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9 Oil

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  • Turning to the supply side of the equation, we note that three countries account for over 55% of the world’s proved reserves, with Russia alone accounting for 27%. As we move beyond the Big 3 there are still many countries that have sufficient reserves to be gas exporters. The countries that currently export LNG are indicated in red. It is interesting to observe that three of the four largest reserve countries are still not players in the global LNG market, although Russia is a major pipeline exporter and will become an LNG exporter with the startup of the Sakhalin project next year.
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    • 1. <ul><li>Russia </li></ul><ul><li>Land 1.8 times the size of U.S. </li></ul><ul><li>10 time zones </li></ul><ul><li>Population:143 mil </li></ul><ul><ul><li>Russian 80% </li></ul></ul><ul><ul><li>Tatar 4% </li></ul></ul><ul><ul><li>Ukrainian 2% </li></ul></ul><ul><li>The richest in resources </li></ul><ul><ul><li>Oil, natural gas, coal, many strategic minerals, timber </li></ul></ul><ul><ul><li>most resources in remote areas </li></ul></ul>Russia Today: Oligarchs, Oil and Gas
    • 2. Rank Country 2008 GDP (purchasing power parity) 1 World $ 69,490,000,000,000 2 European Union $ 14,820,000,000,000 3 United States $ 14,290,000,000,000 4 China $ 7,800,000,000,000 5 Japan $ 4,348,000,000,000 6 India $ 3,267,000,000,000 7 Germany $ 2,863,000,000,000 8 United Kingdom $ 2,231,000,000,000 9 Russia $ 2,225,000,000,000 10 France $ 2,097,000,000,000 11 Brazil $ 1,990,000,000,000 12 Italy $ 1,821,000,000,000 13 Mexico $ 1,559,000,000,000 14 Spain $ 1,378,000,000,000 15 Canada $ 1,307,000,000,000 16 Korea, South $ 1,278,000,000,000
    • 3. Economic Regions in Russia <ul><li>1. Central ( Machinery) </li></ul><ul><li>2. Central Black Soil </li></ul><ul><li>(Agriculture) </li></ul><ul><li>3. East Siberian </li></ul><ul><li>(Coal, gold, graphite, iron ore, aluminum ore, zinc, lead mining) </li></ul><ul><li>4. Far Eastern </li></ul><ul><li>5. Northern ( Oil) </li></ul><ul><li>6. North Caucasus </li></ul><ul><li>7. Northwestern </li></ul><ul><li>8. Volga ( Agriculture) </li></ul><ul><li>9. Urals </li></ul><ul><li>10. Volga-Vyatka (Agriculture) </li></ul><ul><li>11. West Siberian ( Oil) </li></ul><ul><li>12. Kaliningrad </li></ul>
    • 4. Western Russia Central Economic Region Central Black Earth Region North Caucasus
    • 5. West - Central Russia Northwest Economic Region Volga Region Volga-Vyatka Region
    • 6. Central Russia Northern Economic Region Urals Region West Siberian Region
    • 7. Eastern Russia East Siberian Economic Region Far Eastern Region Kaliningrad Region
    • 8. Russian GDP Breakdown
    • 9. Trade surplus: &gt;US$100bn Russia’s Trade, 2006 Export (%) Import (%) 1 Food and Agricultural Products 0.9 13.3 2 Mineral Goods (Gas,Oil,Petrol,Ores,Coal etc.) 65.1 1.0 3 Chemical Products and Rubber 5.6 13.4 4 Leather Raw Materials, Furs and their products 0.1 0.3 5 Wood, Timber, Pulp and Paper Goods 4.0 4.0 6 Textiles and Footwear 0.4 3.7 7 Precious Stones and Precious Metals 4.2 0.4 8 Ferrous and Non-Ferrous Metals and Products 13.8 6.9 9 Machinery, Equipment and Transport Equipment 5.8 40.3 10 Other goods 0.9 4.2
    • 10. Ownership Concentration <ul><li>23 largest companies control 57% of GDP </li></ul><ul><li>10 largest ownership groups account for 60% of Russian stock market </li></ul><ul><li>Small and medium-sized enterprises account for &lt;15% of GDP </li></ul><ul><ul><li>50% or more in more advanced transition countries </li></ul></ul><ul><li>Power concentrated in the hands of corporations </li></ul><ul><li>Corporations hold key positions in political, economic, ideological, informational, financial spheres of life </li></ul><ul><li>Widespread use of force and violence in various forms toward opponents </li></ul><ul><li>Weakening of public and state institutions </li></ul><ul><li>Start-ups held back </li></ul><ul><ul><li>stifling regulations </li></ul></ul><ul><ul><li>strong position of incumbent industrial enterprises </li></ul></ul>
    • 11. Oligarchy under Yeltsin Mikhail Khodorkovsky (YUKOS) Boris Berezovsky (member of State Duma) Vladimir Gusinsky (Media-Most)
    • 12. Government Industry Services Mass Media Agriculture
    • 13. Oleg Deripaska <ul><li>Residence: Moscow, Russia </li></ul><ul><li>Occupation: Chairman of the Supervisory Board of Basic Element Company </li></ul><ul><li>Net worth:▲US$28.6 billion (2008) </li></ul>
    • 14. Viktor Vekselberg <ul><li>Chairman of the Board of Directors of Renova (1993) </li></ul><ul><li>co-owner and chairman of Tyumen Oil (TNK), one of Russia&apos;s largest oil and gas companies (1996) </li></ul><ul><li>Net worth: $5 billion (Forbes, March 2005) </li></ul>
    • 15. <ul><li>Giant Soviet oil company Sibneft </li></ul><ul><li>the main owner of private investment company Millhouse LLC </li></ul><ul><li>A net worth of US$23.5 billion (Forbes, March 2008) </li></ul>Roman Abramovich
    • 16. New President – New Regime <ul><li>Putinism </li></ul><ul><li>Limiting oligarchs&apos; political involvement </li></ul><ul><li>Prosecution and arrest of oligarchs as a consolidation of own positions </li></ul><ul><li>2001 Putin’s bargain with oligarchs: </li></ul><ul><li>We overlook dubious ways your business empires were built in murky privatization of 1990s. </li></ul><ul><li>You stay out of politics, stop bribing officials, pay taxes </li></ul>
    • 17. New President – New Regime <ul><li>Mikhail Khodorkovsky imprisoned in Krasnokamensk for fraud and tax evasion </li></ul><ul><li>Serving 8 years in a Siberian jail </li></ul><ul><ul><li>Government nationalized part of Yukos </li></ul></ul>Boris Berezovsky left Russia, currently lives in London. Vladimir Gusinsky currently lives in Tel Aviv.
    • 18. Forbes 2004: 100 Richest People in Russia <ul><li>Typical Oligarch’s Profile </li></ul><ul><ul><li>male, was 31 years old in 1988 </li></ul></ul><ul><ul><li>born outside Moscow </li></ul></ul><ul><ul><li>studied in Moscow </li></ul></ul><ul><ul><li>made small fortune importing computers in late 1980s </li></ul></ul><ul><ul><li>started a bank </li></ul></ul><ul><ul><li>exported raw materials </li></ul></ul><ul><ul><li>created large industrial conglomerates </li></ul></ul><ul><ul><ul><li>acquired companies for a fractions of what they are worth </li></ul></ul></ul><ul><ul><ul><li>operated outside the law </li></ul></ul></ul><ul><ul><li>now owns a majority stake in oil or metals company </li></ul></ul><ul><ul><li>now buying into insurance, retail and agriculture </li></ul></ul><ul><ul><li>wife and children live abroad </li></ul></ul><ul><li>66 inherited companies from USSR </li></ul><ul><li>34 started new businesses (telecommunications, construction, retail stores, food production) </li></ul><ul><ul><li>Combined net worth of 36 Russian billionaires is 24% of GDP </li></ul></ul><ul><ul><li>Combined net worth of 277 US billionaires is 6% of US GDP </li></ul></ul>
    • 19. http://www.cia.gov/cia/publications/factbook Rank Country Oil - production (bbl/day), 2007 1 World 85,540,000 2 Russia 9,980,000 3 Saudi Arabia 9,200,000 4 United States 8,457,000 5 Iran 4,700,000 6 China 3,725,000 7 Mexico 3,501,000 8 Canada 3,425,000 9 United Arab Emirates 2,948,000 10 European Union 2,676,000 11 Venezuela 2,667,000 12 Kuwait 2,613,000 13 Norway 2,565,000 14 Iraq 2,420,000 15 Nigeria 2,352,000 16 Brazil 2,277,000
    • 20. Rank Country Natural gas – production, 2007 (cu m) 1 World 3,021,000,000,000 2 Russia 654,000,000,000 3 United States 545,900,000,000 4 European Union 197,800,000,000 5 Canada 187,000,000,000 6 Iran 111,900,000,000 7 Norway 99,300,000,000 8 Algeria 85,700,000,000 9 Netherlands 76,330,000,000 10 Saudi Arabia 75,900,000,000 11 United Kingdom 72,300,000,000 12 China 69,270,000,000 13 Turkmenistan 68,880,000,000 14 Uzbekistan 65,190,000,000 15 Malaysia 64,500,000,000 16 Qatar 59,800,000,000
    • 21. Global Gas Production – Top 10 Producers Current Gas Importers
    • 22. &nbsp;
    • 23. BP Statistical Review of World Energy 2008
    • 24. Current Oligarchs (increasing number of wealth)
    • 25. Effects of Oligarchy on Post-USSR Russia NEGATIVE POSITIVE
    • 26. &nbsp;
    • 27. &nbsp;
    • 28. Oil Pipelines <ul><li>95% of total crude oil exports are through pipelines </li></ul><ul><li>state-owned and operated by 100% federally-owned company, Transneft. </li></ul><ul><li>capacity constrained </li></ul><ul><li>cheap routes: terminating in the Russian Black Sea ports </li></ul><ul><li>expensive routes: across second or third countries -Belarus,Ukraine. </li></ul><ul><li>export price of crude oil is higher than domestic price. </li></ul>
    • 29. &nbsp;
    • 30. www.eia.doe.gov <ul><li>EIA’s Petroleum Navigator </li></ul>
    • 31. Oil and Gas <ul><li>Technology intensive </li></ul><ul><li>Developing new reserves need investments </li></ul><ul><li>Crude oil </li></ul><ul><ul><li>Export duty: 65% of market price above $25/bbl </li></ul></ul><ul><ul><li>Extraction taxes </li></ul></ul><ul><ul><li>Payroll tax </li></ul></ul><ul><ul><li>Profit tax </li></ul></ul><ul><ul><li>Total effective profit tax: 92% </li></ul></ul><ul><li>Lack of clarity about ownership of subsoil resources </li></ul>
    • 32. &nbsp;
    • 33. &nbsp;
    • 34. <ul><li>Energy used as a foreign policy tool </li></ul><ul><ul><li>Gazprom does not own part of pipelines that goes through Ukraine and Belarus </li></ul></ul><ul><ul><li>Russia briefly cuts supply of gas for Ukraine, Belarus, reduces supply to Europe </li></ul></ul><ul><ul><li>Countries refused to pay oil customs duty and introduced tariff on Russian oil transits </li></ul></ul>More State Control
    • 35. Russia: As State Companies Gain Control Of Oil Production, Growth Moderates MMB/D
    • 36. Proved oil reserves BP Statistical Review of World Energy 2008
    • 37. &nbsp;
    • 38. Electricity Generation by Fuel in Western Europe avg. GW
    • 39. Oil consumption per capita BP Statistical Review of World Energy 2008
    • 40. Natural gas consumption per capita BP Statistical Review of World Energy 2008
    • 41. Global Gas Resource Base Proved Reserves Current Net Gas Exporters
    • 42. <ul><li>Country Energy Profiles . </li></ul>
    • 43. <ul><li>Gazprom: State-run natural gas monopoly </li></ul><ul><ul><li>90% of Russia’s gas </li></ul></ul><ul><ul><li>1/3 of world’s gas reserves </li></ul></ul><ul><ul><li>Russia’s largest earner of hard currency </li></ul></ul><ul><ul><li>Tax payments account for 25% of federal tax revenues </li></ul></ul><ul><ul><li>Operates gas pipeline network </li></ul></ul><ul><ul><li>Must supply natural gas to domestic market at government-regulated prices ($28 per thousand cubic meters, 15-20% of the market rate) </li></ul></ul><ul><ul><li>State expands ownership of strategic sectors (oil, gas) </li></ul></ul><ul><ul><ul><li>Gazprom acquired Sibneft, former part of Yukos </li></ul></ul></ul>
    • 44. &nbsp;
    • 45. Gazprom Credit Rating as of 01.06.2008                                                                                                                                                                      
    • 46. Proved natural gas reserves BP Statistical Review of World Energy 2008
    • 47. What is happening to petrodollars? <ul><li>Trickle down effect of oil &amp; gas boom </li></ul><ul><ul><li>Construction, manufacturing, defense, transportation, machine-building </li></ul></ul><ul><ul><li>railway wagons - to transport oil from Russia and Kazakhstan, to Europe and Asia </li></ul></ul><ul><li>Stabilization fund est. in 2004 </li></ul><ul><ul><li>to accumulate windfall profits from high oil prices and hold back inflation by neutralizing influx of petrodollars </li></ul></ul><ul><ul><li>Fund initially intended to be invested in highly-liquid foreign debt </li></ul></ul><ul><ul><li>Instead money converted into foreign currency and placed in Federal Treasury forex accounts with the Central Bank </li></ul></ul><ul><ul><ul><li>45% in U.S. dollars </li></ul></ul></ul><ul><ul><ul><li>45% in euros </li></ul></ul></ul><ul><ul><ul><li>10% in British pounds </li></ul></ul></ul><ul><li>Repaid $21.3 billion Soviet foreign debt </li></ul>
    • 48. Rank Country Current account balance, 2007 1 China $ 368,200,000,000 2 Germany $ 267,100,000,000 3 Japan $ 187,800,000,000 4 Saudi Arabia $ 151,000,000,000 5 Russia $ 97,600,000,000 6 Norway $ 84,350,000,000 7 Kuwait $ 65,210,000,000 8 European Union $ 51,400,000,000 9 Venezuela $ 48,440,000,000 10 Netherlands $ 47,000,000,000 11 Libya $ 43,330,000,000 12 Switzerland $ 40,810,000,000 13 United Arab Emirates $ 36,410,000,000 14 Algeria $ 35,800,000,000 15 Sweden $ 35,220,000,000
    • 49. Rank Country Reserves of foreign exchange and gold Date of Information 1 China $ 2,033,000,000,000 31 Dec2008 est. 2 Japan $ 954,100,000,000 31 Dec 2007 est. 3 Russia $ 435,400,000,000 12 Dec 2008 4 Taiwan $ 296,400,000,000 31 Dec 2008 5 India $ 250,000,000,000 31 Dec 2008 est. 6 France $ 204,400,000,000 2008 7 Korea, South $ 201,200,000,000 31 Dec 2008 8 Brazil $ 197,400,000,000 31 Dec 2008 est. 9 Singapore $ 168,800,000,000 31 Dec 2008 est. 10 Hong Kong $ 165,900,000,000 31 Dec 2008 11 Algeria $ 150,500,000,000 31 Dec 2008 est. 12 Germany $ 136,200,000,000 31 Dec 2007 est. 13 Thailand $ 106,300,000,000 31 Dec 2008 est. 14 Malaysia $ 104,400,000,000 31 Dec 2008 est.
    • 50. Resource Curse? Dutch Disease? <ul><li>“ Resource curse”: </li></ul><ul><li>presence of natural resources in an economy enhance rent-seeking activities relative to productive activities </li></ul><ul><li>detrimental to institutional development: </li></ul><ul><ul><li>structural reforms postponed, corruption </li></ul></ul><ul><ul><li>mis-industrialization (big industrial enterprises addicted to oil rents, claiming part of oil rents) </li></ul></ul><ul><ul><li>non-transparency (don’t know which output to cut back on and who is the legitimate claimant) </li></ul></ul><ul><li>Dutch disease: </li></ul><ul><li>Discovery and export of natural </li></ul><ul><li>gas led to appreciation of currency </li></ul><ul><li>Other exports less competitive </li></ul><ul><li>Other exports decrease </li></ul><ul><li>Bad for long-term growth </li></ul><ul><li>Roland (2005): </li></ul><ul><li>No sign of Dutch disease </li></ul><ul><li>Natural resources are Russia’s </li></ul><ul><li>comparative advantage </li></ul>
    • 51. Hoff and Stiglitz: Greater ratio of natural resources to industrial assets decreases political constituency for the rule of law and the likelihood that it will emerge Natural resource sector is less contract-intensive No rule of law – easier to borrow money, renege on the debts, strip assets, hide them abroad
    • 52. Macro Economy <ul><li>Rule of 72 : </li></ul><ul><li>If something is growing at Y % per time period, it will be twice as big in approx. 72/Y time periods </li></ul>Growth Rate Years until GDP doubles 1% 72 2% 36 3% 24 4% 18 5% 14.4 6% 12 7% 10.3 10% 7.2 20% 3.6
    • 53. Consumption <ul><li>Real signals of recovery: </li></ul><ul><li>rebound in consumption, investment </li></ul><ul><li>Real personal incomes increased </li></ul><ul><ul><li>Average per capita income $300 </li></ul></ul><ul><ul><li>88,000 millionaires </li></ul></ul><ul><ul><li>8 mil people earn &gt;$2,000 month </li></ul></ul><ul><ul><li>3,5 mil people earn &gt;$4,000 month </li></ul></ul><ul><li>Middle-class consumption patterns </li></ul><ul><ul><li>Moscow shopping centers expanded 10-fold since 1998 </li></ul></ul><ul><ul><li>Number of cars per 100 households more than tripled from 1990 </li></ul></ul><ul><ul><li>50% more college students in 2000 than in 1992 </li></ul></ul><ul><ul><li>&gt;20% of Russians are regular internet users </li></ul></ul><ul><ul><li>&gt;6 million Russians traveled abroad in 2004 (&lt;0.5 million in 1994) </li></ul></ul><ul><ul><li>Sales of foreign cars in 2005 up 57% from 2004 </li></ul></ul><ul><ul><li>Number of cell phone sales up 30 times since 2000 </li></ul></ul>
    • 54. Rank Country Military expenditures (% of GDP) Date of Information 1 Oman 11.40 2005 est. 2 Qatar 10.00 2005 est. 3 Saudi Arabia 10.00 2005 est. 4 Iraq 8.60 2006 5 Jordan 8.60 2006 6 Israel 7.30 2006 7 Yemen 6.60 2006 10 Macedonia 6.00 2005 est. 12 Syria 5.90 2005 est. 13 Angola 5.70 2006 16 Kuwait 5.30 2006 17 Turkey 5.30 2005 est. 20 Singapore 4.90 2005 est. 22 Bahrain 4.50 2006 25 China 4.30 2006 28 United States 4.06 2005 est. 30 Russia 3.90 2005
    • 55. NUCLEAR POWER PLANTS <ul><li>working life of a reactor is 30 years </li></ul><ul><li>9 of Russia&apos;s 31 plants are 26-30 years old </li></ul>
    • 56. International Atomic Energy Agency www.iaea.org Russia expands nuclear and hydropower generation to export more fossil fuels

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