Russia’s Energy Sector Set To Thrive In 2017

As oil prices continue to rebound, Russia will bring in billions of dollars into the federal budget and billions in revenues for energy companies. How will Russia bring in billions to the energy sector? Well, Putin has been strengthening its diplomatic ties with Japan, Qatar, Iran and potentially the U.S. Consequently, this could highly benefit the previously weakened Russian economy.The Organization of the Petroleum Exporting Countries (OPEC) and other major oil producing countries, including Russia, decided to cut production during the first half of 2017. Since the OPEC meeting in late November 2016, crude oil prices have been rising, and traded at 18-month highs to kick off the New Year.

Before getting into how Russia’s diplomatic moves could bring in billions in 2017, let’s take a look at what one energy expert thinks about the Russian energy sector.

An Energy Expert Weighs in on Russia’s Energy Sector

Energy expert Anatoliy Pshegornitskiy, a Russian engineer and global entrepreneur, believes that the increasing oil prices could revitalize Russia’s economy and energy industry.

Pshegornitskiy, who headed Rus Engineering until 2012 believes that foreign investors will not only look to the traditional energy sector, but to clean energy as well.

Pshegornitskiy stated, “We have seen that the development in technology and increased funding in the renewable energy sector, such as wind and solar, has led to them becoming more cost-competitive worldwide and led to adaption and increased usage. Even though Russia has vast oil resources, Putin intelligently declared 2017 as the year of the environment which will create momentum for skilled Russian engineers to further develop green energy technologies for Russia and its trading partners.”

That being said, here are some of the ongoing diplomacy agreements that could increase Russia’s traditional energy, as well as clean energy technologies.

Russia’s Deals with Japan

According to Russian President Vladimir Putin, U.S. and Japanese companies are interested in cooperating with Russia’s oil and gas sector to jointly work together. Now, this should benefit Russia’s economy and affect the global economy.

To increase political ties with Japan, Putin visited Japan for two days in December 2016, and the summit gave rise to over 50 economic deals, 23 of which were energy agreements.

Putin stated, “We have many interesting avenues in the energy industry. Nine percent of the natural gas and oil consumed by Japan comes from Russia. Another prospect for development comes from the Sakhalin-I and Sakhalin-II oil and gas projects, which are up and running, with some 75 percent of the products delivered to Japan under long-term contracts…We have plenty to work on that is promising and large-scale.”

Now, with increasing development in oil and gas projects between Japan and Russia, there could potentially be billions of dollars flowing between the two countries. Although there would be increased activity in the traditional energy sector, this would also be beneficial to the clean energy industry.

This may sound contradictory, but Russian President Putin stated, “Environment has been and of course will be a key element of our work as part of our domestic policy … Russia, as it is known, took on rigorous commitments [Paris Agreement on climate change] and I have no doubt that we will fulfill them.” If Russia becomes flush with cash due to the rebound in oil and natural gas prices, Russia may drive its skilled engineers to further develop clean energy technologies. Therefore, these deals and agreements between Russia and Japan could be a win-win situation for the traditional and clean energy industries.

This wasn’t the only diplomatic move that Russia made recently.

Russia Strengthening Economic Ties Around the Globe

In addition to increasing ties with Japan, Russia and Qatar have cooperated in energy deals. The Qatar Investment Authority (QIA) and Glencore closed its deal to purchase a 19.5% stake in Russian-owned Rosneft. The deal was worth over $10 billion and breathed life back into the Russian economy, which has been struggling with the low oil and gas prices and U.S. sanctions. The deal was the largest privatization in years, but will still be owned and operated by the Russian government.

The deals between Russia and Japan, as well as the QIA and Glencore, should boost the energy sector in 2017. Additionally, there could be increased business activity between Russian and U.S. energy companies, if Exxon Mobil CEO Rex Tillerson is voted to be the next U.S. Secretary of State.With the new investment from QIA and Glencore, Russian-owned Rosneft should benefit and we may see more deals like this in the energy industry. If new investors keep pouring their investments into Russian energy companies, we should see a boom in the energy sector. Since Putin has deemed 2017 as the Year of Ecology and wants to attract attention to environmental problems and climate change, Russian energy companies may be driven to develop clean energy technologies in an attempt to reduce carbon footprints. Again, skilled Russian engineers should be moved to develop innovative clean energy technologies.

U.S. President elect Donald Trump will assume office on January 20, 2016, which could benefit Russia. Trump selected Tillerson to be the next U.S. Secretary of State, which could change the current political landscape between U.S. and Russia. Exxon Mobil chief is known to have strong ties with Russia, and rose through the ranks by managing Exxon’s Russia account.

Therefore, the political and economic ties between U.S. and Russia could be strengthened over time. What’s this mean for Russia? There could be more revenues and investments coming from U.S. companies and investors. In turn, this could help Russian energy companies increase their cash flows, which should cause them to invest in the research and development of green energy technologies during Russia’s Year of Ecology.

The Bottom Line

Russia looks like it’s winning in the diplomacy department as of late. Russia is strengthening its ties with multiple countries and oil prices are continuing to rise, which benefits its oil dependent economy. Strengthening oil prices and Russia’s economic ties should revitalize the economy and increase the country’s GDP over the short term. After Russian President Putin deemed 2017 as the Year of Ecology, we may see increased activity and momentum in the clean green energy space.