[Scott] Next up, a timely discussion of Russian energy and its global importance.

- The first six weeks after the invasion of Ukraine, piped gas imports into Europe actually went up.

It's also caused tremendous economic dislocation in parts of Europe is higher energy prices.

And I think Germany is probably the kind of the case in point.

And you may not see certain industries come back because of this period of high prices.

- The key problem in my view now is that they cannot deal, especially with sanctions, with the issue of arctic exploration.

And these are issues that are compounding as time passes, and they're, it's like, almost like a time bomb.

[Scott] Coming up on "Energy Switch," Russia, its energy dominance, and climate issues.

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[upbeat music] - I'm Scott Tinker, and I'm an energy scientist.

I work in the field, lead research, speak around the world, write articles, and make films about energy.

This show brings together leading experts on vital topics in energy and climate.

They may have different perspectives, but my goal is to learn, and illuminate, and bring diverging views together towards solutions.

Welcome to the "Energy Switch."

Russia's government and war efforts are funded by energy.

It's the second largest producer of oil and natural gas behind the U.S.

and largest gas exporter.

Russia has avoided the pain of post-Ukraine energy sanctions through careful maneuvering and still sells gas to Europe and China and oil to India and elsewhere.

Because of its energy, Russia will continue to play an outsized role in global politics.

We'll discuss this with Margarita Balmaceda.

She's a professor at Seton Hall University and research associate at the Harvard Ukrainian Research Institute, fluent in Russian, Ukrainian, and four other languages.

Caroline Kissane is associate dean of Global Affairs and Security at NYU, where she's also a clinical professor and founded the Energy, Climate Justice, and Sustainability Lab.

On this episode of "Energy Switch," the global issue of Russian energy.

Caroline, Margarita, great to have you here.

I'm really looking forward to this discussion.

- Same here.

- With you both.

It'll be, it's so pertinent and timely.

You know, what was it like?

What was the political kind of energy state of affairs in Russia in the '90s?

- Everyone has to remember that the '90s were the years of Yeltsin.

Russian oil production was half of what it is today.

So Russia production went from 10 million barrels a day to just about six million barrels a day.

And it was, in many ways, economically hampered by the fact that its production went down so significantly and a period of relatively low oil prices.

- Right.

- And so it was also a period of tremendous change.

I mean, you had the, you know, the dissolution of the Soviet Union in 1991 just left Russia in a different state.

It was chaotic.

It was also a very particularly acute time that I think had tremendous impacts on the political situation.

- One thing that I would like to add is that Yeltsin comes into power at the time when not only Russia, but the other states of the former Soviet Union with the dissolution of the Soviet Union lose basically half of their GDP.

The supply and production chains that united different parts of the economy, including from different republics, were severed at least officially.

Anybody who had the opportunity to kind of relink those links in the supply and production chain by whatever means, mafioso means or corrupt means or anything else, they could reap huge benefits.

So it was a period of destruction, but also rebuilding in a somewhat chaotic way.

- So a lot of opportunity for people, but also opportunity for corruption and- - Yes.

- [laughs] Interesting deals.

- If I could add-- - Yeah.

- What Margarita just said is so on point.

In some ways, like, Yeltsin opened up all of the country's strategic assets, and he sold them off.

He sold them off to the people that became the oligarchs, but it was very much about domestic privatization.

- Yeah, yeah.

- I think it's also really important is that coming out of the Soviet period after '91, there was this sense of who are we, right?

Why are we, like, why do we have, like, Western assistance coming in?

Why do we have these organizations coming in?

This was a superpower that's now confronting poverty and it's confronting a very chaotic state.

- But Russia's always kind of punched above its weight though, hadn't it really?

And when you think about its size of its economy and the number of people.

- That kind of giant with the feet of clay is totally true.

But at the same time, that consciousness or self-thinking in terms of an empire, almost like a phantom leg or arm, it continued to affect the way the leadership and also even the population as a whole saw the role of their country.

- Right.

- And we see that in many different ways, including in energy issues.

- Right.

Well, let's go there, kind of fast forward.

How does that history shaped Russia today, especially in energy?

What do you see, Margarita?

- Well, the way the Soviet Union dealt with their energy resources, in particular with oil production and natural gas production, it was, they were very much focused on quick gains.

But in trying to get everything out very fast, they did not really care for the fields.

- Sure.

- So what it means is that this issue of aging fields is a real problem for Russia, and that you continue to see the impact of that long term.

- Your thoughts on that?

How does that set up today, the '90s?

- Well, I just have to go back, right?

'Cause we were talking about Yeltsin.

So you have kind of a country that is somewhat on its knees.

1999, Putin comes in.

It's kind of this wave of year on year higher oil prices.

And you also go from six million barrels a day to 10 million barrels a day by 2006.

- Right.

- And I think something else to remember in 2008, the price of a barrel of oil went to $147 a barrel.

So after 1999, Putin is riding this wave of high commodity prices, which was basically sort of taking Russia from kind of being seen as weak on its knees to now being a strong country again.

And then you have someone like Putin who's kind of saying, "Russia's back."

So this sense of bringing pride back to Russia.

And I think that that's really important.

And so, you know, today Russia produces just a little under 10 million barrels a day and is also the second largest producer of natural gas.

Very important for many of the world's commodities.

- Sure.

So oil, obviously, big part of Russian economy.

Just give us a feel for the impact of oil in the Russian economy and kind of the state of the present day oil industry in Russia.

- Well, it's a huge part of their federal budget, 40 to 50%, depending on the situation.

- Okay.

- Russia's producing about 10 million barrels per day now.

It's a little bit down from that high of the mid-2010s.

The key problem in my view now is that they can maintain what they have, but they cannot really deal with the issue of aging fields.

They cannot deal, especially with sanctions, with the issue of arctic exploration.

And these are issues that are compounding as time passes, and it's like, almost like a time bomb.

- 40 to 50% on the budget.

- It's critical.

Yeah, you can't separate the Russian budget from its natural resource revenues, especially oil.

In some years past, it was 80% of the federal budget.

I mean, Russia has the GDP of Italy.

- Russia's GDP is the same as Italy?

- Yeah.

- Interesting.

How about gas?

Natural gas is pretty big part of the Russian resource base as well.

- Yeah, they're the second-- - What role does it play?

- Second largest natural gas producer in the world.

They-- [Scott] Behind us.

[Caroline] Right behind the United States.

Yeah.

- And how important is that?

Do they use it internally or do they export all of it?

- Yeah, it's actually really interesting, because almost 50% of the natural gas that they produce, they use internally for domestic purposes.

- Okay.

- And of course they have pipelines, pipelines that go to Europe, pipelines that go to China.

So I think not only is natural gas really important for, you know, the federal budget, but it's also, like, a key instrument of its foreign policy.

- Yeah.

What all, I mean, what all the use of natural gas for in Russia, if half of it's used internally?

- Well, it's like the backbone of their electricity generation.

- Okay.

- So that's really, really, extremely important.

They also have a kind of, in many places, centralized heating.

- Right.

- And this element of the foreign relations aspect of natural gas is really huge, because in terms of revenue for the federal budget, oil will be much higher.

Like, 80% is oil, and 20% of the fossil fuel revenue is natural gas.

In terms of relations with neighboring states, it's really, really huge.

I don't know whether this is the right moment to talk about it, but one key thing that we at some point need to talk about is liquefied natural gas, LNG.

- I was just gonna, I was thinking about it.

So, yeah.

- So you may recall that until 2022, Europe depended about, you know, 35% on Russian natural gas.

As they started to move away from that natural gas, Russia needs to think about what to do with the natural gas.

It's not something that is easy to store, especially when the largest storage capacities are in Ukraine.

And one thing that they have been thinking about as a result of the sanctions, but already before the sanctions, is how to turn that, quote, unquote, "pipeline natural gas" into liquefied natural gas that is more fungible, that can be traded globally in a way that is kind of similar to oil and so on.

The Russian leadership already in the mid-'10s saw natural gas as the future of Russia, because natural gas being a kind of bridge fuel, LNG as the future of natural gas, and Asia as the future of LNG.

As we speak, European Union states may have decreased their importation of pipeline natural gas, but they have increased their imports of LNG.

- Right.

- While at the same time, the big, big plans for big time LNG expansion are kind of put in hold because of the sanction.

So it's a very complex issue, but it's there.

And as soon as something starts to change politically, I think you're gonna see it in LNG.

- Yeah.

I guess, in that gas is so important in the Russian economy, what have the sanctions done?

- So I think one of the things that Russia is good at, and Russia is not the only country that's very good, but they're really good at creating sort of ways to get around sanctions.

Russia has over probably about 120 tankers that are called dark tankers that have helped to move Russian oil around.

- Interesting.

- And they have, you know, two big buyers from China and India.

So I think it is important that with regards to natural gas, there really weren't sanctions against natural gas.

So what ended up happening is that Russia decreased the pipeline gas going to Europe, but Europe, as Margarita pointed out, has actually increased its imports of Russian liquefied natural gas.

- Right.

- So it's about 18%.

But I think if you're walking around Moscow or St.

Petersburg, you will not see the impacts of the sanctions.

- One other thing that is happening is that, you know, supposedly the European Union is buying less of Russian natural gas and oil.

That is partially true.

But there is one particular thing, which I've been studying for the last year, which is things that you make with natural gas, but you do not call natural gas.

And the number one thing here is nitrogen fertilizer.

- Sure.

- And Europe has increased its imports of nitrogen fertilizer.

The prices went up the roof, now a little bit more stable, but this is another way in which Russia continues to receive income from its energy prowess.

- One thing to add is that Russia was producing 10.7 million barrels of oil a day in January of 2022.

Today, Russia's producing about 9.7 million barrels a day.

So they have not seen a significant hit to their production and to what they've been able to sell on the global market.

And part of the reason why they also don't produce 10-plus million barrels a day is that Russia, in 2016, became a member of OPEC+.

So they also have some kind of, not obligatory commitments, but they do have a kind of an understanding with OPEC to keep their production at levels to help to support today's price.

- So talk about the effects of Russian energy customers in Europe and other places.

What's been the effect of sanctions there?

- Russia argued that the European Union states would not be able to survive a winter without Russian natural gas.

At least at first glance, it seemed that Russia was totally wrong, but they were aided by two pretty mild winters.

So it's not such a clear success to the European states yet.

[Scott] Right, right.

Thoughts on that?

- You know, the first six weeks after the invasion of Ukraine, piped gas imports into Europe actually went up because of this, you know, need to fill storage, right?

You know, certain countries, their dependencies were quite high.

Austria, for example, has only recently kind of decoupled its natural gas away from Russia.

Some countries, Italy and Greece, have actually seen an increase in imported liquefied natural gas coming from Russia.

It's also caused tremendous economic, in some ways, dislocation in parts of Europe.

- Yep.

- Is higher energy prices.

And I think Germany is probably the kind of the case in point that has seen such a significant hit to its industries which had become very accustomed to cheap natural gas.

And you may not see certain industries come back because of this period of high prices.

- Now, Russia owns 11 times zones.

I think they feel they own the Arctic almost.

They wanna get the oil outta the Arctic.

And Arctic waters are opening up now, you know?

The ice is melting some, so it's actually possible to move around a lot more.

How are the Arctic waters defined, first of all?

What defines the Arctic and who owns what?

- You have five, well, technically, it's eight countries, but there really are five countries that are the Arctic countries.

Russia, Canada, Denmark, the United States, and Norway.

[Scott] Is it international waters in the Arctic?

- There's parts of it that are international waters, but then law of the sea says that you have 200 nautical miles.

- Right.

- From your shoreline.

- What's your shoreline?

- But then you have questions as to what is the shoreline and that some of those are still sort of being, in their own way, litigated.

- So the Soviet Union already had a big presence there, in part because they had a lot of mining operations in Northern Siberia.

- Yeah.

- With this changing climatic conditions, there is a much bigger activity by China.

- Yes.

- And I believe, my belief is that the Russian leadership is very concerned about an increased Chinese role in the Arctic passage.

- Yeah, absolutely.

- So just to keep that in mind, flag that.

- Absolutely.

So is it gonna happen?

Or are we gonna see Russia successful in producing in the Arctic?

When would that happen?

- It already does.

I mean, you already have Russian oil and natural gas production in the Arctic.

And I think when you look at expertise, Russia more than the United States has more capabilities for Arctic production than what we have or what even, I think, Norway and Russia would be sort of the two countries that have those capabilities.

- But they need, I agree with you, but they need more than expertise.

They need technology.

And this is one area where the sanctions have really put a stop to a lot of possibilities there.

That's a problem.

The other reason that it's gonna be hard is because even when climate change means that you have less summer ice, it also means that a lot of those Arctic operations are running into trouble because of some of the other effects of climate change.

- Yeah.

- It can be easy to look at Russia as a potential winner of climate change, right, because you have, it's so water-rich, it's resource-rich.

But Russia, especially in the Arctic, you have a lot of permafrost.

- Right.

- As that permafrost melts, as we saw in the spring of 2021, you had a really terrible nickel disaster where you had operations that actually sunk and there was tremendous environmental degradation.

And so this is a whole other set of sort of risks.

- Yes, indeed.

- That I think need to be, sort of, you know, considered when we're thinking about climate change and permafrost.

- Absolutely.

- You probably know this much better than we do.

Permafrost is kind of a mixture of ice and other elements.

And-- - Perma means you can deploy on it consistently.

- Yes, exactly.

And when you build something-- - Right.

- And it's kind of turning into sand.

- Right.

- You have a problem.

- Yeah, it's a big, it looms large, and we'll see how it all plays out.

And of course, another big resource that Russia is doing along with China together, they're building about 70% of the world's nuclear power plants today.

Not small modular, but the big ones.

What's the state of that in Russia?

Uranium.

And can that affect the global supply?

- Well, it's already affecting it.

I mean, even the U.S.

is importing prepared uranium from Russia.

Absolutely.

And Russia is one of the few countries that is able to provide the actual fuel for most of the power plants.

And it's the only one that is actually able to provide kind of the turnkey power plants.

So even when some countries like Finland canceled the contracts for power plants, Russia's building many others.

- Right.

- In Hungary, in the Middle East.

So absolutely.

It's one aspect of the energy situation we should not forget.

- Yeah.

Thoughts on the nuclear power in Russia relative to us, or-- - You know, the United States, we have the most nuclear power plants, but we are not doing, in my opinion, a very good job of exporting our nuclear energy, construction technology, and capabilities.

So you do have China-- - It's not even current really.

- It's not even current.

So you do have China and Russia who have really sort of stepped up.

And it's, again, I look at all of this as also, you know, tools of foreign policy, tools of engagement that they use with other countries.

So I do think it's to the detriment of the United States.

- We've talked a little bit about Russia and China.

And I'm gonna bring India into this, talk about markets.

Play that out, kind of the Russia, China, India triad, if you will.

Is this the match made in heaven, you know, or is it not a match at all?

- In my view, at the best, it could be not a true triangular relationship, but a kind of bilateral relationship with Russia on each side.

So I do not see it as a stable configuration into the future.

- You don't?

- No.

I personally think that BRICS is more PR than reality.

[Scott] Really?

Because history?

- Well, because of border issues.

- Okay.

- In both cases.

Because of competition for role in rural markets.

[Scott] Okay.

- And because of, in the case of Russia and China, what I consider to be the feeling of a very serious even civilizational threat to Russia from China.

Even before 2022, Russia has tried to present China and Asia as an alternative to Western markets.

Okay, you won't take our gas.

Well, we'll send it to China.

But actually has not been so easy- - I see.

- To sell it to China, at the price and in the terms that Russia may have want.

- And on the India front, I think India is really interesting because India has been one of the largest takers of Russian oil.

They've seen their, they've gone up probably by 50% of imported Russian oil, and they've done it at a discounted price.

And the United States, European governments have said nothing.

And the reason why they don't say anything is because India is an important ally.

We'd rather keep India in our court.

If you're Modi, right, and you have a population of 1.4, 1.5 billion people.

- 1.4.

- And you're suddenly now going to see that the price of oil goes up by 10, $15 a barrel, that's going to have devastating effects to the Indian economy.

- In democratic societies, we have changes in leadership.

Just tell me what a post-Putin world looks like.

- Well, I'm a little bit sober in terms of this.

[Scott] Yeah.

- There will be a change in leadership at some point, but it will, I do not think that it will be a move towards a pro-liberal democracy, pro-Western leadership.

- Okay.

So more of the same or worse?

[laughs] - Yes.

- Okay.

You agree or disagree?

- I do think a post-Putin Russia could potentially be worse and even more dangerous.

Russia is economically weaker as predominantly men return from war, a very devastating war, that that trauma, I think that is going to have significant impacts.

If you just go back to Russia and Afghanistan, and I think that that history is one to kind of look back at.

- Yeah, interesting.

- That's a very good point.

And also, let's remember that one of the reasons why Russia has been able to avoid the worst impact of sanction is because there has been a kind of benefit to military investment.

And once you don't have that, that can be a recipe for something pretty explosive.

- Right.

I have to believe somewhere that the Russian people will kind of get through some of these things and move toward a little bit more open place in the world 'cause they have so much to offer.

- That's so, it's beautiful.

- Yeah.

- Well, I wanna thank you both.

Margarita, thank you.

It's been such, I've learned so much.

- Thanks for having me.

- Caroline, thank you for being here.

- Thank you so much.

It was great to be here.

- Scott Tinker, "Energy Switch."

When the Soviet Union collapsed, Russia yearned to rebuild the empire.

Yeltsin privatized natural resources, selling them to the highest or most corrupt bidders who became today's oligarchs.

Oil production and prices then at historic lows rebounded, strengthening Russia and enriching the government.

Post-Ukraine sanctions haven't really hurt.

Russia continued to sell gas to Europe, found new customers in Asia, exported more gas as LNG, and more products made from gas like fertilizer, though my guests predict economic challenges for Russia after the war.

Russia nuclear technology is another important energy export.

Behind China, they're the largest builder of new reactors.

Putin says Russia may benefit from climate change with more Arctic area open for oil exploration, but melting permafrost and restricted access to U.S.

technology may prevent that.

Russia's alliances with China and India may be temporary, but Russian energy will continue its global importance.

[upbeat music] ♪ ♪ ♪ ♪ [Narrator] Major funding provided by Arizona State University.

Home to the Thunderbird School of Global Management, redefining management education to empower transdisciplinary leaders.

Arizona State, The New American University.