocal protests of environmentalists.

Gas from Russia plays an increasingly important role in heating Europe in winter. Some European countries (e.g., Finland, Poland, Slovakia) are almost 100% dependent on Russian natural gas for their natural gas supplies, and Germany and Austria import about 30–50% of theirs from Russia. Even France and England receive small but important shares of Gazprom's bounty (Starobin, 2008). This of course creates political tensions over who is really in charge in Europe, as the energy prices continue to go up, while the Europeans have few options besides Russian gas for heating themselves in winter.

The transit of gas from Russia is an important geopolitical issue. Belarus and Ukraine have pipelines stretching across their territory from Russia to the EU member states, Russia's main global consumers. In the case of Ukraine, almost half of the gas actually comes from Turkmenistan—but technically it is still all Russian, because it enters the country from Russia and needs to be paid for through Gazprom-associated structures. Both Belarus and Ukraine need some natural gas for themselves, but their primary role has been that of transit operators to Europe, for a fee. Gazprom, with the Kremlin behind it, has been keen on flexing its political pricing muscles; this has led to a few standoffs with Ukraine and less obvious complaints in Belarus over unfair pricing, both for the natural gas itself and for the transit of it. Although both countries continue to pay substantially less for natural gas from Russia than the “world price” of it (Belarus a lot less, and Ukraine about half of the world price), they want even more favorable rates, arguing that Russia has no other options for exporting its gas to Europe. At the same time, the Europeans are upset over the possibilities that Russia may shut down or restrict its gas flow because of pricing disputes with the transit countries. The “Orange Revolution” in Ukraine exacerbated the situation farther, because the more independent minded, pro-Western government of Viktor Yushchenko and Yulia Timoshenko immediately ran into problems with Gazprom that have made international news from time to time. It is interesting to note that the main source of Timoshenko's personal fortune in the past was, in fact, gas trading.

Natural gas extraction damages the sensitive tundra of the Yamal. In order to bring supplies in, all-terrain military vehicles with heavy tracks are commonly used. These tend to destroy fragile lichens and mosses for many kilometers around the wells, as each subsequent run must use a slightly different path, to avoid sinking forever into the liquefied mud. Such dirt “roads” a few kilometers wide can be visible on satellite images of the Yamal Peninsula. Natural gas is expected to continue being the top fossil fuel produced in Russia for at least another 25 years. As oil production drops, more and more natural gas will be required, and of course even the Siberian bounty will end at some point. The question remains what fuel will be available after that. In the FSU, outside Russia, major natural gas fields are found only in Turkmenistan and Azerbaijan. Recent independent audits in the former suggest that the country has much less gas than was previously believed. Kazakhstan and Uzbekistan have some as-yet-unrealized gas potential.