THE SITUATION ON THE INTERNATIONAL OIL AND GAS MARKETS

Despite some very pessimistic forecasts concerning the prospects of the oil industry, the role of hydrocarbons in the development of the world economy will continue to be decisive for another several decades.

The energy security of the highly developed countries will depend on the availability of reliable hydrocarbon sources. These countries are the main oil consumers, whereas a small group of developing and transitional states are largely responsible for the export-oriented oil production. The United States, for example, accounts for 25.4 percent of the world’s oil consumption and a mere 9.9 percent of the world’s oil output. The developed countries of Northeast Asia (Japan, South Korea and Taiwan) do not produce oil, but they consume 11 percent of the global oil supply. After 1993, fast-developing China joined the group of net importers and now consumes 7.4 percent of the world’s oil (together with Hong Kong), while extracting 4.8 percent of the world’s total oil output.

The Middle East, the world’s leading oil exporter, extracts 28.5 percent of global oil supplies, but consumes only 5.9 percent. Russia follows right behind with 10.7 percent of the world’s oil output, but it consumes even less oil than the Middle East with 3.5 percent.

Not that long ago, oil replaced coal as the world’s main source of energy. Now we are witnessing the beginning of a new era when natural gas will replace oil. Energy production from oil pollutes the environment two times less than peat or coal, but natural gas is three times environmentally cleaner than oil. However, natural gas will overtake oil as the world’s primary energy source only after the process of turning gas into a global commodity gains momentum.

Although natural gas is a relatively new commodity on the local and international markets, it is already obvious that it is characterized by the same geographical disproportion between production and consumption, as is characteristic of oil. The United States, for example, is one of the world’s two top leaders in gas production (21.7 percent of the world’s output), but it consumes more than it produces (26.3 percent); the consumption and, consequently, the import of gas by the U.S., keeps steadily increasing (actually all newly built electric power plants in the country use natural gas). The 15 older members of the European Union depend on natural gas imports even more – they consume 15.2 percent of the world’s gas output, although they produce only 8.3 percent of the world’s total amount. Considering the depletion of Europe’s own gas resources, its reorientation toward natural gas, and the increasing convergence of its gas and power-engineering sectors, Europe’s dependence on gas imports will continue to grow at a slow but steady pace.
The developed countries in Northeast Asia fully depend on the import of liquefied natural gas in the same way they depend on oil imports. For example, Japan, South Korea and Taiwan consume 4.4 percent of the world’s output. China in 2002 produced and consumed equal amounts of natural gas (1.3 percent together with Hong Kong). However, fast economic growth, together with the conclusion of long-term contracts for gas supplies, are turning China into a net importer.

World energy balance (%)

Russia far outpaces other countries in the production and export of natural gas; it accounts for 22 percent of the world’s gas production. And although its domestic gas consumption stands at 15.3 percent of the world’s figure (ranking second after the U.S.), its export potential (the difference between extraction and consumption) exceeds the aggregate export potential of three regions in the world – the Middle East, Africa and Latin America. In 2002, the Middle East produced 9.3 percent of the world’s gas and consumed 8.1 percent. The main producer – Saudi Arabia – consumes all the natural gas that it extracts, while Iran consumes slightly more gas than it produces. Until recently, only Qatar and the United Arab Emirates enjoyed a natural gas surplus, which they sold to neighboring countries. The export potential of Africa is somewhat higher, but only due to Algeria. In the Asia-Pacific Region, three countries boast the largest export potential – Indonesia, Malaysia and Australia (6.2 percent against 3.4 percent).

Now let us examine how export hydrocarbon resources are distributed among their major consumers.
In 2002, Western Europe as a whole was the main importer of oil and related products. The bulk of these imports came from three regions: Russia and the Commonwealth of Independent States (214.6 million tons), the Middle East (161.1 million tons), and North Africa (122.5 million tons). Europe is demonstrating an increased interest in the African continent, which seems to be part of a strategy for diversifying its oil import sources there. In the last few years – especially during the presidency of George W. Bush – Europe has faced bitter, even aggressive, competition in the region from U.S. corporations.

The U.S. accounts for 26 percent of all imports of oil and related products (561 million tons), but the Americans eventually formed a diversified structure for their imports. The greatest amount of oil and related products (171.7 million tons) are imported from Canada and Mexico – Washington’s partners in the North American Free Trade Agreement (NAFTA). South and Central America account for 119.2 million tons of oil shipments to the U.S., while Africa accounts for 69.1 million tons. Europe provides 57.0 million tons; Russia and the CIS, 9.8 million tons; Asian-Pacific Region, 12.8 million tons; the Middle East, 114.7 million tons. Through such a strategy, the U.S. has protected itself against catastrophic developments, for example, in the Middle East. Furthermore, unlike Europe, the U.S. has ‘alternative’ oil and gas reserve fields in Alaska, although development in this sensitive region remains blocked by U.S. legislators. However, the U.S. government could easily overcome this resistance should an emergency situation arise with regard to the global energy supply.

Of the total amount of oil and related products exported from the Middle East countries, 62.3 percent goes to the Asia-Pacific Region. For example, Japan released figures for the year 2003 demonstrating that its import of crude oil supplies from the Middle East was 87 percent.

The global situation with regard to natural gas supplies is somewhat different. Presently, natural gas is transported largely by pipelines, which reduces the distribution of this commodity to the regional level. The amount of liquefied natural gas being transferred by sea has not been very substantial: in 2002, the figure stood at 150 billion cubic meters, compared with 431.35 billion cubic meters of gas transported to the global markets via pipelines.

Table 1. Oil

Source:   BP Statistical Review of World Energy. June 2003. BP p.l.c., L., 2003.

The bulk of liquefied natural gas is consumed by countries in Northeast Asia (Japan, South Korea, and Taiwan) – 103.8 billion cubic meters. Western Europe consumes slightly more than 39 billion cubic meters, while the U.S. (including Puerto Rico) consumes more than 7.1 billion cubic meters. The dependence of global consumers of liquefied natural gas on supplies from the Middle East is much less. Although there have been signed contracts for gas exports in the region, it will be several years before the development of gas production begins there. Presently, the export of liquefied natural gas from the Middle East slightly exceeds 33 billion cubic meters. The largest suppliers of liquefied natural gas are the Asian-Pacific countries (Indonesia, Malaysia, Australia and Brunei) which provide over 74 billion cubic meters; African countries, such as Algeria, Nigeria and Libya provide 35.35 billion cubic meters.
The largest consumer of natural gas is Western Europe; it imports 240 billion cubic meters. The main suppliers of natural gas to Europe (including Central and Eastern Europe) are Russia (128.2 billion cubic meters) and Algeria (29.38 billion cubic meters); Algeria also supplies 26.13 billion cubic meters of liquefied natural gas. The second largest importer of natural gas is the United States which imports 109 billion cubic meters of gas from Canada.

Table 2. Natural gas

Proven oil reserver (% of world reserves)

Source:   BP Statistical Review of World Energy. June 2003. BP p.l.c., L., 2003.

To assess the prospects for the development of the global oil and gas markets, one must take into consideration one more factor: the amount of resources that the hydrocarbon-producing countries possess, together with their ability to maintain the current consumption levels, as well as its predicted growth. The Middle East now boasts the largest proven oil reserves: in 2002, they were estimated at 685.6 billion barrels, or 65.4 percent of the world’s oil reserves. Provided that oil extraction is maintained at its present level, the oil reserves will last for another 92 years. Saudi Arabia alone can exploit its oil reserves, which comprises 25 percent of all oil in the world, for the next 86 years.

For the short and even medium term, however, the Middle East will remain the most unstable region in the world – a large ‘medieval island’ in an ocean of fast-developing industrial and post-industrial economies. The problem for the Middle East is not only the nature of its political regimes, but the socio-economic nature of the society. The problem cannot be solved by sending U.S., NATO or UN armed forces into the region. This is the reason why, perhaps, a majority of developed countries have begun searching for alternative sources of hydrocarbon resources.

South and Central America can alleviate the situation for a short period of time, and only for the U.S. Africa has even less proven reserves, and these will last for only 27.3 years if extraction is maintained at the present rate. The situation is worse in the Asia-Pacific Region where hydrocarbon reserves will be depleted within 10 to 14 years. In Europe and the CIS, the largest proven oil reserves are in Russia; these will last for less than 22 years. Norway, ranked second in Europe for oil reserves, is far behind Russia with one percent of the world’s proven reserves. All of the other countries in Europe and the CIS, some of which are often cited in the press and even in scientific studies as potential alternatives (e.g. Kazakhstan and Azerbaijan), each possess less than one percent of the world’s reserves. These factors make it obvious that all of the talk about the West’s desire (especially in the U.S.) to establish democracy in the Middle East is just a smoke screen, and a rather transparent one, which cannot conceal the true motive – their interest in the Middle East’s oil reserves. (The Americans, for example, did not hesitate to establish close relations with the harsh dictatorship in Equatorial Guinea as soon as large oil reserves were discovered there.)

Russia is an indisputable leader in proven natural gas reserves with over 30 percent of the world’s total amount. If Russia continues extracting gas at the present rate, its reserves will last for more than 80 years. By comparison, the other countries in Europe and the CIS, taken together as a whole, account for only 8.7 percent of the world’s reserves. Norway’s reserves may last for 33.5 years, while gas fields in Britain may be depleted in less than seven years. Kazakhstan, Turkmenistan and Uzbekistan together possess 3.7 percent of the world’s natural gas reserves, but only Kazakhstan can exploit its gas fields for another 100 years or longer. In any case, all the above countries can only meet Europe’s short-term natural gas requirements. In the long term, Russia has no serious rivals when it comes to natural gas reserves.

Russia is far ahead of second-place Iran, which possesses 14.8 percent of the world’s gas reserves. Iran’s natural gas supplies will last for at least 100 years. However, political considerations have caused Western corporations to set their sights on Qatar with its 9.2 percent of the world’s gas reserves; these are expected to last as long as Iran’s reserves. Another Middle East country attractive to foreign consumers is the United Arab Emirates (3.9 percent of the world’s gas reserves), whereas Saudi Arabia (4.1 percent) consumes all of its natural gas reserves itself.

In Africa, only Algeria, Nigeria and Egypt have large, proven gas reserves. In Asia, Indonesia and Malaysia – major exporters of liquefied natural gas to Japan, South Korea and Taiwan – have only 1.7 and 1.4 percent of the world’s gas reserves, respectively, which will last for 37 and 42 years, respectively.
In North America, the situation with its proven reserves of natural gas is similar to that with its oil reserves. The three NAFTA member countries account for 4.6 percent of the world’s reserves, which will be enough for 9.4 years. Neighboring countries in Central and South America (4.5 percent of the world’s reserves) will hardly be of much help to them. Gas reserves in Central and South America may last for 68 years, but this gas will more than likely be used to meet the growing regional demand. The small country of Trinidad and Tobago may be the only exception. Although it has only 0.4 percent of the world’s gas reserves, this amount far exceeds the country’s domestic needs. The U.S. has already concluded several contracts with it for supplies of liquefied natural gas.

So, America, together with the large corporations representing its ‘gas interests,’ will offer bitter competition to the West European and Northeast Asian countries within the international gas markets. This factor, in addition to the fast-growing demand for hydrocarbons in China, suggests that Russia will play an ever growing role in ensuring a normal balance between supply and demand on the world’s natural gas market.

MERGERS AND TAKEOVERS

Changes on the world energy markets, and the toughening of environmental requirements in the Western countries, forced the international oil and gas companies to take appropriate measures. These factors also prompted the EU leadership to draw up specific electricity and gas directives.

The problem of dwindling oil reserves, together with dropping oil prices in the mid-1980s, and again in 1997-1999, provoked several waves of mergers and takeovers within the oil and gas industries. During the first wave, Texaco took over Getty Oil, while Chevron took over Gulf Oil. The second wave was characterized by a series of strategic mergers and takeovers: British Petroleum took over Amoco, and then eventually ARCO. This was followed by Exxon taking over Mobil Oil to become the world’s largest oil and gas corporation. These heavyweights were joined by France’s Total SA after it took over Elf Aquitaine and Belgium’s Petrofina SA. Finally, Chevron and Texaco completed the process for their merger. The strategic goal of these mergers and takeovers was to consolidate efforts and funds in order to find and develop new oil and gas reserves in remote regions. These are usually in areas with harsh natural conditions, or in deep-water fields that are more difficult to develop.

The new strategy was further prompted by natural gas gradually becoming a global commodity. This tendency helped to initiate the ‘gasification’ of the heavyweight players, that is, their evolution from oil corporations into oil-and-gas and, finally, gas-and-oil corporations. Royal Dutch/Shell Group offers the most glaring example of this transition. It has the largest share of gas (48 percent) in the overall ratio of its oil and gas resources, and in the next three to four years the company may finally shift toward gas. This move would naturally correspond with the contracts the company has recently concluded, as well as with its officially proclaimed reorientation toward natural gas (John Barry, named chairman of Royal Dutch/Shell in Russia, made a statement to this effect last summer at an annual conference organized by the Renaissance-Capital Investment Group). Shell is followed by Exxon Mobil, whose gas reserves are actually equivalent to Shell’s. However, Exxon Mobil’s gas/oil ratio is slightly different at 45/55 percent. Nevertheless, Exxon Mobil is confidently leading the other majors in gas production. BP is placed third among the world’s oil corporations in gas extraction (its oil/gas ratio is 52/48 percent). Also, BP now accounts for 30 percent of the world trade in liquefied natural gas. Other majors are also beginning to move in the same direction (for example, Chevron Texaco and ConocoPhillips).

However, the tectonic shifts on the world energy markets have been marked by an important new trend in the last few years. The EU’s adoption of electricity and gas directives in 1996-1998, and more importantly, the actual start of their implementation, was a major factor for the new wave of mergers and takeovers in the world’s energy sector. In 2001-2003, a fundamentally new energy policy began to take shape in Europe. The EU’s strategic orientation toward the most environmentally safest fuel – natural gas – has resulted in the ever-increasing use of gas turbines at newly built electric power plants. Consequently, this has led to an increasing convergence in the production and marketing of gas and electricity.

Recently, the national gas and electricity companies were confronted with fundamentally new challenges, such as the liberalization of the energy markets, their greater openness to third parties and the privatization or commercialization of state-owned energy corporations. In order not to go bankrupt, or become easy prey for a takeover by other companies, the national corporations had to adapt to the new situation and meet those challenges. The national European corporations had to be consolidated and made more competitive before they entered the world energy markets. As it turned out, the antimonopoly requirements set by the Brussels officials often motivated the national energy companies to restructure and extend their businesses by exceeding the national frameworks. This was accomplished through diversification, or the convergence of the gas and electricity sectors.

At the same time, and irrespective of these European tendencies, the United States experienced a negative situation that was provoked by the unsuccessful deregulation of its gas industry. What evolved was an energy crisis in California, and the collapse of several energy corporations, among them the huge Enron company. These events prevented American businesses from taking an active part in the third wave of mergers and takeovers which had already begun in Europe. As a result, the assets of Enron, El Paso and other energy companies continue to be sold, and are being purchased by independent U.S. oil companies. In other words, the energy business in the U.S. is being restructured, but there is a ‘European’ nature to the third wave of mergers and takeovers.

This wave has resulted in the rapid rise of some national energy companies in Europe to the majors’ level. Germany’s super-corporation E.ON AG, which emerged in 2000, provides a prime example. In the course of the third wave it took over Britain’s Powergen (only a year before this company had taken over the U.S. company LG&E Energy), Sweden’s Sydkraft, Britain’s TXU Europe Group, and U.S.-owned Midlands Electricity in Britain. However, E.ON AG’s main transaction in 2002-2003 was its merger with Germany’s Ruhrgas, which took a year and a half to finalize. It was necessary for E.ON AG to overcome strong resistance from the local authorities, Brussels regulatory bodies, as well as its German and European rivals. Finally, under the slogan of Germany’s “national energy security,” E.ON AG established a full-fledged, vertically integrated corporation that is capable of successfully competing on the European and global markets. This was a blow to Brussels bureaucracy which had fought for many years to divide the functions and businesses of the national energy companies.

Another blow to the EU’s energy liberalization strategy hit the very heart of the liberalization process, and in the most exemplary country in this respect – Great Britain. The previous policy of splitting businesses, as well as destroying the monopoly of the vertically integrated British Gas Corporation, only weakened the British positions. This is why, in the course of the third wave, British companies were consistently the victims of takeovers. The only exception among the major transactions between 2001 and 2003 was the merger of the gas distributor Lattice Group and the electricity transmission company National Grid Group. But this intra-British transaction only emphasized the failure of all previous efforts to demonopolize the energy sector in the country.

Throughout this period, companies merged and took each other over en masse. This process involved the national oil, gas and electricity companies from various countries (German, French, Spanish, Italian and so on). This gigantic restructuring of the European energy sector is not yet over. However, many experts now conclude that this wave of mergers and takeovers will result in an increase in regional monopolization, together with the formation of an oligopolistic structure of the global energy market. Its main actors will comprise several traditional majors, plus three to five newly established European super actors with global ambitions.

WHAT THE WEST WANTS FROM RUSSIA

The energy majors’ strong interest in Russia is easily explainable. Today, these companies own a total of almost six percent of the world’s oil reserves that are concentrated in the more developed and ‘ripe’ oil fields. According to the Oil and Gas Journal, the largest five majors now control only 15 percent of the oil and gas markets, and all of them must address the problem of decreased production, as well as geopolitical and geo-economic risks from OPEC. At first, the majors tried to apply the mechanism of production-sharing agreements (PSA) in Russia. In the 1960s, Indonesia concluded production-sharing agreements with relatively small independent oil companies from the West (above all, the U.S.); this practice was followed by several other countries. These agreements served as ‘rams’ for destroying the world monopoly of the ‘Seven Sisters’ – the past companies which made up the majors. Later it was the majors who sought the rights to PSA for gaining access to Russia’s oil and gas wealth.

However, the imperfection of Russian laws impeded PSA implementation. It was only after the government of Yevgeny Primakov got through the State Duma 22 amendments to the law (in a one-week period of time) that the first (Sakhalin) agreements were put into effect. Later, however, some Russian oligarchs (above all, those who had no roots in the oil business and who viewed it as another field for speculative financial operations) launched another massive PR campaign against PSA in the press and inside of the State Duma under pseudo-patriotic slogans, accusing the government of ‘selling out the Homeland.’ However, the majors soon realized that the true reason for the fierce resistance to PSA in Russia was not the rejection of foreign capital per se, but the fact that there was no room for speculative oligarchs in the state-majors link of the PSA mechanism.

The oligarchs began to bargain with the majors, and offer themselves as partners in future joint ventures. This was possible since they had successfully blocked PSA. Furthermore, they had successfully acquired numerous licenses to develop oil and gas fields, but were unable to do this on their own. As a result, the majors were offered a Russian variant of a merger, which was different from those described above. It was proposed that a foreign company would not fully merge with a Russian company in order to create a new joint venture, but would only merge its Russian assets into it. For the same reason, unlike PSA, such transactions cannot be described as direct investment. For example, the funds that the majors put up are simply pocketed by the Russian owners. Unfortunately, no one knows where this money will be later invested.

Brussels also has a strong tendency to view Russia as a source of cheap hydrocarbons, but here the emphasis was placed on natural gas. The EU’s gas directive was prepared and adopted without the participation of the main natural gas suppliers, nor without taking their interests into consideration. This was done in order to introduce the spot market mechanism around the world, as well as destroy the system of long-term contracts which has been the only reliable basis for energy cooperation between Russia and the EU. It has also been a solid guarantee of the energy security of the EU member states themselves. Later, however, realism prevailed; furthermore, the energy crisis in California, together with Britain’s failed deregulated system, apparently served as good lessons.

Russia and the EU have now reached a more or less acceptable compromise on long-term contracts. Yet, the two parties are still far away from a comprehensive solution to the gas problem. The European Union fully ignores the obvious fact that gas is Russia’s natural competitive edge. It demands that Russia raise its domestic gas prices, thus interfering in its internal affairs. The EU hopes that this move will reduce the price of exported gas; it does not care that an increase in domestic gas prices would bring the Russian economy to its knees. Furthermore, such a move would hurt the Russian population, a majority of which already lives on the verge of poverty. Furthermore, the West has repeatedly given Russia rather dubious recommendations that it should liberalize its gas sector and break up Gazprom. Interestingly, this pressure is being made amidst the aforementioned process of takeovers and mergers that are occurring throughout Europe, together with the formation of large, vertically integrated corporations.

WHAT RUSSIA WANTS FROM THE WEST

Representatives of the developed countries have repeatedly stated that the West is interested in a strong Russia. However, these declarations are at variance with the practices of many leading states. When in the last few years Russia began to establish order in its economy, and work out a strategy for its economic development that corresponded with its national interests, the U.S. and the EU immediately grew cold toward it. The same thing occurred when Russia attempted to implement this strategy in order to prevent the uncontrolled embezzlement of its natural resources.

The Expert magazine, in a February issue, made the following fair remark: “The present coolness in relations between Brussels and Moscow was caused by the failure of Europe’s strategy which the EU had hoped would have created a weak Russia.” Apparently, the West cannot tolerate the idea that the epoch of Boris Yeltsin’s flabby and pliant authoritarianism (which for some reason is still persistently described as ‘democracy’) has become a thing of the past and that from now on Russia will keep upholding its national interests in a polite yet rigid way. In February 2004, Russia’s foreign minister pointed out that someone “deliberately or not, is leading us away from the strategic long-term tasks, the accomplishment of which we must focus our main efforts on” (quoted from Germany’s Frankfurter Allgemeine Zeitung).

It is true that the Russian economy is not operating at its full potential, and the country is faced with a major dual task: optimizing and modernizing the industrial sector and, simultaneously, laying the foundation for a new IT or post-industrial environment. This is why Moscow is very interested in developing its energy cooperation with the West. However, this cooperation should not result in Russia becoming a raw-materials appendage of the West, as it was in the 1990s. (Norway avoided this fate by pursuing a prudent economic strategy.) This cooperation must be built on a mutually advantageous and equitable basis. The parties must take into consideration each other’s interests, although they may not fully coincide: the West’s interest in reliable and stable supplies to ensure its energy security, and Russia’s interest in developing its economy and improving the well-being of its population.

Russia has been making active efforts to fulfill its contribution to this cooperation. In the last few years, it has been stepping up the production and export of oil and natural gas. In 2003, oil output increased to 421 million tons, compared to 379 million tons in 2002. According to expert estimates from the UBS Investment Bank and Brunswick UBS, oil output will reach 457 million tons in 2004, and 568 million tons by 2008. And although Russia will hardly repeat its 2003 record-high growth rate (11 percent) in oil production in the near future, even the 4.8 percent increase in the absolute physical volume, planned for 2008, will still be a high figure, especially as the expected increase in oil exports will be 50 to 100 percent higher than the production growth rate. In 2003, Russia exported 4,259,000 barrels a day. According to the Oil and Gas Journal, in 2008 this figure may reach 6,648,000.

Russia has been consistently removing the bottlenecks in the oil transportation system. The Transneft Corporation, for example, is successfully completing the construction of the Baltic Pipeline System with a terminal in Primorsk. According to the 2002 plan, its throughput capacity was expected to reach 18 million tons of oil. Last year, the oil output was increased to 30 million tons, and in 2004, the system’s capacity will be further increased to 42 million tons. By 2005, this figure will reach 50 million tons. Other Russian companies, such as LUKoil, Surgutneftegaz and Rosneft, are also building oil terminals along the Baltic coast. An application for the construction of another oil terminal was submitted by TNK-BP and approved in February 2004.

The production of natural gas in Russia has been growing as well: in 2003, it  amounted to 2,053 billion cubic meters. Russia has markedly increased gas exports to Western and Central Europe: in 2002, this figure stood at 128.6 billion cubic meters, while in 2003, the figure increased to 132.9 billion cubic meters. However, problems continue to hinder further progress. For example, there has been the reoccurrence of illegal gas siphoning from Russian pipelines that travel through neighboring CIS countries. This has forced Russia to take measures in order to ensure the uninterrupted flow of gas supplies to Europe. Gazprom and Finland’s Fortum, for example, will conduct a feasibility study for the construction of a 5.7-billion-dollar North European gas pipeline that will bypass all intermediate countries on the way to Europe. The proposed pipeline will be built on the seabed to the German coast, and there are plans for it to extend to Britain as well. The first phase of the project is planned to be completed in 2007.

By the end of 2004, Gazprom will complete the construction of a gas pipeline from Yamal to Europe; the pipeline travels via Belarus and will be the sole property of the Russian company. Finally, within the framework of a Russian-Ukrainian consortium that was established in October 2002, Gazprom has prepared two variants of a feasibility study for the construction of another gas pipeline. This one is planned to transport gas from Russia and Central Asia into Western and Central Europe.

Russia’s efforts in the realm of energy production do not rule out the participation of foreign capital in large-scale energy projects. On the other hand, Russia is now taking another look at its position concerning the activities of foreign companies in the country. As a result, it is likely that Russia will discourage speculation on the energy market, together with the unauthorized large-scale strategic (the word ‘strategic’ seems unnecessary here) transactions which are damaging Russia’s national interests. However, direct foreign investment that is used for locating and developing new oil and gas fields, together with outside participation in the construction of new pipelines, will only be welcome.