of them severe. At the end of December 2006, Shell and its Japanese partners accepted Gazprom as majority shareholder. The project thereafter continued on course and in 2009 began exporting LNG to Asia and even as far away as Spain.
OIL AND RUSSIA’S FUTURE
By the second decade of the twenty-first century, Russia was back as an oil producer. Its output was as high as it had been in the twilight of the Soviet Union, two decades earlier, but on very different terms. The oil industry was integrated technologically with the rest of the world; and it was no longer the province of a single all-encompassing ministry, but rather was operated by a variety of companies with many differences in leadership, culture, and approaches. When it was all added up, Russia was once again the largest producer of oil and the second largest exporter in the world.
Once, as Russian production and oil revenues were ramping up, Vladimir Putin was asked if Russia was an energy superpower. He replied that he did not like the phrase. “Superpower,” he said, was “the word we used during the Cold War,” and the Cold War was over. “I have never referred to Russia as an energy superpower. But we do have greater possibilities than almost any other country in the world. If put together Russia’s energy potential in all areas, oil, gas, and nuclear, our country is unquestionably the leader.”
Certainly Russia’s energy resources—and its markets—put it in a position of preeminence; and with a new uncertainty about the Middle East, it took on a renewed salience as an energy supplier and in terms of energy security.
Oil and gas were also what powered its own economy. As Putin had written in his 1999 article, they had indeed been the engine of Russia’s recovery and growth—and the number one source of government revenues. High prices meant even more money flowing into the nation’s treasury. The country’s demographics made those revenues even more critical—in order to meet the pension needs of an aging population.
But the heavy reliance on oil and gas stirred a national debate about the country’s heavy dependence on that one sector and about the need for “modernization,” which meant, in part, diversification away from hydrocarbons. But modernization was hard to achieve without broad-ranging reforms of the economy and legal and governmental institutions, along with a nurturing of a culture of entrepreneurship. Some argued that high oil prices, by creating a cushion of wealth, made it easier to postpone reform. Whatever the progress on modernization, oil and gas would continue to be the country’s greatest source of wealth for some years to come, as well as an arena in its own right for advanced technology.
But the very importance of oil and gas highlighted a different kind of risk: would Russia be able to maintain its level of output or was another great decline in the offing? The latter would threaten the economy. Some argued that Russia would not be able to sustain production without big changes—a step up in new investment, a tax regime that encouraged investment, augmentation of technology, and, of critical importance, the development of the “next generation” of oil and gas fields. One of the major targets for that next generation was the offshore, particularly in the Arctic regions, off the northern coast of Russia.
Developing those frontier regions would be challenging and costly and even more complex than the Sakhalin projects. Once again, here was the potential for a significant role for international companies. These would be the projects for which Western partners would be sought, especially the large majors with their capabilities to execute projects on that scale. Yet undertaking them would require considerable confidence on both sides. For these would be very long-term relationships; the development time would be measured not in years, but decades, and their full impact would likely be felt nearer the middle of the twenty-first century, rather than the beginning. But that was still prospect.
For the Western companies—save for those long-range projects in places like the Arctic—there was not much more in the way of large opportunities beyond what had already been launched in the 1990s. As things had turned out, the early expectations about Russia had proved to be much larger than the reality.
When it came to oil and gas, however, there had been more opportunity to be found in the former Soviet Union than just in the Russian Federation. Much more. And it was to the rest of the region that attention had also turned in