Russia faces $ 2 million in net zero stranded hydrocarbon assets
Russia could end up with nearly $ 2 trillion in worthless hydrocarbon assets if major economies hit their net zero goal over the next few decades, new research into the cost of the energy transition shows.
“The low-carbon transition could lead to a period of global financial and political instability due to the combination of profound structural change, widespread financial losses and a reorganization of financial power and the market in the world,” said a group of researchers from UK universities said in a statement. paper, published Thursday in the journal Nature.
Their calculations show that more than half of Russia’s estimated $ 3.9 trillion stockpile of fossil fuel assets – such as oil and gas platforms, pipelines, extraction facilities and other infrastructure to support the country’s vital energy sector – would become “stranded” or in fact worthless, by 2036.
It’s the latest stark warning of the potential cost of the global transition to cleaner fuel sources for Russia. But despite the large losses to the industry, Russia’s overall economy would be only 0.8% smaller due to the net-zero transition than under a business-as-usual scenario, the researchers found.
The newspaper also said the Russian government could lose around 40% of its lucrative oil and gas revenue by 2030 – revenue that has accounted for around 40% of the total national budget in recent years. This loss would be the second largest after Canada. Employment could also fall by nearly 4% by the end of the decade as demand for Russian hydrocarbons declines and the industry weakens.
Globally, energy importers such as the EU, China, India, Japan, South Korea and Africa are the big winners, with their economies gaining more than 10% in some cases . But energy heavyweights such as Russia, the United States, Saudi Arabia, Norway and Canada would end up with $ 11 billion to $ 14 trillion in worthless hydrocarbon infrastructure.
The document also underlines the importance that the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, will play in influencing the countries hardest hit by the energy transition.
Since their production costs are generally cheaper than those of countries like Russia, which has a much harsher climate and more delicate extraction processes, it would be in their interest to increase production, to flood the market and oust their competitors with lower prices, the authors argue.
“OPEC countries have a strong rational incentive, together or independently, to capture most of the future demand for oil and gas by maintaining or increasing their production and thereby eliminating other participants from the fossil fuel markets. “, says the document.
In this scenario, OPEC would secure two-thirds of the world oil market, compared to around 40% currently.
Russia has a complex love relationship with OPEC, according to energy analysts, having cooperated with the bloc to stabilize prices in recent years, but also triggering last year’s brief oil price war with Saudi Arabia at the start of the coronavirus pandemic.
However, if Russia and OPEC continue their policy of limiting production to keep prices high – a move that would benefit Russia with its higher extraction costs – the value of Russia’s stranded assets would be slightly lower. to about $ 1.7 trillion, and its economy would grow 0.4%.
Despite the commitment of other major economies to reduce their use of fossil fuels, Russia continues to invest heavily in its hydrocarbon infrastructure, notably through Rosneft’s vast “Vostok Oil”. project, designed to harness the country’s hardest-to-reach oil reserves in the Arctic. It is these types of assets, with their high extraction costs, that risk being stranded first when major economies reduce their oil and gas imports, said the researchers, led by Jean-François Mercure of the ‘University of Exeter.
President Vladimir Putin has engaged make Russia a net zero economy by 2060. The country is currently the world’s fourth largest emitter of greenhouse gases. Critics and environmental activists to say the country is not moving fast enough to to help stem the effects of climate change.