Back with a Bang: Russia's economy attracts investors despite recession

Jul 07, 2015 12:00 AM

Despite the challenges that Russian economy is facing with the western sanctions and the devaluation of the ruble, foreign investors do not fail to see the huge potential that Russia holds for investment in various industries and state corporations.

As world markets nervously react to any news out of Greece, a sense of calm prevails in Russia, writes energy expert Colin Chilcoat.

For one thing Russian state gas giant Gazprom and Royal Dutch Shell have joined hands in a strategic alliance that will see asset exchanges, for example the recent expansion of the firms’ successful joint Sakhalin liquefied natural gas operations and the construction of two new Nord Stream gas pipelines to Germany via the Baltic Sea.

The new pipelines will double Nord Stream’s existing capacity of 55 billion cubic meters, turning Austria into one of Europe’s largest gas hubs, Chilcoat wrote for media outlet Oilprice.

Despite the sanctions against Russia, Exxon is expanding itself in Russia. In 2014 Exxon added 52.3 million net acres to its Russian holdings. In comparison, the company has 14.6 million net acres in the United States.

In Asia, China has started construction on its share of the Power of Siberia pipeline, scheduled to deliver 38 billion cubic meters (cbm) of Russian gas annually to China beginning in 2017.

Furthermore, Russia increased sales to China, Japan, and South Korea by 25 percent, taking over the market share from Saudi Arabia, Kuwait, and Qatar. State oil conglomerate Rosneft expects to boost crude shipments to the east by 30 percent this year.

Saudi Arabia and Russia have signed a nuclear power agreement under which Russia will construct and operate as many as 16 nuclear power plants in the Middle Eastern kingdom. Saudi Arabia currently has none.

In return, Saudi Arabia will probably become an important partner in Russia’s existing or future oil and gas development projects.

Despite the near collapse of ruble last year due to western sanctions, the ruble is the world’s strongest performing currency in 2015, Chilcoat added.

According to the analyst, the Russian economy has seen better times and based on a number of economic indicators such as high inflation, lower competitiveness of ruble abroad and a fall in industrial production, its economy is currently in recession.

Nevertheless, there is a reason to believe that Russia with its mining industry and state corporations can count on a lot of investors.

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