Putin Warns of Risks to Oil Supply

Russian President Vladimir Putin has warned that political meddling and underinvestment could cause turmoil in the oil market similar to that seen in the gas market recently.

Speaking at a meeting of the Valdai discussion club in Sochi late on Thursday, Putin said "there will be a moment similar to today's situation, when the market demands [more oil] but there will be nowhere to get it from."

He said annual upstream investment had fallen from about $400 billion in 2012-16 to around $260 billion now. This could be damaging for an industry which has investment cycles of 15 to 30 years, he added.

Putin's comments are similar to recent remarks by Prince Abdulaziz bin Salman, the energy minister of Russia's Opec-plus ally Saudi Arabia, and by Opec Secretary-General Mohammed Barkindo.

Russia and Saudi Arabia are both major producers and exporters of oil, while Russia is also the world's biggest exporter of natural gas.

As energy prices have soared in recent weeks, both countries have sought to present themselves as reliable suppliers and warned that a hasty transition away from fossil fuels could lead to more shortages and price spikes.

Political Influence

Addressing the gas crunch, Putin said Russia would start increasing supplies to Europe "the next day" once Germany certifies the Nord Stream 2 pipeline.

He said the 55 billion cubic meter per year pipeline would go a long way to alleviating the current shortage in the European market.

Putin said decisions about energy investments are often influenced by politicians, rather than left to industry experts.

But he noted that electoral cycles usually last only four or five years, while investment planning in the energy industry is for much longer periods.

Because of the green energy trend, banks have started to pull back on their financing of oil and gas projects, he noted, while some Opec-plus countries are finding it difficult to increase oil output again after last year's big cuts.

Deputy Prime Minister Alexander Novak told the Russian Energy Week forum earlier this month that Russia's future production would be determined by how much oil the market needs.

"I don't see problems in increasing production," he said, without specifying any particular quantity or timeline.

Arctic Tensions

However, if Russia wants to expand its production in the future it will need to develop technically challenging resources and venture into remote regions, including the Arctic.

This could become a new source of conflict with Europe, because the EU has recently proposed an international moratorium on development of oil, gas and coal in the Arctic.

EU nations import vast quantities of Russian gas, however, and Putin warned that if Europe tries to limit Russian activity in the Arctic, it could quite literally be left in the cold.

Russian oil giant Rosneft is already pursuing the Vostok Oil project in the Arctic, which is targeting 2 million barrels per day of oil production by 2030.

Glasgow Conference

Putin told the gathering in Sochi that he would not attend the upcoming COP26 climate conference in Glasgow in person but that he might participate via video link.

He said the decision was based on minimizing Covid-19 risks, with Russia and the UK both currently experiencing a spike in new infections.

Putin said efforts to fight climate change should be based on rigorous analysis and without unachievable targets driven by political slogans.

He reiterated that Russia will aim to achieve carbon neutrality by 2060 but will also insist that absorption of carbon dioxide by its vast forests and other natural sinks must be taken into account.