The Role of the Energy Sector in the Overall Russian Economy

Everywhere in modern Russia today, the energy industry has left its mark upon the landscape. Obvious signs include new office buildings, such as the Lukoil and Gazprom skyscrapers in southwestern Moscow; Western-style gas stations with colorful logos along rural highways; large, freshly painted railroad cars carrying petroleum products; and the names of new city streets, school buildings, and soccer stadiums. This is not an entirely new phenomenon. The U.S.S.R. was the largest producer of oil and natural gas in the world by the early 1980s, surpassing the United States and Saudi Arabia with production from the giant fields in western Siberia. (It remains the world leader in natural gas production and is currently second in petroleum production; see Table 17.1.) Back then, though, the energy sector consisted entirely of state-owned fossil fuels. In the new Russia, however, there are many private and semiprivate energy companies playing a much larger role in the overall economy than the state-owned energy industries played in the old one. These companies are highly visible, aggressive, profitable, and politically engaged. Table 17.2 lists the major petroleum companies.

Figure 17.1 illustrates the major role played by oil, gas, coal, and the rest of the energy sector in the new Russian economy. The share of this sector went up from only 12% of the total gross domestic product (GDP) in 1991 to 31% in 2002. Of course, the overall economy shrank by 50% over that period, so part of this relative change had more to do with the dramatic shrinking of other sectors. For example, light industry (e.g., textiles and clothing) contracted from 17% of the total output to only 1.5%. However, there has been genuine growth in energy production in Russia since 1998. Production of petroleum, natural gas, and coal is up, while nuclear energy generation remains at levels similar to those of the late 1980s. The renewable sources of energy are expected to become more important now, because of high petroleum prices, pollution concerns over coal and nuclear energy, and a relative shortage of additional pipeline capacity for oil and natural gas. However, at present virtually all renewable energy in the Russian energy mix (a paltry 3%) is hydropower; most of this comes from old installations built in the 1950s, and few new dams are being planned. The largest hydropower facility, Sayano-Shushenskaya near Krasnoyarsk, suffered an unprecedented breakdown in the fall of 2009 that resulted in 75 casualties. The accident highlighted the fragility of the old equipment, as well as the top managers' lack of concern about safety. Although the Soviet Union built a few experimental geothermal (Kamchatka), solar (Uzbekistan and the Crimea), and tidal (Barents Sea coast) energy facilities, alternative energy remains virtually untapped in Russia today. When compared to that of the United States, Russia's energy mix is very high on oil and natural gas, and low on renewable energy, nuclear, or coal.

The distribution of energy production in Russia is very uneven. The oil and gas fields in western Siberia produce 69% of all the petroleum and 91% of all the natural gas. Coal is mainly produced in the Kuzbass basin in central Siberia (47%). Most nuclear stations, by contrast, are located in the European part of the country, where the electricity need is greatest. Electricity production from all other sources is more evenly distributed, with each of the seven federal districts producing about an equal share; most of this production is unified in a national grid, except for the stations of the distant Far East. Coal and natural gas power stations dominate electricity generation (about two-thirds of the total), with 18% of electricity generated by hydropower, and 16% by nuclear energy. Finally, it must be kept in mind that the productivity of the Russian energy sector comes at a huge environmental cost: It accounts for 48% of all air pollution, about a third of all water pollution, and over 30% of all solid waste.