Institutional Trends in Russia’s Oil and Gas Sectors
| DOI | 10.1093/jwelb/jwt007 |
| Date | 05 July 2013 |
| Pages | 163-178 |
| Year | 2013 |
| Published By | Oxford University Press |
Institutional trends in Russia’s oil and gas sectors
Andrei V. Belyi*
This article analyses Russia’s institutional dynamics in the hydrocarbon sectors. Both
the oil and gas sectors have experienced a certain degree of decentralization, which has
been accompanied by a weakening role of the State. This comparison aims to dem-
onstrate that Russia’s oil and gas industries are significantly different in spite of their
post-command economy similarities. The opposing institutional trends are related to
different centralization–decentralization dynamics, which reflect an ever-changing
interrelation between a State and market forces. At the beginning of transition to a
market economy, the oil sector was almost entirely privatized and restructured, unlike
the gas sector. Since 2003 a market concentration of the oil sector has taken place, with
the creation of a national oil company, Rosneft. At the same time, since 2009, the gas
monopoly has been under pressure from both domestic and international (mostly
European) markets. Likewise, Rosneft has been able to diversify its exports to Asia-
Pacific, whereas Gazprom has failed to agree a gas deal with China. Consequently,
Rosneft is gaining importance, whereas Gazprom is softening its position in the gas
sector, which also creates grounds for (at least a partial) demonopolization of gas
exports from Russia.
Introduction
The Russian hydrocarbons sectors are increasing in interest for both potential investors
and the energy consuming countries. Russian oil and gas companies now represent the
world’s largest reserve owners and they play an increasingly important role in interna-
tional investment dynamics as well as exerting significant influence upon Russian do-
mestic and foreign policy. However, it is striking that since the breakup of the Soviet
Union, Russia’s oil and gas sectors have behaved in opposing ways. In the period of 1992–
2003, the Russian oil sector was largely dominated by the markets, while the gas sector
remained under a vertically integrated structure. In turn, since 2003 a market concen-
tration of the oil sector has been observed, whereas the gas monopoly has been under
pressure from both domestic and international markets. Interestingly, since the transition
to a market economy, Russia’s oil and gas sectors have followed divergent pathways,
despite a number of common structural features of post-command economy hydrocar-
bons: strong State influence, top-down market design, dependency on complex pipeline
infrastructure for shipment of commodities, high energy intensity and a significant de-
pendency on export revenues. The distinction between the institutional dynamics of the
* Senior Researcher of the Institute of Government and Politics, The Centre for EU-Russia Studies (CEURUS), University of
Tartu, Estonia. email: belyiand@hotmail.com
Journal of World Energy Law and Business, 2013, Vol. 6, No. 3 163
ßThe Author 2013. Published by Oxford University Press on behalf of the AIPN. All rights reserved.
doi:10.1093/jwelb/jwt007 Advance Access publication 5 July 2013
two sectors helps to demonstrate important differences within Russia’s energy sector and
their impact on oil and gas supplies to Europe.
Indeed, the opposing trends are related to different centralization–decentralization
dynamics, which reflect an ever-changing interrelation between a State and market
forces.
1
Here, centralization would be defined by growing public intervention in the
sector, whereas decentralization is characterized by a domination of market forces.
2
Centralization and decentralization are never absolute, but rather a conceptualization
of the general trend within a sector towards the greater or lesser role of a State’s inter-
vention in a market. The schematization of the centralization–decentralization dynamics
allows for the crafting of significant differences between the institutional settings of the
two sectors. Indeed, Russia’s oil sector has experienced a move from decentralization to
centralization, whereas the gas sector exhibits the opposite trend from centralization to a
relative decentralization.
A practical impact of the opposing centralization–decentralization trends in Russia’s
oil and gas sectors may lead to a further reinforcement of the national oil giant Rosneft,
whereas the gas monopoly Gazprom is losing its position both domestically and abroad.
Considering the high level of securitization
3
of the Russia–European natural gas trade, in
contrast to oil,
4
this new trend may constitute grounds for the de-politicization of energy
relations between East and West. For instance, decentralizations trends within Russia’s
gas sector are grounds for a discussion of the possible liberalization of the gas exports
from Gazprom’s monopoly. In contrast, Rosneft’s alliance with BP implicitly reinforces
the trust towards Russia’s State-owned oil company. In the meantime, Rosneft is prac-
tically becoming a classical national oil company, like those to have emerged in the
Middle East, China and Latin America. In this context, reinforcement of Rosneft consti-
tutes a challenge for Gazprom’s traditional domination of the political scene of the
country.
Russia’s transition from command to market economy and the impact on
hydrocarbon regulation and management
In order to assess post-Soviet institutional dynamics in Russia, it would be useful to
understand the very nature of command economy institutions in the energy sector. It is
noteworthy that the Russian energy sector displays characteristics specific to State–market
relations, which stem from a command economy, where the State controlled the overall
economic process. Many of the features have remained and therefore the presence of the
State can still be considered to be very important. In particular, post-command economy
legacies can be observed in the formation of hydrocarbon companies as well as in the
regulation of access to energy resources. In other words, the influence of the State stems
1
S Strange, States and Markets (Pinter Publishers 1988).
2
J Hawdon, Emerging Organizational Forms: The Proliferation of Regional Intergovernmental Organizations in the Modern
World-System (Greenwood Press 1996).
3
B Buzan, O Waever and J De Wilde, Security: A New Framework for Analysis (Lynne Rienner 1998).
4
A Belyi, ‘The EU’s Missed Role in International Transit Governance’ (2012) 34(3) Journal for European Integration 261–76.
164 Journal of World Energy Law and Business, 2013, Vol. 6, No. 3
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