Russia’s energy sector has so far come through the pandemic better than some might have expected. Cooperation in the Opec+ deal has shored up oil revenue and the rouble. But the country’s longer-term outlook is cloudy, both in petroleum and its unstrategic approach to new energy.
After the brief price skirmish with Saudi Arabia in March, Moscow has been a cooperative partner in the Opec+ framework. As usual, it has mostly but not completely complied with agreed production limits. Oil prices have recovered above the budgetary break-even price of around $42 per barrel, while the rouble has settled about halfway between the pre-pandemic rate to the dollar and the worst of the crisis in mid-March.
The coronavirus pandemic has hit Russia hard, with the fourth-highest number of cases worldwide, although numbers have been steadily falling since June. The economy shrank 8.5 per cent in the second quarter – bad, but not as bad as expected and better than some countries.
The turmoil following the disputed re-election of president Lukashenko in neighbouring Belarus is a reminder of the challenges that Vladimir Putin faces. Belarus is an important transit route for both Russian oil and gas, earning a healthy mark-up on refining discounted crude supplies.
So the overall picture in Russia is of a country muddling through difficult times. Plans for the massive oil and gas sector are reasonably sensible and achievable in themselves. But there is a huge gap in appreciation of the challenges of the new energy economy, and Russia is far behind some of its Middle East competitors in grappling with the issue.
The realignment of the gas industry continues. Liquefied natural gas shipments from the Arctic, often using the north-east passage to Asia through newly ice-free waters, have been an impressive success. But overall gas exports have fallen from 199 billion cubic metres last year to an expected 166-167 billion cubic metres this year, because of the impact of the pandemic as well as competition in a heavily oversupplied world market. Exports by pipeline to China began in December, but are still small compared to sales to Europe and Turkey.
A new pipeline, Turkish Stream, began delivering to that country in January, as part of its strategy to bypass Ukraine. But Ankara’s large gas find in the Black Sea on Thursday might diminish its need for Russian supplies. The other part of the Ukraine avoidance strategy, the Nord Stream II pipeline under the Baltic Sea to Germany, is 94 per cent complete. But it is beset by US sanctions on its pipe-laying vessels, and in a race to finish before legislation is signed in December.
The Russian gas sector is increasingly exposed. Methane leaks and flaring give it a high carbon footprint, while demand in its main market, Europe, will fall in competition with renewables and improved efficiency. In March, the Energy Ministry ordered its main energy companies to look seriously into hydrogen, which could be generated from excess nuclear or hydro-electricity, or from gas, and blended into the country’s gas pipelines.
Otherwise, low-carbon energy is almost entirely confined to nuclear and hydropower. State-owned Rosatom has built up a significant portfolio of reactor construction worldwide, including El Dabaa on Egypt’s north coast –where construction is supposed to begin next year – Iran, Belarus, Turkey, Bangladesh, India, China and elsewhere, as well as floating nuclear power plants for deployment to remote areas. These are largely supported by generous financing packages from Russia’s sovereign wealth funds.
Russia last year had just 0.1 gigawatts of wind and 1.1GW of solar power from its total generating capacity of 253GW, absurdly low given its vast territory. It is a negligible player in new energy technologies such as advanced batteries or electric vehicles. It is only a second-tier miner of the materials of the energy transition, such as cobalt, graphite and rare earths.
It has not taken climate change very seriously. Under the Paris Agreement, it promises only greenhouse gas emission cuts it already made in the post-Soviet collapse, and a relatively low 4.5 per cent renewable target by 2024. Its unambitious long-term climate plan, released in March, has the country becoming carbon-neutral only well after 2050. April’s 2035 energy strategy sees new and low-carbon energy as threats to be countered, not opportunities to seize.
In June, melting permafrost led to the collapse of a tank, spilling 21,000 tonnes of diesel into a Siberian river. This was a reminder of the rapid climate change in Russia’s frozen north, opening up the northern sea route but undermining roads and pipelines.
The country, however, is not as badly off as some petro-states, but remains highly exposed to future global climate policy reducing demand for hydrocarbons. Until the price collapse, oil and gas made up about 40 per cent of federal budget revenue and more than half of export earnings.
It has many advantages in principle for economic diversification: a strategic geography that is core to weighty neighbour China’s belt-and-road initiative; a great range of non-fossil fuel natural resources including metals, uranium, timber and grain; some $165 billion (Dh606bn) of sovereign wealth holdings; stable and conservative macroeconomic management; a large and well-educated population and a legacy of science and technology.
Adapting to a low-carbon or post-peak oil demand world should be easier than for the major Middle Eastern exporters. But GDP per capita has hardly budged since the financial crisis, and ambitious plans for a technology-led future have run into corruption, the drag of sanctions, an overbearing state and the continuing lustre of gargantuan infrastructure projects in remote regions. Stuck between oil and ice, Russia needs fundamental changes, not fixes, to meet the energy future.
Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis
UAE currency: the story behind the money in your pockets
Company%20profile
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The specs
Engine: Four electric motors, one at each wheel
Power: 579hp
Torque: 859Nm
Transmission: Single-speed automatic
Price: From Dh825,900
On sale: Now
What's in the deal?
Agreement aims to boost trade by £25.5bn a year in the long run, compared with a total of £42.6bn in 2024
India will slash levies on medical devices, machinery, cosmetics, soft drinks and lamb.
India will also cut automotive tariffs to 10% under a quota from over 100% currently.
Indian employees in the UK will receive three years exemption from social security payments
India expects 99% of exports to benefit from zero duty, raising opportunities for textiles, marine products, footwear and jewellery
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
The more serious side of specialty coffee
While the taste of beans and freshness of roast is paramount to the specialty coffee scene, so is sustainability and workers’ rights.
The bulk of genuine specialty coffee companies aim to improve on these elements in every stage of production via direct relationships with farmers. For instance, Mokha 1450 on Al Wasl Road strives to work predominantly with women-owned and -operated coffee organisations, including female farmers in the Sabree mountains of Yemen.
Because, as the boutique’s owner, Garfield Kerr, points out: “women represent over 90 per cent of the coffee value chain, but are woefully underrepresented in less than 10 per cent of ownership and management throughout the global coffee industry.”
One of the UAE’s largest suppliers of green (meaning not-yet-roasted) beans, Raw Coffee, is a founding member of the Partnership of Gender Equity, which aims to empower female coffee farmers and harvesters.
Also, globally, many companies have found the perfect way to recycle old coffee grounds: they create the perfect fertile soil in which to grow mushrooms.
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Pad Man
Dir: R Balki
Starring: Akshay Kumar, Sonam Kapoor, Radhika Apte
Three-and-a-half stars
PROFILE OF SWVL
Started: April 2017
Founders: Mostafa Kandil, Ahmed Sabbah and Mahmoud Nouh
Based: Cairo, Egypt
Sector: transport
Size: 450 employees
Investment: approximately $80 million
Investors include: Dubai’s Beco Capital, US’s Endeavor Catalyst, China’s MSA, Egypt’s Sawari Ventures, Sweden’s Vostok New Ventures, Property Finder CEO Michael Lahyani
MATCH INFO
Manchester United v Everton
Where: Old Trafford, Manchester
When: Sunday, kick-off 7pm (UAE)
How to watch: Live on BeIN Sports 11HD
The specs: 2017 Ford F-150 Raptor
Price, base / as tested Dh220,000 / Dh320,000
Engine 3.5L V6
Transmission 10-speed automatic
Power 421hp @ 6,000rpm
Torque 678Nm @ 3,750rpm
Fuel economy, combined 14.1L / 100km
