St. Petersburg

5/19-25/ Intensive Energy Course


Many thanks to Laura Lakso for her editorial review!

Just to say — we had such a fabulous time (!) — …

Examining the Real and the Authentic (!) — …

Allowing the Sun to Fade into Zum (!) — …

5/20-25: Our session began with an introduction and welcoming remarks by FINEC’s (St. Petersburg State University of Economic and Finance) Rector’s assistant Alexandra Drugova. We then heard from economist, Pavel Metelev, on principles of energy economics, basically, an introduction classical economics and the global energy mix.

I refer to his speech verbatim: Neoclassical economics is about scarcity – about how we manage to allocate scarce resources.

All resources are scarce.

International economics is how we allocate scarce resources on the national level. If it is not scarcity it is not economics. Economics is the social science that analyzes the production distribution (transportation) and consumption. General discussion on the economics of John Maynard Keynes.

Pavel proceeded with principles by N. Gregory Mankiw: NeoClassical economics does not work in real life, created in a frictionless world. Not an exact science, more like philosophy. So, social tests do not replicate well.

10 principles.

People face trade-offs (environment vs. high level income or efficiency vs quality); opportunity cost—cost of something is what we give up to get it (building a pipeline vs what could be built); rational people think on the margin; people respond to incentives; trade can make everyone better off; markets are usually a good way to organize economic activity; government can sometimes improve market outcomes; a country standard of living depends on the ability to produce goods and services; prices rise when government prints more money; Friedrich List, infant industry theory. Ideas influence people.

Turning now to Neo-institutional economics. Keynes – and the first period of natural gas. Regulation. Industries will work efficiently under government control. Competition- second period of natural gas. Transportation is natural monopoly in Russia but not in European Paradigm – public monopoly.
 Paradigm – competition. All ideas are temporary – risk bearing is primary.

Principle. Theory of the firm (transactional costs). Property rights – the most important institution– sets the criterion of efficiency. With competition you can do incredible things.

Constantine Leshenko –
Creating markets for energy – stimulating consumption to get folks hooked on energy (Rockefeller giving out oil lanterns, etc.).
Uses of energy.

Now up is the main instructor, Aleksanteri wizard, Tapani Kaakkuriniemi, giving a history of the object.

Baku—1848 first oil wells drilled. First mechanically drilled oil wells in the world, growing demand for paraffin in Russian Empire. USA production started 13 years after Baku. Every day phenomena how to light the room.

Oil lamps were being developed on the basis of paraffin. Tens of years with quite modest oil market to develop.

When the findings were repeated in the same area, and more oil was seen as available, engineers began creating refining industries, in Baku and USA. 1858 first refinery in Canada (oils springs, Ontario). 1861 first paraffin factory in Baku, 1867 15 oil refineries and by 1873 already 50 in the Apsheron oil field, Baku.

In the 1880s oil production in Baku was outstripping the oil industry of  USA moving toward modern capitalist production. 1898 Azerbaijani oil industry exceeded the US production level 8 million tons were produced. 1904 Baku kerosene supplied 47 percent of the needs of Britain and 71 percent of the needs of France. 1884 Council of Baku oil producers –
1) protection of the oil producers interests in government bodies 
2) provision of high profits to the oil magnates
 3) establishment of opposition to labor movement

Four main companies in Baku: Branobel (Nobel brothers); Russian General Corporation; Transnational Trust Royal Dutch Shell; financial oil corporation Neft; Caspian-Black Sea Society. Motives of oil production in Baku. –Business opportunities
Development of capitalist mode of production.

Modernization of Russian society
. Tax revenue
 Competitive with American producers, 
Formation of European oil market.

Russian developments. 1963—Glavtyumenneftegas and Glavtyumenneftegastroy were established
; 1972 the construction of the biggest national oil pipeline Samotlor-Almetyevsk commenced.

1970s focus of energy production moved from the Caspian sea to Central Western Siberia. 
1984 USSR became the number 1 gas producer. 1984 transcontinental gas pipeline Western Siberia Western Europe was opened in the final phase. Its length exceed 20,000km.

Problem 1 necessity to upgrade oil and gas complex by implementation of advanced technologies; Problem 2 social problems onrush growth of local population so social estimation was made. Motives of energy production in Siberia. 
Growing demand at home
. Rapid industrialization. 
Development of technology
. Extensive growth only (no intensive growth or efficiencies)
. Showing expertise in extreme condition. s
Exploration of the effects of permafrost
. Superpower aspirations

[What are my own principles now that the topic arises?

• Alliance between theoretical and structural positions;

• Techniques reduction of complexity to kinds of simplicity that serve the basis of decision making;

• Create forms of communication that facilitate collusion;

• Markets are future oriented while regulation is historically situated]

Barents sea region
 Arctic Wells (website) –Dec. 2012 “Norway’s licensing round has attracted strong interest from the oil industry, with 36 companies bidding for offshore exploration blocks located mainly north of the Arctic circle”.

The Ministry of Petroleum and Energy is due to announce the results before the summer of 2013. Out of 86 blocks to be awarded, 72 are located in the Barents Sea, the most northern of which are between the 74th and the 75th parallel.

Putin 2012 “development work at the field would begin in 2017”

Mohammed Zakri– vice president for Total’s upstream activities in Russia, said he had no doubt “an engineering solution to produce it” would be found.

In Yamal, harsh climate conditions have compelled Gazprom to test new solutions. Utilization of integrated production infrastructure for gas extraction; heat insulated pipes for wells construction and operation with a view to preventing the permafrost rocks thawing; reduction in the number of monitoring wells through combined monitoring over development of various deposits in wells; new welding technologies and materials; brand new energy saving equipment with an efficiency coefficient equal to 36-40 percent.

Shtokman gas field. According to the Ministry of Natural Resources, the resources of Russia’s continental shelf comprise 13 billion tonnes for oil and 20 trillion cubic meters of gas. The Shtokman field is the world biggest undeveloped offshore gas field.

Its reserves are estimated at 3,800 billion cubic meters just over the 2010 global gas demand. Problem of the Russian-Norwegian border was solved 4 years ago. Or was it?

Marina A. Zen’ko – Contemporary Yamal Ethnoecological and ethnosocial problems in anthropology and archaeology of Eurasia, Spring 2004, vol. 42, no 4, pp-7-83.

Here, Tapani refers to the works of Michael Ross –
1) Developing countries: there is loose money. 
Oil gas and mineral rich states collect great sums of easy money, loose money, the state is the main actor, it is difficult to avoid the temptation to present in security systems and surveillance, tendency to a police state and violence, connection to arms trade.

2) post industrial countries
– state promotes drilling extraction through state-owned companies, or lets private corporations (Norway) to manage the business (USA); Strong global corporations may steer state policies, impact to world trade order and the system of international relations; heterogeneity (cf, Norway, Britain).

3) Economies in transition– resources fueling new welfare, state as the main actor, either through state-owned companies, or letting MNCs to manage the production and gather profits, tendency to strengthen state power (Russia) tendency to authoritarian rule (Turkmenistan, Kazakhstan), Increasing power through networking

Pavel Metelev, again, Returns for another lecture. Recommends “free to choose” – economic show on internet. 10 parts. Globalization of gas markets – application of government approach, centralization, free market paradigm. Movie presenting Keynes and Hayak, rap, free market economics – fear of boom versus bust Keynes versus Hayak – rap. “lose the idea, lose the stimulus, you start to drink”— Production behavior. Redistribution or rent seeking behavior. To develop a good country favor an increased production behavior, but in fact Russia there is a rent seeking behavior.

Central planned economics versus economic efficiency. You create the concept of efficiency.

Objective: create, increase, divide pie optimally and efficiently. Globalization – creates a global free market, where countries are actors. Measure of development – GDP that contributes to destroying the world.

Human development index, happiness index; Development – evolution of international trade theory. 
Resource allocation is very dynamic in nature. Endowments of natural factors. Influence of natural factors.

The Tadeusz Rybczynski theorem – developed 1955 – Dutch Disease is the more complicated example of the Rybczynski theorem.

Energy and Government the two most important sectors in Russia. One profitable sector will destroy all other sectors. No incentive, not competition.

Diversification. Russia moves in inspiration-idea based strategies
. Modernization, Diversification, [innovation] Clusters.

[Make sure you talk about this. I break in and state: Spaces of intention – that were overlooked in United States, and then overnight you had natural gas production outside of its futures]. Diversification versus this system – collect money and diversification.
 Dutch disease – stuck in the Rot effect. Inherited industries that are not competitive.

Gas – from German word “Ghosen” ghost.
 From greek word “chaos”. Associated gas – selling gas to Gazprom was cheaper than the infrastructure to sell the gas, easier to flare it than pay the fine. But no longer. Different types of gas. Global exports 80 percent exports. 20 percent LNG exports.

Energy Uncertainty–
Uncertain futures. Nuclear energy; rapid depletion of main world fossil fuel energy deposits; environmental problems, generally related to the use of conventional sources of energy.

Inability to optimally and efficiently meet the projected global energy demand in coming decades by the means of using conventional sources in energy. “New energy doctrine” – question of time, inevitable transition to new energy doctrine coming 50- 100 years. Transition period – what energy source – the growing uncertainty in the global energy market. Russian theory – during the 1980s developed the idea of a “gas bridge” as a transition period to renewables.

Improve efficiency of power generation, reduce CO2. “Golden age of Gas IIEA report”. Global Gas Market —Transition to this golden age of gas pushes forward the process of gradual integration of different regional natural gas markets. As the result the integration process should lead to creation of global gas distribution system. Global oil markets exist—free pricing, flexibility of supply and market liquidity. Lower transaction costs. Clean Coal – versus natural gas. LNG – Shale gas.

Indeed only LNG is able to change this regional paradigm mostly based on bulky pipeline projects. Therefore, LNG is the main driving force and the main impetus of globalization of gas markets. 32 percent of LNG – transition from regional to global.

Up now, we have the talented Olga Garanina
, economist talking about Dutch Disease (Russian Case) – Theories of resource dependency; 
Energy exports are really important for countries – 66% for Russia even more dramatic for ME exporting countries, Venezuela.

90% for some countries.Imports of oil big for western states are big- 30%
 Dynamics of oil prices are volatile – speculation of financial markets. But predictions are important for export countries.

Resource dependency – 1950 Hans Singer, terms of trade for primary commodity exporters have a tendency to decline. If a country is exporting raw materials – developing countries have a disadvantage position in world trade, because price of raw materials is declining, so they will have weaker results in growth—but does not work in comparison to oil/gas because the price is not going down.

Dutch disease — 
Discovery of new natural resources a boom in prices leads to negative consequences of other tradable sectors, leads to destruction of other internal industries.

Imports start to compete with internal production leading to decline of diversity in production. Longer term affects – resource curse.

Resource curse
 caused by diversions of financial resources. Rybnmjinsky theorem
. Theory which allows us to understand international trade. Country can have in abundance endowment in labor, resources. Depending on what, it will export whatever good that it uses its abundant factor intensively. How changes in country’s endowment will affect its production structure will evolve. Capital, qualified labor, non qualified labor. Dutch disease: (1982 Cordon and Neary).

Manufacture of tradables, energy; Manufactory sector will sink, because of the resource sector; Dutch disease in Russia 
Currency, profitability in sectors in economy.

Up now we have Tapani – speaking on renewables.
 Renewable energies. And now Pavel Metelev 
on General Questions – Shale gas. Shale gas exploration in Poland. Energy General Concepts. How we count energy – btu = some other equivalents; 1 toe = 41.87 gigajoules. Primary energy, secondary energy. People recognize that we are undergoing a transitions, and that there is a certain inevitability in that. And that folks know and are willing to know, that is the issues.

Olga Garanina is now up talking about 
Russian energy strategy.
 Adopted in 2009. Major problems in the field of energy security (according to energy strategy 2030); High degree of fixed assets depreciation in the fuel and energy complex; Low level of investments in the development of the fuel and energy complex; Sole dependence of the Russian economy and its energy sector on natural gas; (underdevelopment) Failure of the industrial potential of the fuel and energy complex to match the world scientific and technical level, including in terms of environmental standards; Slow development of the energy infrastructure in the Eastern Siberia and Far East; Prepared policy as national strategy – National energy plan. Legislation to make something happen.

[Another thing: When you look at the image of the “pipe timeline forecast”, you can say several things about it—that it is focused on production, that it is not focused on consumption, there are no prices for its consumption. Just that it would get built and people would come. This is really important. You want to interrogate the actual time, and what the time is actually saying! Go back to the original PPTs, and look at them closely. It is a particular kind of path dependency]. Communicating development, communicating futures. Communicating growth. Communicating knowledge of the future. – and the interests that accrue.

Okay. Now up we have Veli-Pekka Tynkkynen, U Helsinki, Geographer. Natural resource use and environmental research and environmental planning. Aleksanteri (Tampere included, international relations) – Finnish center of excellence. 7 years funding mechanism.

High standard project.

Looking at Russian program and academic discussion of modernization. What it means in Russia and how it is built—
Clusters
(1)Diversification of economy. Energy plays a role in diversification of society

(2) How does Russia move to a market society given its pact with society as an authoritarian policy and practices.

(3) Welfare regime – the standard that people ask of the state increases, funding issues and price of oil.

(4) Considers foreign policy, how it wants to be seen on the international arena, condition of soft power. 
(5) rationality and culture – historical roots of Russian thinking—attitudes and stakes.

–First cluster—research on energy policy research. Markku Kivinen and Pami Aalto. A model for considering energy policy situation.

Describing the energy policy formation – and does it in a very proficient way, characterizing the framing, structuring and mind set conditions – of looking at a microscopic view of the project. Energy policy formation. – Ends up reproducing the policy process or changes the policy.

Cluster one – energy policy. Veli Pekka’s interest: Can Russia become an environmentally sound position. Environmental issues between EU and Russia, energy trade and dialogue. Social and environmental responsibility issues. Environmentally sound energy transport on the Baltic Sea.

Russian electricity energy markets. And the electricity sector. Does Russia suffer from Resource curse or not? Is energy sector the main actor that should modernize Russia. Climate change denial – between Russia and America. Climate doctrine versus policy. How strategy as a tool is understood in Russia. Russian Energy and Security up to 2030 Routledge November 2013.

Energy Trade 
Dependencies and interdependencies in EU – Russia energy trade; Strategy: Consumption and export issues.
Goal, substituting domestic consumption of hydrocarbon by increasing the use of coal, nuclear power and RES in order to export hydrocarbons. Enhancing energy efficiency promotes objectives set on exports. 75% of oil (60% of crude exported (production 500 mt/y), 85% to the EU; 30 % of gas exported, 75% to EU
30 % of coal exported, 70% to EU
1.5 % electricity exported, 80% to Finland. Russia’s pricing strategies:
Oil export volume more important than price
–Urals Europe’s primary oil brand during the 1990s and 2000s. Gas: Export price more important than volume
–Russian gas has become the most expensive baseload energy sources on the European market during the 2000s. Electricity export price more important than volume
–from 2012 — RAQ UES has sold to Finland (RAO Nordic) not the maximum volume but reduced flow during peak hours. Get overall understanding of geopolitical issues related to pipeline policy. EU energy relations— Energy Superpower; Geopolitical objectives. Gazovyi Imperator (2010) – journalist advocating energy superpowerness.

Friday — Veli-Pekka.
 Environment in the EU-Russia energy relations; Environment and EU-Russia energy dialogue. Energy Dialogue started in 2000, legal basis in 1997 “EU-Russia agreement on partnership and cooperation”. Between 2001-2004 the environmental dimension of energy was explicitly on the agenda thematic group on Energy Efficiency and the Environment.

After 2004 the environment disappears as an explicit agenda thematic group on Energy Efficiency – focus on the economy and climate change mitigation. Energy Sector modernization as an umbrella—gas flaring reduction and promotion of renewable energy as specific tools.

Flaring of gas from space. Russia’s flaring reduction policy; Environmental NGOs— Why research on governmentalities in the Russian energy sector is interesting… from democracy “trap” to modernization and ecological “traps”.

Presentations –

Poland
 — Raili Virtanen, Kai Raotsalainen, + : 
Dependency on Russian gas; Finland requires alternatives. Poland, wants to become an independent supplier, energy strategy. Doing business together, bigger role in European market, provide gas and other energy types to energy types and EU. And not dependent on one country. We have approx. 800 billion cubic meters on Shale gas. Since Finland would benefit the most as the first country. Compared to Russian gas, shale gas would be cheaper. Both members of EU. We have a few options. Shale Inc. was evaluated as the best company. Environment was an important part of our decision, and coal is used – and shale gas is dangerous but the shale company is transparent and open and risks. More ecological than coal.

Two questions – export of Poland, what are you plans about building export capacity. Social acceptability of increasing gas production in Poland. Increasing share of gas in Poland energy mix may have some negative consequences for coals consumption – what is your social strategy for unemployment in coal. We are discussing possible energy projects in trade – rapid expansion could increase social risks from reductions in labor.

Green Peace
 — Leena Fedotov, Tino Aalto: Ground water contamination – statistics — pPrivate company cannot take care about our drinking water. In the United States that have complained about ground water production – Government must control the groundwater – include that the company requires some kind of technical capacities. Contamination will kill people. Government must have tight control over tax production, and that revenue sharing for local communities. Energy Strategy. Besides energy development – we should be moving toward renewable panels. Solar would be better. So we should start relying on solar panels.

We have heard that you have an interest in revenue sharing for local communities from production of gas – do you have any specific proposals to promote renewable energy. We are concerned that government use of funds are not the most capable of incentivizing business activity.

Russia — 
We will present the worlds largest exporter of natural gas, Gazprom. Present a long term contract – economic terms of buying our gas. We now have a competitor from Poland, accountability and reliability. Accountability in securing supply and appreciate your past commitments. We have been thinking of creating closer ties to the European Union, perhaps through NATO establishing military installations in Finland, primarily for dealing with threats of ballistic missiles from the middle east.

We wanted to be ensure that Russian government would be committed to accountability in terms of security of supply. How would you ensure to us that you would not use energy as a weapon to discourage our tightened relationship with Western Europe.

Shale gas Inc — 
Drilling technique without environmental hazards. We implement in 5 areas of rural America – Liberalization of economy, shale law will follow market law, dealing with environmental hazards. Flexibility of contracts. Unfortunately –  a long a cold winter in Finland.
 C02.