Russia Gas DA

Russia Gas DA.................................................................................................1

***Shell***.......................................................................................................3
1NC Natural Gas Prices DA.........................................................................4
***Uniqueness***............................................................................................6
Russia Econ UQ 2NC Trick.......................................................................7
Russia Econ UQ AT: Sanctions.................................................................9
Russia Econ UQ AT: Unsustainable (Domestic Sales)...........................11
Russia Econ UQ AT: Unsustainable (Diversification/Modernization). . .14
Russia Econ UQ AT: Owen Matthews.....................................................16
Gas UQ.......................................................................................................18
Gas UQ AT: German Shale......................................................................20
Gas UQ AT: Polish Shale.........................................................................21
Gas UQ AT: Baltic Shale..........................................................................22
Gas UQ AT: European Shale...................................................................23
Gas UQ AT: Qatar....................................................................................27
Gas UQ AT: Other Producers..................................................................28
Gas UQ AT: U.S. Production Inevitable/Exports Not Key......................30
***Links/Internals***.....................................................................................31
2NC Link Wall............................................................................................32
2NC Perception Link..................................................................................35
Ext Exports Hurt Russia.........................................................................36
2NC Spot Market I/L.................................................................................38
Ext U.S. kt Spot Prices............................................................................39
Ext Spot Prices Hurt Russia...................................................................42
US Exports Kill Gazprom...........................................................................43
Russia Gas Key........................................................................................44
AT: Gas Dependence Causes Russian Deindustrialization (Diehl)...........46
***Impacts***................................................................................................49
2NC Impacts..............................................................................................50
2NC Turns Heg..........................................................................................56
2NC Turns Econ.........................................................................................57
2NC Defense Base Impact.........................................................................58
AT: Modernization Bad..............................................................................60
***AFF ANSWERS***....................................................................................62
N/U Ukraine............................................................................................63
N/U Sanctions.........................................................................................65
Russian Economy Unsustainable..............................................................67
Unsustainable AT: Diversification..........................................................71
N/U European Shale...............................................................................73
No Link US Not Impact Russia...............................................................74
AT: Spot Market Link.................................................................................76
AT: Russia Gas No I/L..............................................................................79
Russia Economy Resilient..........................................................................80
AT: Russia Economy Impact......................................................................82
AT: Russia Turns Global Economy............................................................83
AT: US-Russia War Impact.........................................................................84

AT: Accidental Launch Impact...................................................................85

***Shell***

1NC Natural Gas Prices DA

Russian economy growing, but on the brink.
Linda Kelly, 5/27/2014. Russian economy to grow by 0.5 percent in 2014: central bank's
Nabiullina, The Stock Market Watch,
http://thestockmarketwatch.com/news/read.aspx/russian-economy-to-grow-by-0-5-percent-in2014-central-bank-s-nabiullina/8896806db04ac1760f29ccffa3ed49c6/.

The Russian economy is likely to grow by around 0.5 percent this year but
the overall threat to stability from the crisis in Ukraine would not be "large
scale", central bank Governor Elvira Nabiullina said . The Bank of Russia will
probably revise its 2014 gross domestic product growth forecast to around 0.5 percent,
Nabiullina said in an interview with Reuters approved for publication on Monday, revealing
that it had earlier forecast a 0.9 percent expansion. The economy is on the brink

of recession after quarterly GDP fell by 0.5 percent in the first three
months of the year, impacted by sanctions and instability resulting from the
stand-off with Ukraine and wider emerging market uncertainty . Nabiullina
said it was too early to speak of a recession, before full macroeconomic data for the second
quarter is out, but she acknowledged that the economy has been affected. " Sanctions and

expectations of sanctions affect the Russian economy, but we cannot say that
it is a large-scale impact," Nabiullina said. The central bank's earlier GDP growth
forecast of 0.9 percent had not been public, which indicates two downward revisions have
been made by the central bank since Russia engaged in Ukraine and annexed the Crimean
Black Sea Peninsula. In February, the central bank had predicted the economy would grow
by 1.5-1.8 percent in 2014. For the next two years, the central bank sees growth
of around 1.5-2 percent. The United States and the European Union have imposed
sanctions on a number of businesses and officials considered close to President Vladimir
Putin. Russian officials vary in their assessments of the impact on the country's economy, but
former finance minister Alexei Kudrin said last week they may have cut GDP growth by 1 to
1.5 percent. "Any argument about growth projections for this year is academic - there is no
difference between zero growth, or 0.2 percent or 0.5 percent," Nabiullina said. Based on
central bank data, capital flight in the first four months of the year reached about $68 billion,
exceeding the total for all of last year. The central bank increased rates twice between
March and April - by a cumulative 200 basis points to 7.5 percent - to stem the flow of funds
and aid the rouble but Nabiullina said the impact of the sanctions had been limited. She
added that the most obvious impact has been seen in business and individuals rushing to
exchange rubles into foreign currencies, weakening the currency and increasing inflationary
pressures. The rouble, which in March was down 10 percent against the
dollar compared to the start of the year <RUB=>, has since recovered and is trading
at January levels. But the impact from its weakening early this year will continue for some
time, Nabiullina said. She expects annualized inflation of 7.5 percent by the end of the first
half of the year, before easing to around 6 percent by the end of 2014. The central bank is
counting on a good domestic harvest and a good fruit and vegetables crop this year to soften
pressures on consumer prices, as historically has been the case. Nabiullina said she was also
counting on greater stability on the currency market. The central bank might reach its longestablished 4-percent inflation target by the end of 2016, she said. Sanctions have also
limited access to foreign debt markets for Russian companies, resulting in higher domestic
lending, but Nabiullina said companies would cope with the debt burden.

US LNG exports destroy the Russian economy.

RT, 10/24/2012. Russia Today. Russia increasingly worried about US shale revolution,
http://rt.com/business/news/russia-shale-gas-usa-110/.

Russias President Putin urged the countrys gas monopoly Gazprom to revise its export
policy, as the shale revolution and the development of liquefied natural gas will
seriously eat into the countrys export revenues. Experts agree that alternative
commodities have already started to reshape the market, with the US posing tough
competition to Russia. I ask Gazprom to report on the key principles of its export policy at
the next meeting, and the Energy Ministry should present an adjusted general development
scheme for the gas industry until 2030, as well as the Eastern Gas Program, said President
Vladimir Putin at a meeting of the presidential commission for the fuel and energy sector on
Tuesday. Such new players [in the gas market] as the United States and Canada have
already started to move. In the US, new technologies allow for profitable shale
gas productionPoliticians, experts and businesses are talking about a real "shale
revolution," Putin added. The US is a serious rival to Russia in a gas market , as
the countrys reserves of shale gas stand at 24trln cubic metres, compared to 30trln cubic
metres of traditional gas reserves in Russia. Given that shale commodities are really booming,
especially in the north of the US, the country can outpace Russia in the world
energy market in another decade, Valery Nesterov, energy analyst at Sberbank
Investment Research, told Business RT. For the US economy itself the shale oil and gas
industry is a real locomotive, providing an additional 3.5mln jobs, according to Sberbank
Investment Research expert. Should a shale revolution really take place, itll seriously
reshape the world energy market, where traditional energy sources could be replaced by
cheaper shale commodities. This will hit Russias budget hard, as oil and gas
revenues provide for about 80% of the entire Russian budget . Thats
why its very important for Russia now to have official information and up to date data
about extraction of shale gas in the US, which can be done by getting a report from the US
Department of Energy, RBC daily quotes its sources close to Russias Accounts Chamber as
saying. Another new trend has also long been underway the rising trade in liquefied
natural gas (LNG), Putin said. "We are simply obligated to take these trends into
consideration, to clearly imagine how the situation will develop not just in the next two to
three years, but throughout the upcoming decade," Russian President concluded. Active
extraction of shale gas in the US and the analogous intentions in Europe could harm

Russian exports because of the high competition from the suppliers of the
alternative fuel, sources from Russias Accounts Chamber told RBC daily. Gazprom told
RBC it didnt plan to develop any projects dealing with extraction of shale gas. In the midterm Russia is due to remain the biggest gas exporter to Europe , with
European countries remaining a key consumer of Russian gas, the International Energy
Agency (IEA) said in October. The US gas exports will soon equal a third of that
from Russia, with the Asian demand growing really fast. By 2035 the US could

become the leader in the world gas market, pushing Russia into 2nd place ,
the IEA said in May this year. According to the Agencys forecast, Russia could produce about
784bln cubic meters of gas, which will compare to the US figure of 821bln cubic metres.
Another Asian giant China should come third, where extraction of gas is forecast to
skyrocket 5 fold during the next 25 years. Australia, India, Indonesia, as well as Africa and
the Middle East are also expected to come to the forefront of the world gas market. However,
Europe is set to suffer as growing demand is expected to be coupled by shrinking extraction,
the IEA concluded.

Russian economic decline causes nuclear war and collapses the

global economy
Filger 9Author and Writer at the Huffington Post, Former VP for Resource
Development at New Yorks United Way [Sheldon Filger, Russian Economy
Faces Disastrous Free Fall Contraction,
http://www.globaleconomiccrisis.com/blog/archives/356]

In Russia historically, economic health and political stability are intertwined to a

degree that is rarely encountered in other major industrialized economies. It was
the economic stagnation of the former Soviet Union that led to its political downfall. Similarly,

Medvedev and Putin, both intimately acquainted with their nations history, are
unquestionably alarmed at the prospect that Russias economic crisis will
endanger the nations political stability, achieved at great cost after years of chaos

following the demise of the Soviet Union. Already, strikes and protests are occurring among rank and file
workers facing unemployment or non-payment of their salaries. Recent polling demonstrates that the
once supreme popularity ratings of Putin and Medvedev are eroding rapidly. Beyond the political elites
are the financial oligarchs, who have been forced to deleverage, even unloading their yachts and

Should the Russian economy

deteriorate to the point where economic collapse is not out of the question, the impact will go
far beyond the obvious accelerant such an outcome would be for the Global
Economic Crisis. There is a geopolitical dimension that is even more relevant then the economic
context. Despite its economic vulnerabilities and perceived decline from superpower status, Russia
remains one of only two nations on earth with a nuclear arsenal of sufficient
scope and capability to destroy the world as we know it. For that reason, it is not only
President Medvedev and Prime Minister Putin who will be lying awake at nights over the prospect that a
national economic crisis can transform itself into a virulent and destabilizing
social and political upheaval. It just may be possible that U.S. President Barack Obamas national
executive jets in a desperate attempt to raise cash.

security team has already briefed him about the consequences of a major economic meltdown in Russia
for the peace of the world. After all, the most recent national intelligence estimates put out by the U.S.
intelligence community have already concluded that the Global Economic Crisis represents the greatest
national security threat to the United States, due to its facilitating political instability in the world.

During the years Boris Yeltsin ruled Russia, security forces responsible for guarding
the nations nuclear arsenal went without pay for months at a time, leading to fears
that desperate personnel would illicitly sell nuclear weapons to terrorist
organizations. If the current economic crisis in Russia were to deteriorate
much further, how secure would the Russian nuclear arsenal remain ? It may be
that the financial impact of the Global Economic Crisis is its least dangerous consequence.

***Uniqueness***

Russia Econ UQ 2NC Trick

Actual economic growth is irrelevant --- resource revenues are the
sole determinant of Russias political stability.
Vladislav Inozemtsev, 6/24/2014. Professor of economics and director of the Moscow-

based Center for Post-Industrial Studies. Why Economic Growth Doesn't Matter in Russia,
The Moscow Times, http://www.themoscowtimes.com/opinion/article/why-economic-growthdoesnt-matter-in-russia/502465.html.

Many politicians sincerely believe that Russia's economy has virtually

stopped growing, in light of current tensions between the West and Russia
resulting from Russia's annexation of Crimea and the economic sanctions
that followed.
They also believe that Russia's economy may face additional challenges due to new
restrictions imposed and that this will reduce the government's credibility and so create
problems for President Vladimir Putin.
For better or for worse, nothing like this will happen. Russia today is a unique place

where the rate of economic growth changes neither the behavior of elites
nor the loyalty of the population. Upon a closer look, it is easy to realize why but
to do this one must forget how economies are supposed to work.
First, Russia is not an industrial, but rather a resource

economy. The wellbeing of its citizens depends primarily on just one sector of the economy.
Export duties on oil and gas, as well as federal mining tax contribute 49.4
percent of federal budget's revenues although crude oil and natural gas production
has not increased since the mid-2000s. In 2013 only 8 percent more oil was pumped in Russia
than in 2006, and 1 percent less of gas.

Both the political situation's stability and the level of popular support
for the government depend not on growth in the real sector but
from the dynamics of personal incomes and these hang not so
much on development but on oil and gas.
In the crisis years of 2008 and 2009, for instance, real
disposable incomes adjusted for inflation fell by 2.7 percent in the U.S. while
in Russia, where the drop in GDP was the most significant among Group
of 20 nations, they increased by 5.4 percent.

Of course, a fiscal policy driven by oil and gas kills businesses and entrepreneurial spirit, but
why should the government fix this if everyone is happily spending money?
Second, Russian officials at different levels are at the same time businessmen, and if not, then
they get a significant portion of their income from bribes. In a period of economic growth they
become richer due to the expansion of their enterprises or by imposing a "corruption tax"on
successful businesses.
But economic crises are even better for corrupt officials. In the event of crisis they are able
to pocket even more while distributing state aid and subsidies; moreover, during such periods
they are able to purchase impaired assets. Up to 45 percent of purchases of expensive real
estate in Moscow in 2009 were made by government officials and members of their families.
In addition, even if officials know that mismanagement is rarely a cause for dismissal, they
may be sure that crises allow them to write off even the most egregious "mistakes." Therefore
Russian bureaucracy sees nothing bad in a new crisis.
Third, unemployment, which in the U.S. and Europe is considered almost an integral
indicator of a government's effectiveness, is not recognized as a big issue in Russia,
partly because there is no information available on it. Deputy Prime Minister Olga
Golodets recently admitted that the government did not fully understand where 38.2 million
people, or 44 percent of the active labor force, actually worked. Therefore Western

governments of rising unemployment does not disturb anyone in Russia.

Hence, no one cares also about the growth in the real sector of the economy,
which could absorb the excess labor.
Fourth, both the authorities and the public have interpreted every serious crisis in the world's
major economies in the last 30 years as the result of foreign influences, not as a result
of domestic policy.
The financial crash in Mexico in 1994, Asia's troubles of 1997, Russia's default of 1998
and Argentina's of 2001, the "dot com" crash in 2000, as well as the financial cataclysm in the
U.S. and Europe in 2008 all of them were attributed to external causes.
Russian authorities in recent years have been so successful in convincing its citizens that all
evil comes from the outside that they may have become convinced of it themselves.
The president has often explained economic difficulties as U.S. and Europe's fault,
in particular the crisis of 1998, which is depicted as the result of Western advisers'
manipulations.
Some even attribute the collapse of the U.S.S.R. to a joint conspiracy by the U.S. and Saudi
Arabia to push down oil prices. In this mind set, a slump in growth confirms not the Russian
elites lack of professionalism but the power of Russia's enemies.
Today's Russia is not a normal country. A significant portion of people who can adequately
assess the situation either left the country or are leaving it right now. Many entrepreneurs
sold their businesses to bureaucrats and pulled money out of the country, realizing the futility
of their labors.
But as long as energy resources can be exported and the prices

for them are high, the Russian government does not need to worry
about the economy. Special budget reserves exceed $175 billion; the public debt is less
than 2.8 percent of GDP, the budget still runs a small surplus, and even if it dips into red it
may easily be balanced by a soft devaluation of the ruble since the export duties on oil
and gas are denominated in dollars.

Russia Econ UQ AT: Sanctions

Sanctions currently have no teeth --- Europe will only put real
pressure on Russia when U.S. production undermines Russian gas
monopoly.
Carol Matlack, 7/2/2014. Russia Sanctions Lose Their Bite as U.S. and Europe Pull In
Different Directions, Bloomberg Business Week, http://www.businessweek.com/articles/201407-02/russia-sanctions-lose-their-bite-as-u-dot-s-dot-and-europe-pull-in-different-directions.

the U.S. and European Union appear

ready to hit Russia with a new round of sanctions. But will the Americans and
As violence flares anew in eastern Ukraine,

Europeans act in unison this time?

Since mid-March, Western governments have blacklisted scores of individuals and a handful
of companies in an effort to punish President Vladimir Putin and his allies for their actions in
Ukraine. We wont ease off, German Chancellor Angela Merkeltold reporters in Berlin today,
as foreign ministers from Ukraine, Russia, Germany, and France began talks aimed at ending
the fighting.
Yet the sanctions now in place seem to have caused no more than moderate

inconvenience to their targetsin large part because the measures imposed

by the U.S. and its European allies have been out of sync.
The most effective sanctions so far have been those taken by the U.S., targeting business
people in Putins inner circle, says Sarah Lain, a Russia analyst at the Royal United Services
Institute in London. For example, Bank Rossiya, a major bank whose owners include Putin
associates Yury Kovalchuk and Gennady Timchenko, has been blocked from
offering Visa (V) and MasterCard (MA) services to its customers. Timchenko scrambled to sell
off some other holdings, including a stake in an oil-trading group and business-aviation
terminals at Moscow and St. Petersburg airports, whose operations could have suffered if
they couldnt do business with Americans.
The EU, though, hasnt sanctioned Timchenko, and he has continued to do
business there. His main investment vehicle, Volga Group, which the U.S. has
been blacklisted, is based in EU member country Luxembourg. And just a few weeks ago

his construction group Stroytransgaz won a major contract to build part of

the South Stream gas pipeline through Bulgaria, another EU member .
Timchenko also is actively pursuing business in China, ranging from a possible bottled-water
venture to gas-industry construction projects following the signing of a major RussianChinese gas deal this year.

Kovalchuk, described by the U.S. as Putins personal banker, also hasnt

been sanctioned by the EU.

Many of the individuals sanctioned by Europe have been Russian and government officials
and military leaders directly involved in the annexation of Crimea and the fighting in eastern
Ukraine. Those measures have minimal effect, since the people targeted generally dont have
significant assets in Europe. Theyre targeting the wrong people, Lain says.
Ineffective European sanctions arent the only problem. Bloomberg News last
monthdetailed how Kovalchuk does business with U.S. companies through a complex web of
organizations that he partially owns. Still, it would be easier to untangle those relationships if
the EU had also put him on a blacklist. For example, Kovalchuk owns a minority stake in a
Russian media group that is at least two-thirds owned by a shadowy group of companies in
Cyprus, another EU member country.

Why is Europe holding back? The continents dependence on Russian gas is

one reason. But just as important are the tens of billions of dollars in assets that

Russiancompanies have placed in European tax havens. Wealthy Russians have invested
billions more in real estate in Britain, the French Riviera, Switzerland, and elsewhere. If
Europe wants to have some impact on Putin, it will have to experience some pain itself, Lain
says. For now, that seems unlikely.

Sanctions have put Russias economy on the brink, but have not
caused collapse.
Antonio Spilimbergo, 6/30/2014. IMF Mission Chief for Russia, Ph.D. in economics from
M.I.T. Geopolitical Risks Cloud Future of Russian Economy, IMF Survey Magazine,
http://www.imf.org/external/pubs/ft/survey/so/2014/car063014a.htm.
IMF Survey: What effect are the sanctions imposed by the United States, European
Union, Japan, and other countries having on the Russian economy?
Spilimbergo: Responding to the situation in Ukraine, many countries and the EU adopted
sanctions against Ukrainian and Russian individuals and entities. Concerns about the

possible escalation of sanctions have increased the perceived risk of doing

business in Russia, which is having a chilling effect on investment . Initially,
capital outflows increased significantly and bond issuances by the
government and Russian companies declined sharply, while borrowing rates
increased markedly and the stock market declined. The tensions led to sharp pressures on the
ruble, and Russias central bank increasedinterest rates, reduced the flexibility of the ruble,
and used its foreign exchange reserves to support the ruble.

However, more recently, as the perceived risk of additional sanctions has

subsided, weve seen the stock market and the ruble rebound and companies
considering issuing bonds externally. Still, despite these recent positive
developments, we think that uncertainties will linger as the perception of Russia by
investors has changed, hampering growth in the short term and possibly the medium term.

Russian economy will still grow despite sanctions over Crimea.

Reuters, 6/28/2014. Russia economy would shrink if hit by sectoral sanctions,
http://gulfnews.com/business/economy/russia-economy-would-shrink-if-hit-by-sectoralsanctions-1.1353376, JAS.

Russian economy would contract should the West introduce wideranging sectoral sanctions over Ukraine but that would not be a dramatic
situation, Economy Minister Alexei Ulyukayev was quoted on Saturday as
saying. The United States and the European Union have repeatedly called on Moscow to do
Moscow: The

more to help stop fighting in eastern Ukraine where Kiev is struggling against a separatist
pro-Russian rebellion or face harsher sanctions. Ulyukayev told the Vesti on Saturday
with Sergey Brilev TV programme that the Russian government has worked out an economic
outlook scenario envisaging sectoral sanctions. They would hit Russian exports from luxury
goods like furs and caviar under a relatively lenient option to metals, fertilisers, gas and oil
under the harshest one, he said. The economy withstands such a scenario. The
pace of economic growth, of course, retires to a negative area. The pace of investment if even
worse, revenues are reduced, inflation accelerates, government reserves shrink, Ulyukayev
said. But, in general, there is no dramatic development. The governments official 2014

growth forecast now stands at 0.5 per cent but Ulyukayev has said it could
come in at around 1.1 per cent the same as in the first five months of the year. The
EU, which relies on Russia for a large part of its energy needs and has closer
trade ties with Moscow than the Untied States, has been reluctant to press
ahead with sectoral sanctions fearing they would backfire . Diplomats in
Brussels said on Friday any immediate moves could rather take the form of expanding the
existing lists of people and companies targeted with asset freezes over Russias role in
Ukraine, including the annexation of Crimea.

Russia Econ UQ AT: Unsustainable (Domestic

Sales)
Your evidence makes outdated assumptions --- Russia actually sells
domestic gas at profitable prices.
Mikhail Korchemkin, 4/23/2012. Managing director of Eastern Europe Gas Analysis. Is
Russia Dumping Gas? Natural Gas Europe, http://www.naturalgaseurope.com/russiadumping-natural-gas.

In a recent analytical paper Russia's Natural Gas Dilemma (full text with links is available
here), Stratfor claims that Gazprom is losing money on its domestic sales.
This statement is a way outdated. According to the financial reports of Gazprom,
the domestic sales are profitable from 2004. The important swing from loss to profit
was also mentioned in the company's 2003 annual report (see page 64). After two
profitable years, Gazprom's top management has decided that all gas
produced at the highest cost goes to Russian consumers and this simple
accounting trick has created a loss in 2007. As explained to the shareholders,
"stripped gas bought from our daughter companies is much more expensive than natural gas
and the stripped gas is being delivered exclusively to Russian consumers". It is worth noting,
that in an arbitration trial in 2002, Gazprom has proved that all stripped gas goes for export
sales (at that time exports of this product were free of customs duties). In 2008-2011,

Gazprom reported profits from the domestic sales. Gazprom sells gas at the
state-regulated wholesale price that is above the delivery cost in all regions
of West Siberia and European Russia. The article wrongly assumes that Gazprom
sells gas to the end-users. There are no dumping prices of gas in Russia . As
a matter of fact, the low end-use price of natural gas in Russia is a myth. In
January 2012, the average price of natural gas used by the US power plants
has reached parity with the price paid by major power plants in Russia that
consume over 0.5 bcm/year or over 50 mmcf/day (see the chart below). Moreover, the
average price of gas in Ohio ($3.00/MMBtu) and Pennsylvania ($3.49/MMBtu) is much lower
than the price paid by power plants in Central European Russia. Note that power sector
represents 30% of the total domestic sales of the Russian gas giant. On July 1, 2012, the
price for non-residential consumers will be raised by 15%. The Russian price for
May-August 2012 is our forecast based on the current exchange rate of the Russian ruble. It
is worth noting that Gazprom is the least taxed company in the Russian oil-and-gas sector. In
2011, Russia produced more natural gas than oil in terms of oil equivalent. However, the total
gas production tax collection ($4.6 Bn) was just a fraction of that of oil production tax ($62.9
Bn). In the period of growing export prices, the Russian government was steadily reducing
the share of export duties in the export revenue of Gazprom. According to the Russian
government, the end-use price of gas for non-residential consumers should be at least twice
higher than now. If the price goes that high, Russia is very likely to start importing fertilizers,
cement and other natural gas-intensive products from the USA. The real dilemma is about
that.

Also, this impact to this argument is that lack of domestic profits is

undermining Gazprom investment in new fields and infrastructure.
Well concede the premise that these are key to growth and internal
link turn.
Russia will increase gas exports to Japan, but pricing is key --- deals
are critical for Russian investment in Far East fields.
Jeffrey W. Hornung, 1/11/2012. Associate professor at the Asia-Pacific Center for Security
Studies in Honolulu. Economic cooperation can strengthen Japan-Russia ties, Japan Times,
http://www.japantimes.co.jp/text/eo20120111a1.html.

Recent relations between Moscow and Tokyo have been rocky. This is largely
due to Russian President Dmitry Medvedev's November 2010 visit to disputed
islands. As the first Soviet or Russian leader to visit the islands (known as the
Southern Kurils in Russia and the Northern Territories in Japan), his visit reignited
diplomatic problems that had lain somewhat dormant . Subsequent high-level
visits and decisions to invest close to $100 million in socio-economic development and
transport infrastructure improvements and to build up Russia's military presence on the
islands all served to exacerbate their acerbic relations throughout 2011. With a new year
upon us, can Moscow and Tokyo finally resolve the dispute and deepen cooperation? The
short answer, unfortunately, is that resolution anytime soon is unlikely. First, the legal
impasse remains deadlocked. Russia continues to press its claim that Japan renounced all its
rights, titles and claims to the Kuril Islands in agreements signed during the closing days of
World War II and the San Francisco Peace Treaty. Japan continues to state the islands do not
belong to the Kurils and thus, these legal arguments are inapplicable. Additionally, competing
voices exist in both capitals. In Russia, over the past decade, there have been two opinions
regarding the dispute: retain possession of all four islands or give up Shikotan and Habomai.
The Japanese position is also fractured. Over the past few years a number of plans surfaced:
the official position of getting all four islands, getting Habomai and Shikotan first while
negotiating the return of Kunashiri and Etorofu, or getting 50 percent of the islands' total
land area (i.e. Habomai, Shikotan, Kunashiri, and a part of Etorofu). While the impasse
continues, it does not mean Moscow and Tokyo cannot deepen cooperation .
They share synergistic economic demands that make them natural partners. According to

the International Energy Agency, in 2011 Japan was a top importer of highdemand energy resources. While it ranked third globally as a crude oil importer, it
ranked first as an importer of liquefied natural gas (LNG) and coal. Russia, by
contrast, was a top global exporter of these resources, ranking third for coal,
second for crude oil, and first for LNG. Despite this, Russia has not ranked as
Japan's top supplier. According to JETRO, in 2010, Japan's main supplier for crude oil was
Saudi Arabia while Australia was its top supplier for LNG and coal. Russia ranked as Japan's
4th largest supplier of coal, 6th for crude oil, and 7th for LNG. This is reflected in their trade
relations. Although bilateral trade has increased over the past decade (now over $24 billion),
they are not major trading partners. For example, in 2010 Russia was Japan's 13th largest
import partner and 20th largest export partner. If Japan relies so heavily on importing
resources that Russia leads in exporting, what are the opportunities lost by not increasing
economic cooperation? Consider first Japan. Japan imports the majority of its energy
resources from the Middle East and Southeast Asia. Not only do these shipments face high
transportation costs, they also transit waters infested with pirates in the Gulf of Aden or
Malacca Strait and face possible resource stoppage should China take aggressive steps to
close key sea lanes in the East or South China Seas. Relying more on Russian energy
resources would mean reduced transportation costs as well as avoiding the dangers of piracy
or Chinese stoppage. Russia too would benefit. Russia needs capital and

technological investment in its Far East energy sector to improve and

expand its infrastructure for LNG and oil plants as well as pipelines . While
Japanese investments have assisted much in the way of energy-efficient

technology and major projects, such as Sakhalin-1 and -2, Russia's Far East
energy sector remains underdeveloped. Increasing energy exports to
Japan and bolstering ties with Japanese energy firms could help
provide this much needed capital. Despite closer economic ties fostering a winwin situation, relations remain frozen. While it is easy to argue the territorial
dispute is the cause, I believe it is a symptom. Closer bilateral cooperation is
hindered due to historical mistrust and differing geopolitical interests . Tokyo

is, and has always been, suspicious of communism and Moscow's involvement in Northeast
Asia. This suspicion motivated both of its alliances: one with London and the current one with
Washington. While Russia today is no longer Communist, there remains a deep mistrust of
Russian politics and Moscow's intent in Asia. Similarly, Russia does not share Japan's main
geostrategic concerns of China's military modernization and territorial encroachment or
North Korea's nuclear and missile programs. Nor do they share visions of what types of
power they wish to be and what role the United States should play in the region. Yet, it is

precisely because of the mistrust and differing interests that they should
cooperate in the economic realm. Before Tokyo and Moscow can tackle the
territorial dispute, they need to build trust and understanding through
confidence-building measures in which they share a common interest .
Increased economic trade that equally benefits both is one such possibility .
There are already green-shoots upon which to build. After Japan's disasters
in March 2011, Russia promised to divert 6,000 MW of electricity from its Far East,
send 200,000 tons of LNG, double oil exports to 18 million metric tons, and increase oil
product supply. Similarly, late last year Japan's parliament ratified an agreement on nuclear
energy cooperation that makes it possible for them to trade nuclear energy related
technologies and uranium. The benefits of greater economic exchange between

Tokyo and Moscow could build trust that eventually spills over into
other fields of shared interests, such as stability on the Korean Peninsula
or nuclear plant safety. Given their difficult history, this is bound to take time. Yet, as the
Japanese adage says, "A journey of a thousand miles begins with the first step." Let's hope
that 2012 begins on the right foot.

US exports undercut Russian access to the Asian market --- theyre

going to Russia now because they have no other options.
Michael Levi, June 2012. David M. Rubenstein senior fellow for energy and environment at
the Council on Foreign Relations. A Strategy for U.S. Natural Gas Exports, Brookings
Institution, www.brookings.edu/research/papers/2012/06/13-exports-levi.
The surge in U.S. shale gas production has already had major consequences for geopolitics.
There was a widespread expectation, only a few years ago, that the United States would
become a major natural gas importer. Potential suppliers, most prominently Qatar, began to
develop LNG export infrastructure in anticipation of serving the U.S. market. The U.S. shale
boom, however, has quickly eliminated the prospect of significant U.S. demand for imported
LNG (UPI 2011). (Some residual demand remains for logistical reasons.) With would-be

suppliers to the United States looking for new markets, consumers have
gained greater bargaining power. A leading indicator of this growing
bargaining power has been the attempt, starting in 2011, of Germanys main
natural gas importer, E.ON Ruhrgas, to renegotiate its politically charged
gas contracts with Russias Gazprom (Powell 2011). Many analysts now expect
Europe to move gradually from a system of negotiated gas prices, which
inevitably draws in politics, to a system where natural gas is priced
transparently through markets. Asia has not been so fortunate, and the
reasons for this are not entirely clear. Asian natural gas prices are still tied closely

to crude oil prices, normally through politically involved negotiations . Asian

buyers still have fewer options for large-scale imports than European
buyers dokey buyers, including Japan and Korea, do not have access to
pipeline importswhich reduces their relative power. In addition, at the same

time that European customers were gaining new leverage in 2011, Japan, the largest LNG
importer in Asia, was paralyzed by the disaster at its Fukushima nuclear power plant. As that
accident led to widespread nuclear shutdowns, Japan massively increased its demand for LNG
to meet critical electricity needs. Japan, desperate to avoid further economic harm, was not in
a position to negotiate aggressively with natural gas suppliers. Many analysts in both

the United States and Asia have speculated that U.S. entry into the Asian
LNG market as a major supplier (along with others) could help create the
conditions for a move toward market pricing of natural gas, or at
least to a lessening of individual producers market power and,
hence, political influence. Predicting political influence is a near-impossible

business, but to examine whether U.S. exports might help encourage such a transformation, it
is useful to compare the potential magnitude of U.S. LNG deliveries to other important scales
in the natural gas market. As of 2010, the worlds top five LNG exporters were Qatar (8.2
bcf/d), Indonesia (3.3 bcf/d), Malaysia (3.3 bcf/d), Australia (2.7 bcf/d), and Nigeria (2.6 bcf/d)
(IGU 2010). The top supplier to Japan was Indonesia (2.0 bcf/d), and the top supplier to Korea
was Qatar (1.1 bcf/d). The spot market accounted for slightly more than a fifth of traded LNG,
totaling slightly less than seven billion cubic feet a day. All of these figures will increase in the
future. EIA projections are far from definitive, but they are instructive. World natural gas
production is projected to increase by 26 percent over the next decade (EIA 2011). Korean
imports are expected to rise from to 4.1 billion cubic feet a day, while Japanese imports are
expected to hold fairly steady at their present level. Chinese imports, including pipeline gas,
are expected to rise from a negligible amount to over nine billion cubic feet each day by the
end of the decade, while daily Indian imports are expected to reach three billion cubic feet
per day. These figures suggest that U.S. LNG exports could become influential if they
increased to toward the higher end of the range discussed thus far in this paper, and if
exports were priced off the U.S. benchmark. The United States could potentially

assume a large market share in several pivotal markets, and perhaps be

dominant in one or more. This would give consumers greater leverage in
their negotiations with other suppliers. At a minimum, by diversifying the pricing of
their imports, it would partly insulate LNG importers from oil market fluctuations.

Russia Econ UQ AT: Unsustainable

(Diversification/Modernization)
Policy momentum is pushing Russia towards diversifying their
economy, but they are still reliant on resource revenues in the short
term.
Aleksandr V. Gevorkyan, 2013. Assistant Professor of Economics Department of
Economics and Finance The Peter J. Tobin College of Business St. Johns University. Russias
economic diversification potential: the untold story? International Business : Research,
Teaching and Practice, 7.1, http://www.aibse.org/wp-content/uploads/2013/10/71-article-1gevorkyan.pdf.
Approximately 16,000 books, articles, and other near-academic materials produced between
1991 and 2013 appear in Google Scholar for search phrase Russian economy. Compared to
American economy result of 28,900any scientific premise aside in such comparisonsone
might infer that the topic of Russias economic development may have been widely covered in
recent academic and policy papers. Adding substantial non- English language literature, the
volume of academic work increases even more. Yet, one should still expect a jump in new
publications analyzing Russian economy as its sustainability and diversification
potential are under much scrutiny these days .
To begin with, early in 2000s Russia earned its BRIC[s] designation (e.g. ONeill, 2001;
Keohane, 2011), largely due to impressive post 1990s shock-therapy reforms turnaround.
Real Gross Domestic Product (GDP) grew 10 percent in 200 with subsequent pre-2007 growth
oscillating around average 6.6-6.8 percent (IMF, 2013). The economy seemed to have avoided
the worse of the 2008 global crisis impacts: preventing immediate severe real sector
deterioration and forestalling currency fall and financial crisis. More recently growth has

fallen below most projections and economys dependence on the energy

market lacking significant industrial diversification has become more
pronounced. Without the prior years fanfare, macroeconomic results for late
2012-early 2013 seem to reinforce the doomsday scenarios rhetoric . Yet, the
negative verdict may not be that straightforward. Focusing on the institutional
business structure transformation and without diminishing the macroeconomic concerns this
article develops a somewhat alternative look that offers a glimpse of hope for the economys
sustainable path.
It should be recognized that Russian economy is set on a rough foundation of
post- socialist macro-stabilization shocks. The institutional legacy of the

previous economic model is reinforced by emergence of state corporations

and stronger fiscal factor, alongside robust adaptation to new content forms
the contemporary political economy mosaic (Gevorkyan, 2011; Gaidar, 2007).
Naturally, there is a host of destabilizing tendencies, from volatility in the energy
sector, currency pressures, in part due to uncensored foreign exchange flows, to a
multitude of seemingly limitless domestic inefficiencies. At the same time, there

are
significant appearances of institutionally new qualitative dynamics in the
domestic market operations, though only just becoming visible.
Russia is the largest economy in the Commonwealth of Independent States (CIS) in
relative and absolute terms. It is also the largest in outward foreign investment
and cross-border M&A deals in the region. Private consumption,
accompanied by a rise in a typical modern day consumerism has set its deep
roots. This is then followed by too familiar individualism and property dynamicsan integral
occurrence in modern capitalist society. Corporate management and growth in new

innovative industries are real and are gaining dominance , though somewhat
minimal. Despite some setbacks, for entrepreneurs those institutional factors
open up yet untapped markets that aside from willing growing middle class
consumers offer tenacity of well-educated labor force. The macroeconomic
policy momentum for proactive economic diversification drive
appears to be just right. But it is not and cannot be an overnight
transformation.
Diversification efforts solve long term unsustainability but high gas
prices are key to fund investment in diversification in the short-term.
What the Papers Say (Russia), 11/28/2007. Still Hooked on Oil, Lexis.
Being hooked on oil is the trademark of the Russian economy , and Russian

politics as well. But now we see Senior Deputy Prime Minister Sergei Ivanov smashing
stereotypes. "Have we managed to end our dependence on oil and gas
exports?" he asks. And he answers himself: "We haven't done it yet, but we're
making progress." The arguments for this are well-known: "We are expecting economic
growth of close to 8% this year. This is the best figure among developed Western nations. Oil
and gas will contribute no more than 2% of this 8% growth." Even more convincing evidence
can be found to show that we're not hooked on oil as much as we used to be. Look at the rise
in industrial investment: according to the Federal State Statistics Service (RosStat),
investment in basic capital grew by 19.6% in October. Experts are already saying that the
economy is in danger of overheating. So far, however, this investment is maintaining
economic growth prospects. Yes, the investment rise was started by oil revenues and ruble
appreciation, but economic growth itself is becoming a factor in its own continuation. There's
the government, with its innovation-based development policy and the corresponding state
corporations. And there are RAO Unified Energy Systems (RAO UES), Gazprom, and Rosneft whose interests are not consistent with a policy of developing an innovation-based economy.
All the same, I wouldn't advise concluding that we're no longer hooked on oil .

The Russian economy's future is linked to an innovation-investment growth

scenario. The resources to fund the transition to that track are oil revenues .
Suffice it to recall that the founding capital for the numerous state corporations
that are supposed to be the driving forces for innovation-based growth
comes directly from the Stabilization Fund. But not even this is the main issue here.
The point is that the transition to innovation-based development certainly won't
be simple and smooth.

Russia Econ UQ AT: Owen Matthews

Owen Matthews is an anti-Putin hack who has been making
catastrophic predictions for years --- dont trust his analysis.
Mark Adomanis, 1/2/2013. Degrees in Russian Studies from Harvard and Oxford,

contributor for Forbes. Why We Probably Shouldn't Pay Attention to Owen Matthews'
Prediction of Russia's Imminent Economic Collapse, Forbes,
http://www.forbes.com/sites/markadomanis/2013/01/02/why-we-probably-shouldnt-payattention-to-owen-matthews-prediction-of-russias-imminent-economic-collapse/.

Owen Matthews recent wrote a Newsweek/Daily Beast story The End of

Putinomics: A dozen years of prosperity and stability have kept Russias leader wildly popular.
Now his whole world is about to collapse. that was one of the more alarmist articles
on the subject that I can recall reading. Matthews painted a colorful, and

downright terrifying, picture of a country standing on the edge

of catastrophe and with a political leadership spectacularly ignorant of the crisis facing

them. It would be very hard, if not impossible, to present a more negative portrait of Russia
as it enters 2013 without employing four-letter words.
While Ive long doubted such alarmist analysis, and have repeatedly pushed back against
similar articles, it is certainly possible to present a compelling case that Russia is going to
face serious, and potentially fatal, economic problems in the not-too-distant future. However,

Matthews has been writing about Russia and its energy-dependent economy
for a very long time. He has consistently been extreme in his pessimism
about Russias economy and consistently extremely negative in his
predictions. I quickly poked around the intertubes and was quickly able to assemble a
representative sample of Matthews writing on the Russian economy and Russia in general. I
dont think Im being unfair or uncharitable when I say that, considering his track

record, we should probably take Matthews latest predictions of spectacular

collapse with just a few grains of salt (emphasis added)

March 26, 2006: Fear and Loathing in Siberia: Yes, Russia may be sloshing with petrodollars.
But Chinas surplus of trade capital is even biggerto the point that Chinese investment
threatens to swamp Russias dysfunctional economy, particularly in its impoverished but
strategically critical Far East.
September 15, 2006: Welcome to a lawless nation: He [Putin] chatted with George Bush and
Tony Blair as an equal. Yet the endemic corruption of his nation blows apart such global
grandstanding and destroys Putins claims to be governing a functioning market
economy deep down, the fundamental reality of Russias economy that almost everyone
steals, nearly all the time remains a sadly immutable fact.
December 1, 2007: War Inside the Kremlin:The oil-powered economy may be soaring, but so
is inflation, and labor unrest is breaking out. A pay strike recently shut down the Ford Motor
Co. plant in Vsevolozhsk, near St. Petersburg, and roughly 1,500 teachers and nurses staged
a protest outside Astrakhans regional Parliament to demand better public-sector salaries.
Resolving problems like these is likely to be a full-time job for the next president. That is, if
hes not too busy breaking up fights among his bureaucrats and their private armies.
December 22, 2007: Russias Big Energy Secret: Gazprom hasnt opened up a new gas field
since 1991, and its existing fields are dwindling. A recent report by the Russian Industry and
Energy Ministry warned that if the decline continued, Russia may be unable to service even
its own domestic gas needs by 2010, and recommended doubling prices, a conservation move
that has upset business and could also put a damper on economic growth.
May 6, 2008: Economy of Clay: But in truth, the Russian economy as a whole is an edifice
with feet of clay. The bling and glitter of the capital obscures a harsh reality: the architecture
of Russias economy is no more solid than that of an inflatable childrens castle at fairground,
with energy and commodity prices the wind that keeps it inflated. Yes, the Russian economy
has been growing fast. But little of that growth has spilled over into the real Russian
economy. Rather, the boom has, in many ways, held back Russias non-commodities economy

from growing: rampant inflation, spiraling real-estate prices and higher labor costs,
bureaucratic corruption, expensive credit and bad governance have combined to stifle the
competitiveness of many Russian businesses.
Feb 13, 2009: The Kremlin Vigilantes: But the damage is already done. Research last year by
the International Organization for Migration showed that 76 percent of immigrants had no
intention of staying in Russia for more than a few years, or bringing their families there. In
the hostile new climate, the exodus of workers is likely to be as dramatic as their influxand
those remaining are likely to reap more of Russias anger at growing unemployment and
poverty.
August 5, 2009: Russias Headed for a Long Economic Winter:Dont be fooled: Russias still
reeling from the commodities crash, and things are poised to get worse before they get
better Worse, many Russian businesses appear to be all but insolvent. They face a $200
billion mountain of debt, much of which comes due this fall. With Russias indebted
businesses expected to net a mere $70 billion in profits this year, that leaves a potential $130
billion private-sector shortfall. Putin has tried to help by capping interest rates charged to
private borrowers, but that means the pricing of risky loans has become artificially reduced.
Over-leveraged banks and corporations arent just a Russian phenomenon, but no other
economy is as dangerously dependent on the boom-and-bust cycles of the worlds energy
markets. Turns out Russias recovery isnt nearly as tough as Putins talk.
February 23, 2010: So Long, Salad Days: Its time for Moscow to kiss goodbye those dreams
of energy hegemony At the same time, worldwide demand for Russias gas has plummeted.
And meanwhile, the government has punctured investor confidence by pressuring BP, one of
the few major foreign investors left in Russias energy sector, to hand over a giant Siberian
gas field to a government-owned rival. Its time for Moscow to kiss goodbye those dreams of
energy hegemony.
September 19, 2010: A 21st Century Potemkin: Twenty-first-century Potemkinism is a
worrying sign of how modern Russia is coming to resemble the we-pretend-to-work-youpretend-to-pay-us days of the Brezhnev stagnation. As that period showed, if a government
comes to believe its own lies, it cant recognize rot in the society and the economy, which
eventually leads to collapse. Putin may be a great shot, and who knows, the Lada (a marque
that dates from Soviet days) may be the car of the future. But right now Russias leaders are
not ruling with both hands on reality.
December 27, 2010: Backward, Russia! But the real meaning of the Khodorkovsky case is that
the authorities are weak, and scared. If the first trial of Khodorkovsky was a kind of perverse
victory for Putin over the once-powerful oligarchs, the second trial shows that the Kremlin is
afraid of showing what it sees as weakness. More, the ham-handedness of the charges
themselves, and the heavy police presence and mass arrests at the trial today, betrays a
dangerous amateurishness. Totalitarianism is scary. Incompetent totalitarianism is actually
scarier.
January 30, 2011: Losing to Terrorism: Putin has built a police state thats good at cracking
down on dissent but bad at delivering security unless the Kremlin addresses the brutality of
its own local security forces and the corruption of the states employees, Russians can count
on a long and painful future of Domodedovo-style bombings.
August 7, 2011: Fascist Russia? On the surface, a decade of high oil prices has brought
ordinary Russians rising living standards and a semblance of political stability. But even the
Kremlins closest allies fear that when oil prices eventually fall and the tide of easy money
recedes, the ugly reality of an angry, fascist Russia could be revealed.
October 10, 2011: Back to the USSR? The parallel is an apt one. After the oil crisis of 1973,
the Soviet Union, then as now the worlds biggest oil producer, was flush with cash that
covered up the catastrophic dysfunction of the Soviet economy and allowed the Communist
Party elite to enrich itself. Apparatchiks pretended to believe in the lofty principles of
communism as they built themselves villas and rode luxury yachts. Meanwhile, the KGB
ruthlessly squashed any signs of opposition and rewarded conformist writers and filmmakers
with places at the trough. Substitute democracy for communism and FSB for KGB,
and youre back to the future.
I dont have a whole lot to add. Matthews contempt for Putin and the entire
Putinist economic system is so strong as to be virtually palpable . Its clear to
anyone who reads any of the articles quoted above that Matthews has an exceedingly low
opinion of Putin, considering him a murderous, incompetent thug, and that he views the
system hes created as a farcical, unstable disaster. But while its easy and

commonplace to oppose Putin on ethical grounds Matthews seems to be

gravely mistaken is in his estimation of the Putinist systems durability .
Matthews has consistently underestimated its ability to respond to external
challenges and changing circumstances, and consistently overestimated the
influence of negative factors such as shale gas, the European Union, and the
world energy market. Matthews has been openly arguing that Russias
economy is on the verge of collapse for the better part of a decade , presenting
seemingly reasonable observations on the countrys corruption, inefficiency, and
backwardness. But in the real world Russias economy, after a sharp but

temporary downturn, keeps on growing and Putin is still supported by a

sizable (though greatly reduced) majority of Russians. To put it as succinctly as
possible, a country with 3+% GDP growth and with a head of state with 60+%
popularity doesnt seem particularly ripe for a social revolution.

Gas UQ
Demand will keep global LNG prices high.
Zee Business, 6/23/2014. Hindi Business News Channel. Robust global demand to
keep LNG prices high, says report,
http://zeenews.india.com/business/news/international/robust-global-demand-to-keep-lngprices-high-says-report_102396.html, JAS.
The demand is growing both as a result of strong Asian economic growth and the switch
to cleaner energy, particularly in China, according to the QNB Group report. This

trend is likely to continue, notwithstanding the so-called US shale gas

revolution and the coming into operations of the USD 400 billion RussiaChina gas pipeline signed on May 21, 2014, it said. Overall, the future of the LNG
market remains bright and is likely to result in high LNG prices for years to
come, the report said, adding this will continue to support Qatar's large current account
surpluses. The LNG market continued to tighten in 2013. Global LNG deliveries were an
estimated 240 million tonnes - broadly flat compared with 2012. Qatar continued to be the
largest LNG exporter, with about one third of global supply. At the same time, demand

from Asia and Latin America rose, with China, South Korea and Mexico
registering the largest increase in LNG demand , the report said. In particular,
China brought three new re-gasification terminals online as its switch from coal to
LNG as a cleaner fuel for electricity production continued. This tightening
of the market resulted in an average USD 1 increase in LNG prices per
million British thermal units (mBtu), despite Brent crude oil prices falling USD 4.5 per
barrel and lower LNG demand from Europe. The outlook for the LNG market is
likely to continue along similar trends in 2014. On the supply side, three new LNG
trains in Algeria, Australia and Papua New Guinea are expected to come on-stream in 2014.
This is likely to add about 10m tons to global LNG production - a 4.2 percent
increase. On the demand side, continued growth in Asian demand and the need for Europe
to diversify away from Russian pipeline gas may outpace the increased supply, leading to a
small increase in LNG prices of about USD 0.5 per mBtu despite the expected decline in
Brent crude oil prices, it said. The ongoing violence in Iraq and Syria could,

however, result in higher-than-expected LNG and crude oil prices in the

second half of 2014, the report added. Over the medium term, global LNG exports
are unlikely to meet the growing global demand, leading to higher LNG
prices.
LNG prices will stay high --- demand is strong.
Varun Chandan, 6/26/2014. Contributor for The Motley Fool's energy, materials and
utilities coverage. Why the Coming LNG Boom Is the Real Deal,
http://www.fool.com/investing/general/2014/06/26/why-the-coming-lng-boom-is-the-realdeal.aspx, JAS.

LNG prices have remained high over the last three years thanks to
robust demand, especially from Asia. Japan's shutdown of nuclear power plants post
LNG rally

the Fukushima disaster in 2011 has boosted demand for LNG significantly. Prior to the
Fukushima disaster, nuclear energy accounted for 30% of Japan's power generation.
However, with the shutdown of power plants, the country has been importing more

and

more LNG to meet its energy needs. The LNG market is also seeing strong
demand for countries such as South Korea, China, and India. Demand has
been strong in Latin America as well. Over the past three years, LNG prices
have doubled. According to Bloomberg, prices averaged $16.51 per million British thermal
units in 2013. More importantly, LNG prices could remain high in coming years,
which augurs well for the likes of Cheniere and Sempra. Prices to remain strong LNG
prices are expected to remain strong over the next few years, driven by
demand from Asia, especially China. China has been looking to cut its reliance
on coal to meet its energy needs. The world's second-largest economy plans to
increase the share of natural gas in its energy mix. Recently, China signed a major gas
deal with Russian gas giant Gazprom (NASDAQOTH: OGZPY ) . Gazprom will supply
38 billion cubic meters of natural gas annually to China. But China's natural gas demand is
increasing. According to the International Energy Agency (IEA), China's natural gas
demand is expected to almost double by 2019. In fact, China will be the key driver
for global gas demand, which is expected to rise by 2.2%. The IEA expects much of the
demand to be met by LNG. In a recent report, Qatar's QNB Group also noted about strong
demand for LNG. The group noted that the trend will continue, driven by two
factors. The first is energy demand in Asia, which is expected to remain strong
even after taking into account a slowdown in China. The report notes that countries like
China, India, Indonesia, Malaysia, Pakistan, and Thailand have only just started to focus on
LNG for their energy needs, and their reliance on LNG supplies will grow over the
next few years. The second factor, according to QNB, is China's switch to cleaner energy.
These two factors would mean that global demand will continue to outpace supply ,
notes QNB in the report. Japan, which is the largest importer of LNG, had said in a recent
energy plan that there is a future for nuclear in the country. However, it is unlikely Japan's
reliance on nuclear energy will be the same as it was before the Fukushima power plant
meltdown. Therefore, the country will remain a major LNG importer. Following the
crisis in Ukraine, Europe has been looking to reduce its dependence on Russian gas. The
continent could increase the share of LNG in meeting its natural gas needs in

the future as it looks to cut reliance on Russian gas. All these factors mean
that LNG prices are expected to remain high in the coming years . That is
certainly good news for Cheniere and Sempra Energy.

Gas UQ AT: German Shale

Germany blocked shale development over environmental concerns.
Jan Hromadko and Harriet Torry, 7/4/2014. Germany Shelves Shale-Gas Drilling For
Next Seven Years, Wall Street Journal, http://online.wsj.com/articles/germany-shelves-shalegas-drilling-for-next-seven-years-1404481174?mod=europe_home.

Germany plans to halt shale-gas drilling for the next seven years over
concerns that exploration techniques could pollute groundwater .
"There won't be [shale-gas] fracking in Germany for the foreseeable
future," Environment Minister Barbara Hendricks said Friday.
The planned regulations come amid a political standoff with Russia,
Germany's main natural gas supplier, and following intensive lobbying from
environmentalists and brewers concerned about possible drinking-water
contamination.
The production of shale gas requires the application of the hydraulic fracturing technology
known as fracking, which involves using a high-pressure mixture of water, sand and
chemicals to break apart rocks to release the gas. The government plans to ban the use of
hydraulic fracturing technology for drilling operations shallower than 3,000 meters (1.9
miles) and hopes to get a bill ready early next year.
The government will reassess the ban in 2021.
"Protecting drinking water and health has the highest value for us," Ms. Hendricks said.
Fracking technology has been used since the 1960s in Germany, allowing the industry to
maximize the output of conventional gas fields. Although there is currently an oversupply of
natural gas in Europe, prices in Germany are much higher than in the U.S. where fracking is
used extensively.
But Germans are suspicious of fracking, fearing that it could pollute drinking
water. Shale-gas carrying rock formations tend to be closer to the surface, and therefore
closer to groundwater deposits.
While fracking for conventional gas deposits will remain permitted, the government will
tighten rules aimed at preventing water contamination from fluids released during the
fracking process.

A ban on fracking for shale gas is consistent with previous comments from
leading lawmakers, including Chancellor Angela Merkel. In its coalition agreement, the

government last year stated that it "rejects the application of toxic substances" in oil and gas
extraction. The coalition, which groups Ms. Merkel's conservative Christian Democrats and
the center-left Social Democrats, has said fracking should pose no risk to water supplies.
It has said, however, that it could change its mind if the energy industry were to improve its
environmental track record and replace toxic substances with harmless ones.
While the new regulations are aimed at cementing an effective moratorium on shale-gas
production in Germany, they also pave the way for a reinvigoration of conventional gas
production.

Public opposition to fracking had prompted state regulators to restrict

almost all gas extraction that involves fracking. And the gas industry has
blamed dwindling domestic gas production on the authorities' restrictive
approval practices.
German domestic gas production declined by around 10% in 2012 and again
in 2013, due partly to the fracking ban, according to Wintershall AG, Germany's
largest gas and oil producer.

Gas UQ AT: Polish Shale

Poland cant drill for shale gas --- bad regulation and tech.
The Economist, 7/10/2013. Mad and Messy Regulation,
http://www.economist.com/blogs/easternapproaches/2013/07/shale-gas-poland.

POLISH dreams that shale gas would transform the country into a second
Norway have been tempered in recent months. The geology is more difficult
than anticipated and proposed regulation has been repeatedly delayed. After
great initial enthusiasm companies such as ExxonMobil, Talisman and
Marathon Oil threw in the towel and quit the country. In a recent report investors
complained that the legislation currently being drawn up ignores many of
their demands. The Polish Exploration and Production Industry Organisation
(OPPPW), the industry's main lobby group, is concerned the government will
get "excessive controls and rights" in shale gas exploration. They say the
ministry of environment handed out five-year exploration licences to
companies and they can be extended only once, for two years. (The first ones will
expire in 2013-2014.) Since shale gas fields take longer to develop than
conventional fields, says the OPWW, they will have insufficient time to make
discoveries before the deadline, at which point they either have to apply for
a production licence or hand it back to the ministry.The lobby also criticises
the proposed laws for imposing disproportionate penalties on them if they
fall behind in their work schedules due to circumstances beyond their
control. The Polish government used to be gung-ho on shale gas. Unlike
many of their contemporaries in western Europe, Polands politicians
brushed aside environmental concerns, impressed by estimates that the
country was sitting on the largest shale gas reserves on the continent.
Extracting oil and gas from shale offered solutions to two particularly thorny
problems, namely how to reduce the countrys dependence on costly Russian
gas imports and cut greenhouse gas emissions from its heavily-polluting
coal-fired power plants. The former Soviet-bloc country inherited gas infrastructure built to
transmit gas in one direction only, from the east. Since 1989 Polish politicians have been
trying, spectacularly unsuccessfully until recently, to diversify the countrys
energy supplies. As a result they have been forced to accept gas import
prices higher than those paid by their richer western neighbours. Burning gas
emits fewer CO2 emissions than coal or oil but Poland sits on the largest coal reserves in the European
Union and it has built more than two decades of economic growth on coal-fuelled power. Currently Poland
produces more than 90% of its electricity in coal or lignite-fired power plants. In recent years Warsaw has
found itself alone in resisting demands from Brussels to adopt more stringent emissions targets.

Commercial shale-gas production would allow Poland to shut down older

polluting coal plants and replace them with gas-fired plants, thereby
reducing the countrys emissions. So its easy to see why, in April 2010, before a single
exploration well had been drilled, the Polish foreign minister, Radoslaw Sikorski, said shale gas offered
Poland the chance to replicate Norways success. By then, both foreign and Polish oil and gas companies
had rushed to grab exploration acreage, attracted by a combination of gas prices four to five times higher
than in America, fields close to the market and a government that was actively promoting the industry.

To date around 40 wells have been

drilled, more than anywhere else in Europe. Not one has flowed gas at a
commercial rate. ExxonMobil quit Poland in June last year after drilling just
two wells. In May of this year Canadas Talisman and Marathon Oil, an
The first exploration well was drilled in June 2010.

American firm, also withdrew from Polish exploration citing unsatisfactory

results. Operators admit the technology of extracting gas from Polish shale
has proved harder to crack than they anticipated.

Gas UQ AT: Baltic Shale

Baltics cant solve for shale gas explosive remnants and
environmental obstacles.
Der Spiegel, 4/11/2013. Dangerous Depths: German Waters Teeming with WWII

Munitions, Spiegel Online International,

http://www.spiegel.de/international/germany/dangers-of-unexploded-wwii-munitions-in-northand-baltic-seas-a-893113.html.

residual explosives that were hardly taken

are now coming to light in the North and Baltic Seas.
Experts estimate that there are 1.6 million metric tons of conventional and
chemical ammunition in German territorial waters alone, unexploded time
bombs lying in or on the sea floor. The unexploded ordnance (UXO) includes
giant aerial bombs weighing hundreds of kilograms, 15-kilo shells, small
high-explosive shells, hand grenades, detonators and ammunition rounds,
for a total of more than 50 million individual items. No one knows how great
the danger really is. "We are familiar with only a small portion of the areas contaminated with
Almost seven decades after the end of the war,
seriously for a long time

weapons," says Jens Sternheim, chairman of the "Munitions in the Sea" task force of the North and Baltic
Sea Federal and State Committee. According to Sternheim, " munitions

problems will
increasingly come to light" during the construction of offshore projects , such
as wind farms. Hidden Dangers The problem was created both during and after the war. When the Allies
disarmed the Germans after defeating them, they ordered that the weapons be disposed of at sea. Before
that, the Nazis had occasionally sunk their own ammunition when, for example, they feared airstrikes

more than 100 of these bomb and shell

graveyards scattered along all of northern Germany's coastlines. There are
also apparently 5,000 metric tons of shells filled with substances such as
phosgene and the nerve agent tabun in the Little Belt , the strait between the Danish
against their poison gas storage sites. There are

island of Funen and the Jutland Peninsula. A report that Munitions in the Sea released a year and a half

If the UXO is
washed onto land, is caught in fishing nets or is merely disturbed during
preparatory work for pipelines and offshore wind farms, it can pose a danger
to local residents, vacationers, fishermen and excavator operators. Last year,
ago and is now updated lists many well known beach resorts along German coasts.

munitions clearing crews working in the Ems River estuary found two sea mines, massive metal spheres
containing up to 300 kilos of explosives, which were intended to sink enemy ships headed for Nazi
Germany. The mines were detonated. In July 2012, a tourist on the North Sea island of Wangerooge found
the warhead of a German torpedo, which was also subsequently destroyed in a controlled detonation.
Anyone walking in the tidal flats of the Elbe River estuary near the port of Cuxhaven should be alert.

"the munitions components, some of them lying

openly exposed in the tidal flats, are dangerous." Explosions can happen
almost anywhere. During construction work on the Riffgat offshore wind farm, about 15 kilometers
According to the expert report,

(9 miles) northwest of the East Frisian island of Borkum, 2.7 metric tons of munitions were discovered
and salvaged, and there are unexploded cluster bombs in the tidal flats south of Norderney, another East
Frisian island. Walkers in the tidal flats near Kampen, a municipality on the North Sea resort island of
Sylt, discovered two bombs in December 2012. The bomb disposal service assessed the find and
detonated the two bombs after deeming them dangerous. Beachgoers usually have no idea what can be
washed up at their feet. In July 2012, two children from the southwestern state of Baden-Wrttemberg
who were playing on the beach in Kalifornien, a town near the northern city of Kiel, brought a 1.5-kilo
lump of material back to their parents' vacation house. Suddenly the hands, T-shirt, jacket and pants of
one of the boys turned a yellowish orange. The lump consisted of Schiesswolle 39, an explosive compound
that the German navy used in WWII torpedoes and can cause skin irritation. The boy was not injured.
Dangerous UXO also lies under important shipping routes. When a munitions clearing crew began
working off the Baltic Sea resort town of Travemnde in 2011, it discovered, at a depth of 20 meters, six
warheads from V1 flying bombs in or near the channel used by the large ferries that depart from
Travemnde for Scandinavia or the Baltic countries. There is also UXO in the Flensburg Fjord, in

Eckernfrde and Hohwacht Bays and, farther to the east, in the northeastern state of MecklenburgWestern Pomerania, in the Bay of Greifswald and off the islands of Rgen and Usedom (see graphic). Fear
of Disasters For decades, Germany's states paid almost no attention to the dangerous legacy from World
War II. In the end, it was not even a German government agency, but Stefan Nehring, a marine biologist
and environmental consultant from the western city of Koblenz, who discovered one of the worst
munitions graveyards in 2008. He had spent several years digging through mountains of records in the
Federal Archives in Koblenz and the affiliated military archive in the southwestern city of Freiburg. While
doing research in London, he uncovered concrete evidence of an especially heinous environmental crime:
In September 1949, the British military administration had ordered the Germans to drop about 6,000
field artillery shells into the North Sea four kilometers south of the Helgoland archipelago. The shells
were filled with 11.7 metric tons of the nerve agent tabun. "Until then, German authorities had been
unaware of the reports from the British National Archives cited by Dr. Nehring," the Schleswig-Holstein
state government noted. The toxic waste disposal site was even a target area for the German military's
torpedo attack exercises in 2010. Ships bound for the Port of Helgoland also sail near the area.

The

shells will probably remain on the sea floor until they disintegrate
completely, at least according to a recommendation from Germany's Federal

Maritime and Hydrographic Agency and the international Helsinki Commission, which is responsible for

environmental protection in the Baltic Sea.

Gas UQ AT: European Shale

No European shale development --- legal restrictions and
demographics.
Eric Reguly, 7/4/2014. European Bureau Chief. Europes shale gas backers are living in a
fantasy world, The Globe and Mail, http://www.theglobeandmail.com/report-onbusiness/industry-news/energy-and-resources/europes-shale-gas-backers-are-living-in-afantasy-world/article19473781/.

The Ukraine crisis has come as a godsend to the shale gas cheerleaders in
Europe.

Russian natural gas exports to Western and Central Europe, half of which flow through
Ukraine, are unreliable, they argue; we need our own gas and wouldnt you know it were
sitting on an underground ocean of energy. Our policy should be drill, baby, drill and if we
turn the continent into a pincushion, we will be energy independent and competitive with the
Americans, who have so much gas theyre practically giving it away.
On paper, its a compelling argument . Parts of Europe, from England to Poland, are
sitting on vast amounts of shale gas. On Monday, even Scotland, which may decide in
September to break away from the United Kingdom, learned from the British
Geological Survey that it has enough shale gas to supply all of Britains gas needs for 30
years. Thats good news for Scotland, whose North Sea oil and gas fields are running out of
puff.
British Prime Minister David Cameron and George Osborne, Chancellor of the Exchequer,
have been pumping up the British shale gas story as if it were the greatest thing since deepfried Mars bars. Noting that the United States has become a magnet for energy-intensive
industries, like the chemical makers, Mr. Cameron has talked about reshoring jobs
returning from overseas if Britain were to get into the shale game. The countrys massive
energy-payments deficit would disappear and the use of carbon dioxide-belching coal would
plummet, along with Britonsenergy bills. Europeans generally pay three times as much for
gas as Americans and Canadians. And if Britain drills, you can bet that France and Germany
would not be far behind. Those two countries wouldnt tolerate handing Britain a massive
energy advantage.
The European drilling spree would revive Europes economy in the same way it did in the
United States. And it would allow Europe to tellRussian President Vladimir Putin to take a
hike. In the past decade, Russia has cut gas supplies to Ukraine three times, the previous
time in mid-June. In 2009, the gas contract dispute between the two countries created gas
shortages in 18 European Union countries in the dead of winter.
Its all sheer fantasy. There will never be an American-style shale gas
revolution in Britain or anywhere else in Europe. For all the talk about gas

galore right under the feet of the British, the French and the Germans, not a
single commercial shale well is pumping away in those countries (Italy is

evidently shale-free, although it does have a lot of pumpable black oil in the south).
How can this be, given the size of the shale resource and the high price for European energy?
You would think the British would sink a drill through the floor of Buckingham Palace if they
knew there was gas underneath.

Geology doesnt explain the missing revolution. Blame it on the law,

population densities and a relatively strong environmental movement .
The law is the biggie. In the United States, a landowner owns the rights to the
minerals to the centre of the earth. The shale bonanzas in the U.S. Midwest and in
Texas have turned thousands of farmers into overnight millionaires, or shaleonaires. They
lease land to the driller, or take a royalty on production, or both . Beats getting
up at 5 in the morning to milk cows.

In Britain and in most of Europe, no such subsurface rights exist. In Britain,

the wannabe drillers, such as Cuadrilla, plan to buy favour by paying off the

local councils, but thats not the same as cash payments to landowners . The
minimum requirement for a U.S.-style shale rush is changing the law to allow landowners to
cash in.

Concentrations of humans make any drillers life difficult. The population

densities in Europe are five to 10 times higher than those in the United
States.
Slapping a drill rig in or next to a village, plus connecting it to a pipeline and
stuffing the local roads with trucks to bring in equipment and beefy guys
with tattoos isnt going to happen.
Finally, environmental laws are tougher in Europe than in North America. In
France, fracking the use of chemicals and high-pressure water to crack
open the hydrocarbon-bearing shale is banned. Ditto Bulgaria . The fear is
polluted groundwater, and more than a few horror stories in the United States support
the view that fracking is not without environmental costs.
The attempts at shale drilling in Europe have pretty much gone nowhere.

Poland was
supposed to emerge as the first big European shale market, but it hasnt
worked out. Some energy giants, including Exxon Mobil Corp. and Italys Eni SpA,
have pulled out of Poland because the geology and the legislation are not
conducive to a drilling bonanza.

Russia backing environmental protests against European fracking --political leverage and population density ensure success.
Keith Johnson, 6/20/2014. Staff reporter for The Wall Street Journal for more than a
decade, refers to Brenda Shaffer, an energy expert at Georgetown University, NATO chief
Anders Fogh Rasmussen, Mihaela Carstei, an energy and environment analyst at the Atlantic
Council. Russia's Quiet War Against European Fracking, Foreign Policy,
http://www.foreignpolicy.com/articles/2014/06/20/russias_quiet_war_against_european_fracki
ng, MA-T.

Russia is trying to maintain its energy stranglehold over Europe by backing

movements across the continent to demonize fracking, the head of NATO
alleged. It is part of Russia's broader use of soft power and covert means to
complement its more overt efforts to reassert influence in Europe and keep
countries there from developing alternatives to an energy addiction worth
$100 million a day to Moscow. "I have met allies who can report that
Russia, as part of their sophisticated information and disinformation
operations, engage actively with so-called non-government organizations -environmental organizations working against shale gas -- obviously to
maintain European dependence on imported Russian gas," NATO chief
Anders Fogh Rasmussen said after a Chatham House speech this week.
NATO officials said Rasmussen's remarks were meant to underscore NATO's
growing unease with Europe's energy security situation. "Clearly, it is in the
interest of all NATO allies to be able to have adequate energy supplies. We
share a concern by some allies that Russia could try to obstruct possible
projects on shale gas exploration in Europe in order to maintain Europe's
reliance on Russian gas," a NATO official told Foreign Policy. Hydraulic
fracturing, or fracking, has unleashed an energy boom in the United States.
But the practice, which is designed to tap previously unreachable stores of
natural gas by injecting a chemical cocktail at high pressure to break apart
shale formations deep underground, also generates plenty of environmental

opposition. Critics say fracking can poison underground stores of drinking

water. In Europe, that opposition is particularly fierce, both because
environmental groups have more political power than in the United States
and because higher population densities magnify the possible damaging
effects of the drilling practice. Some countries have banned fracking
outright; others, including France and Germany, have imposed onerous
regulations that effectively make the practice illegal, though they are
reconsidering fracking in light of the standoff with Russia over Ukraine.
Russian energy firms and officials, as well as Kremlin-controlled media, have
lambasted fracking on environmental grounds for years. Top Gazprom
officials and even Russian President Vladimir Putin have attacked the
technology, which, if adopted, could ease Europe's dependence on Russian
gas. But one thing has for years puzzled energy experts: Well-organized
and well-funded environmental opposition to fracking in Europe sprang up
suddenly in countries such as Bulgaria and Ukraine, which had shown little
prior concern for the environment but which are heavily dependent on
Russia for energy supplies. Similar movements have also targeted Europe's
plans to build pipelines that would offer an alternative to reliance on
Moscow. "It's very concrete; it relates to both opposition to shale and also
trying to block any alternative pipelines with environmental challenges,"
said Brenda Shaffer, an energyexpert at Georgetown University. "There is
a lot of evidence here; countries like Bulgaria, Romania, Ukraine being at
the vanguard of the environmental movement is enough for it to be
conspicuous," she said. "There is a lot of evidence here; countries like
Bulgaria, Romania, Ukraine being at the vanguard of the environmental
movement is enough for it to be conspicuous," she said. Bulgaria's antishale movement is particularly telling. The country initially embraced
fracking as a way to develop its own energy resources and reduce reliance
on Russia, even signing an exploration deal with Chevron in 2011. But then
came an eruption of seemingly grassroots environmental protests and a
televised blitz against fracking. In early 2012, the government reversed
course and banned the practice. Researchers who've worked on the ground
in Central and Eastern Europe say there is plenty of anecdotal evidence, if
no smoking guns, of Russian financial support for some environmental
groups that have recently mobilized opposition to shale gas development.
In Ukraine, for example, anti-fracking movements became more organized
and better funded just as the government worked to finalize shale gas deals
with Western energy firms, officials there say. In Lithuania, "exactly the
same thing is happening," said a government official, who described the
mushrooming of anti-shale billboards and websites there as "an integrated,
strategic communications campaign." As in Bulgaria, the well-funded groups
organized screenings of Gasland to galvanize opposition to fracking. "All of
a sudden, in societies that never did grassroots organization very well, you
saw all these NGOs well-funded, popping up, and causing well-organized
protests," said Mihaela Carstei, an energy and environment analyst at the
Atlantic Council
[Plan key to European shale --- success in U.S. is modeled.]
Amy Myers Jaffe and Meghan L. OSullivan, July 2012. The Geopolitics of Natural
Gas: Report of Scenarios Workshop of Harvard Universitys Belfer Center and Rice

Universitys Baker Institute Energy Forum, Report, Belfer Center for Science and
International Affairs, Harvard Kennedy School,
http://belfercenter.ksg.harvard.edu/publication/22218/geopolitics_of_natural_gas.html.

Geologists have known about the

existence of shale formations for years but accessing those resources was
long held to be an issue of technology and cost . In the past decade, innovations
have yielded substantial cost reductions, making shale gas production a
commercial reality. In fact, shale gas production in the United States has
increased from virtually nothing in 2000 to more than 10 billion cubic feet
per day (bcfd) in 2010. Rising North America shale gas supplies have significantly reduced
Knowledge of the shale gas resource is not new.

US requirements for imported LNG and contributed to lower US domestic natural gas prices.

The natural gas supply picture in North America will have a ripple effect
around the globe that will expand over time, not only through
displacement of supplies in global trade but also by fostering a growing
interest in shale resource potential in other parts of the world .
U.S. exports are more important --- European shale will be limited.
Vladimir Milov, 4/4/2012. President of the Institute of Energy Policy and former Deputy
Energy Minister. Changing Russia: The Politics of Economic and Energy Development,
Presentation @ CSIS, summary written by interns and edited by Dr. Andrew Kuchins,
csis.org/files/attachments/120404_Milov%20Lecture%20Summary.pdf.
The next participant asked how the emergence of unconventional gas, such as shale, will
impact Gazprom. The emergence of liquid natural gas (LNG) has already jump-

started Europes shift towards the spot market for gas, which has been one
of the primary challenges to Gazproms traditional model of long-term
contracts. It is unlikely that development of unconventional gas in Europe
will be particular expansive, with Poland and Ukraine as the likely main
contributors, but the availability of imports from the United States will
continue to put pressure on Gazprom by making the market more
competitive. These developments are also likely to spur the creation of new
pipelines and other infrastructure, helping to offset dependence on the
Russian network. Gazprom continues to pretend as if these problems do not exist, but the
importance of shale gas and LNG will eventually be undeniable.

Regulatory barriers will block European shale development.

Charles Ebinger, Kevin Massy, and Govinda Avasarala, January 2012. Director and
Senior Fellow Foreign Policy, Energy Security Initiative @ Brookings, served as an energy
policy advisor to over 50 governments, adjunct professor of electricity economics at Johns
Hopkins Nitze School; Assistant Director of the Energy Security Initiative at the Brookings
Institution; and Research Assistant, Energy Security Initiative @ Brookings. Evaluating the
Prospects for Increased Exports of Liquefied Natural Gas from the United States, Report of
the Energy Security Initiative, http://www.bespacific.com/mt/archives/029324.html.

unconventional gas devel- opment in Europe may play a

large role in the fu- ture of the Atlantic Basin gas market . Given East- ern
As is the case in Asia,

Europes dependence on Russia for natural gas supply, the prospect for shale gas resources is
not only a potential economic boon for countries in the region, but also a potential
geopolitical as- set. Ukraine and Polandwith an estimated 42 and 187 tcf of shale gas
resources, respectively have been particularly interested in developing their

shale gas assets. However, similar to uncon- ventional gas development in

Asia, regulatory and infrastructure obstacles will make large-scale
shale gas production in the near-term difficult. Moreover, in pockets of
Europe there is an active public opposition to shale gas production in Eu- rope,
which may threaten the development of do- mestic resources in some countries
and regions.72 France has banned hydraulic fracturing and some
environmental and public opposition groups are looking for sweeping,
continental legislation against shale gas production .
Too many barriers to European shale --- will remain dependent on
Russia.
Colin Smith, 4/25/2012. Head of energy research at VTB Capital. Europes shale gas is

not a threat for Russia, Russia Beyond the Headlines,

http://rbth.ru/articles/2012/04/25/europes_shale_gas_is_not_a_threat_for_russia_15403.html.

According to the US Energy Information Administration, Europe has around

75 trillion cubic meters of shale gas, almost five times the previous estimate. That is

equivalent to a reserve of 39 years, compared to the current 11-year conventional gas

reserves. In early April, the British shale gas company IGas doubled its estimates of shale
gas in north-west England to 130 million cubic metres, potentially making the UKs reserves
larger than those in Poland. However, removing this shale gas safely from the

ground and distributing it to customers is far more complicated in Europe

than it is in the US. European shale reserves generally present far greater
geological challenges as its reservoirs are generally thinner than
successfully commercialized shale gas sites in the US. A good shale gas reservoir
has a shale thickness of between 90 and 180 meters as is the case with the major US shale
sites. But most European sites have far thinner reservoirs, with the UKs standing at a mere
49 meters. Most European shale reservoirs are also deeper than those in the
US, adding to drilling costs and complexity of extraction . European shale

also faces a number of political, legal and regulatory hurdles that are far
more pronounced than in the US and are likely to make the
commercialization of shale gas significantly more challenging, despite the
higher prevailing gas price. As the US experience shows, public health
concerns over fracking can develop rapidly and prove a real barrier to
access, as demonstrated by the ban on drilling in New York State. As Europe is typically
far more densely populated than the US, these concerns could seriously
delay drilling, as they have done in France, Sweden and Bulgaria . Recent
experience of drilling European shale gas, notably in Poland, where
prospects seem most promising, has been disappointing . That is not to say
there will be no shale gas production in Europe, but the pace of growth is
likely to be slow in relation to Europes rapidly growing need for new
sources of gas. It will take to the end of the decade and probably well beyond before it is
extracted successfully. Europe will continue to need Russian gas for the
foreseeable future, and most likely in increasing quantities .

Gas UQ AT: Qatar

Qatar might be pushing down Russian prices slightly, but only the
U.S. can actually become a competitor with Russia for #1 exporter,
destroying Gazprom --- thats RT.
Qatar cant compete with Russian gas in Europe --- and their exports
will go to Asia instead.
Giorgio Cafiero and Daniel Wagner, 4/26/2014. Co-founder of Gulf State Analytics and
research analyst with Country Risk Solutions, a cross-border risk advisory firm; and CEO,
Country Risk Solutions. As Europe Reconsiders Russian Gas, Qatar Waits in Wings,
Huffington Post, http://www.huffingtonpost.com/giorgio-cafiero/as-europe-reconsidersrus_b_5212368.html, MA-T.

Although Qatar is only a fraction of one percent the size of Russia, the Gulf
emirate's reserves amount to over half of Russia's, making Qatar the world's
number-two gas exporter behind Russia itself. However, Qatar understands
that it cannot overtake Russia as Europe's top gas seller, nor is it clear that
Doha has any interest in pursuing such an ambition. Due to Russia's
enormous market share in Europe, it can sell natural gas to the Europeans
at a price 40-50 percent below what the Qataris offer. Nearly 70 percent of
Qatar's exports reach China, India, Japan, Singapore, and South Korea,
making Qatar's economy far less dependent on EU-bound exports.
Therefore, Russia will likely sign gas deals with Europe at rates below any
level that the Qataris would find agreeable given their opportunities in Asian
markets. While Polish officials are willing to pay a steep price to wean their
country off Russian gas, other European governments will not have the
ability or incentive to do so. Russia's preeminent role in the EU gas market
cannot be threatened in the near-term. Even Poland -- the EU member
arguably most determined to reduce its reliance on Russian gas -- still has a
contract with Gazprom booked until 2022. Alternatively, the possibility of
Germany re-starting its nuclear power plants, advances in green technology,
and increased consumption of coal could decrease the EU's consumption of
natural gas altogether. Furthermore, the costly investments in LNG
infrastructure that cash-strapped European governments would have to
make in order to secure higher LNG imports from Qatar will limit Doha's
capacity to wedge itself between the EU and Russia.
Qatar shifting to Asia now --- Europe will be dependent on Russia
absent U.S. exports.
Matthew Hulbert, 5/26/2012. Senior fellow at the Clingendael International Energy

Programme, The Hague. He was previously senior research fellow at the Center for Security
Studies, ETH Zurich, leading its work on energy security and political risk, senior energy
analyst at Datamonitor in the City of London. Why American Natural Gas Will Change The
World, Forbes, http://www.forbes.com/sites/matthewhulbert/2012/05/26/why-americannatural-gas-will-change-the-world/2/.

Europe will watch the debate with considerable interest not just because
the likes of BG Group have a 34% stake in total US LNG export capacity
being developed, but because European hub prices currently sit mid-way
between the US and Asia. European spot market liquidity has held up reasonably well
thanks to Qatari supplies, but Doha is increasingly looking East, a dynamic
that could leave Europe with its more traditional Russian, North Sea
and North African pipeline mix. If American LNG doesnt come good,
North West European liquidity will dry up quicker than most think with
potentially serious price and dependency implications. Europe will inevitably
fail to develop its shale reserves, not unless the states in question happen to be
perched on the Russian border. Little wonder serious forecasts already think Europe will end
up importing more US LNG by 2020 than it manages to frack in its own backyard.

Gas UQ AT: Other Producers

Even if other producers undermine Russia to some extent, only the
U.S. can actually become the #1 LNG exporter and destroy Russian
markets --- thats RT.
Major barriers hold back other shale producers.
Matthew Hulbert, 8/5/2012. Senior fellow at the Clingendael International Energy

Programme, The Hague. He was previously senior research fellow at the Center for Security
Studies, ETH Zurich, leading its work on energy security and political risk, senior energy
analyst at Datamonitor in the City of London. Why America Can Make or Break A New
Global Gas World, Forbes, http://www.forbes.com/sites/matthewhulbert/2012/08/05/whyamerica-can-make-or-break-a-new-global-gas-world/3/.
To be sure: shale gas is neither the climate change panacea that some want to depict, nor
does it come with zero environmental risks. Yet, its certainly not only ecological
concerns that hamper shale gas prospects in Europe . Lets put aside the fact

that European rotary rig counts only number around 120 compared to 2,000
in the US, 700 in Canada and 450 in Latin America, or that Europe has no serious
in-house fracking expertise, poor corporate finances, unclear mineral rights
and nimbymania. Reduced demand doesnt exactly help the investment case for shale
gas either, but its in the political realm that most concern rests to get shale
going across Member States. Despite sitting on 180tcf of shale, France
buried the idea deeper than their nuclear waste sits in the Champagne region.
The Netherlands doesnt need to bother with shale given they still have
Groningen fields to play with. Fostering its Energiewende, Germany has ended up
splitting its energy mix between lots of wind and even more lignite coal, using Russian gas to
fill any residual gaps. That doesnt leave much room for North-Rhine Westphalia shale plays.

In the UK, its only a handful of Conservative parliamentarians who think

shale might offer a British version of the US shale revolution in North West
England. Sweden has no such delusions despite sitting on larger (41tcf)
prospective reserves. Southern Europe has not bothered looking yet. Spain remains
plugged into Algerian production, while Italy has been oversupplied with
Russian and on-going Libyan deliveries. Even where the political desire to
develop shale for those closer to the Russian border is supposedly more
pressing, the geological viability of shale plays remains deeply circumspect
in Poland, Austria, Romania, Hungary and Ukraine . The market solution
was to enlist US majors to replicate the shale revolution in America, but as
quickly as most of them came, many of them have since left. Thats either

because European shale formations are geologically hopeless an unlikely prospect or more
bluntly, because Russia is playing hardball with CEE and South East European

states. No sooner had Exxon Mobil signed agreements to develop West

Siberian tight oil plays in Russia, it pulled the plug on Polish shale
exploration. As Shell is no doubt about to find out in Ukraine, developing CEE shale
and Russian upstream reserves is not going to be an either / or option .

Companies may face a difficult choice: either you do business in Russia or business in CEE
not both. For Moscow, the understandable aim is to prevent shale developments for those
perched close to its borders. Things are going pretty badly in the CarpathianBalkan Basin (538bcm) straddling joint reserves of Bulgaria, Hungary and

Romania. Bulgaria has killed any shale developments on first sight of

domestic opposition. Bucharest has actually followed Sofias suit and

imposed an outright moratorium on any further shale developments within its
borders. In Prague, the Czech upper house is the process of pushing through
a shale ban having cancelled previous overseas contracts. It no doubt comes as welcomed
news for CEE / SE European incumbent entities wanting to maintain the heavily protected
status quo of old. But the real culprit in this story isnt so much the low hanging political
fruit of Central and South East Europe facing an uphill geological and geopolitical shale
challenge. Rather, its the raft of Western European states that have taken shale off the table.
Maintaining shale options, not only comes with an enhanced resource base, but more
importantly, keeps feeding spot market liquidity that has done some much damage to the
traditional bilateral Russia-Europe supply model. By shunning domestic shale

developments, what most North West European markets are banking on, is
global gas fundamentals keep going their way. Developing indigenous shale could
have been a big step towards realizing what politicians in most capitals tend to preach, i.e.
serious optionality over Russian supplies by developing far deeper, liquid and more mature
wholesale hubs across Western Europe, reaching all the way to the Baumgarten hub in
Austria and NCG in Germany. With enhanced state infrastructure linking interconnections
and back-flow capacity, that couldve given CEE and SEE states the upper hand at negotiating
cost reflective contracts with Russia. Alas, South East Europes best shot at

Russian diversification now rests with a 10bcm Azeri pipeline linked to oil
indexed prices, which more likely than not, will lose out to Gazproms
alternative 63bcm South Stream pipeline. Europe is not going to be the
master of its own gas destiny, and especially not in CEE and South East
Europe. The point here isnt to highlight European failures, but to underline that liquidity
the main driver globalizing gas markets is only achieved if shale, along with new
conventional plays will be developed, and developed fast, so that more countries can free up
gas volumes for export. At the expense of committing an act of heresy: the assumption

that gas supplies will really be as plentiful as believed is a shaky one. Look
at some of the largest shale prospects in the world in Argentina, Mexico,
Algeria, South Africa and you can quickly cross check that with resource
nationalism stymying investment. Conventional players are no different. Iran will
continue to put its nuclear ambitions ahead of hydrocarbon production; Iraq
is yet to find its feet, Libya likewise. Russia and Qatar are being very
precious about developing any new supplies in a slack market. Central Asian
producers are yet to establish secular supply credibility . West Africa is a hotbed of insecurity and corruption, East Africa could fall prey to the same
problems, while previous LNG heavyweights such as Malaysia are not in a
position to recapture lost ground. Thats before we take into account any depletion
rates on pre-existing fields or the prospect that rebounding growth in OECD and non-OECD
economies could be stronger than analysts think. Rising demand across many of the worlds
largest gas producers shouldnt be discounted, particularly where subsidies remain high and
price signals weak.

Gas UQ AT: U.S. Production Inevitable/Exports

Not Key
These cards are new links --- the 1AC has read evidence that the U.S.
gas industry will collapse without [exports/new drilling] --- the fact
that U.S. production is already hurting Russia proves the link, but
will be reversed absent the plan.
Yes, U.S. production may have impacted Russia somewhat, but that
will be reversed absent exports.
Matthew Hulbert, 8/5/2012. Senior fellow at the Clingendael International Energy

Programme, The Hague. He was previously senior research fellow at the Center for Security
Studies, ETH Zurich, leading its work on energy security and political risk, senior energy
analyst at Datamonitor in the City of London. Why America Can Make or Break A New
Global Gas World, Forbes, http://www.forbes.com/sites/matthewhulbert/2012/08/05/whyamerica-can-make-or-break-a-new-global-gas-world/3/.

As dicey as things look for traditional pricing methods right now,

it totally fails to consider the ten tonne elephant in the room : political risk in
Or are they?

developed markets. Unless thats addressed, the kind of liquidity needed for truly
independent gas prices to become dominant is likely to remain absent. America

is
arguably the number one risk to take the froth out of the spot market
cappuccino. Despite the very clear economic logic of converting its shale plays into LNG,
Washington will ultimately decide how much gas it allows to leave its shores .
The US energy independence narrative has a strong voice in America, while environmental
campaigners can rejoice in significant shifts from dirty coal to cheap gas clipping US
emissions by 450m tonnes over the past five years. The petrochemicals industry is getting its
feedstock close to free by switching to gas all of which is good news for broader US
economic output. Then you get the gasification of US transportation fleet debate. On paper it
looks an interesting prospect, gas at $2.5/MMbtu is about $15/b in oil terms converting
shale to compressed natural gas, or LNG, or putting it into gas to liquid form is all possible.
Given only 3% of natural gas is being used in the US transport sector, it clearly has ample
room for growth. None of that will do much to lift US prices in the short term, or help to save
the 30 or so American states that benefit from hydrocarbon royalties, but it remains a far
easier sell to the US electorate who think America is about to have an energy inspired reindustrial revolution, rather than explaining to them why gas prices are becoming more
expensive and energy companies are making overseas profits. What the US has given

the world in terms of freeing up LNG supply, it could now take away
if it fails to provide serious LNG exports. If the US gas market remains a
dislocated island, with Washington capping Henry Hub pries to $5/MMbtu,
many of the pricing pressures discussed here in Asia-Pacific will rapidly
abate.

***Links/Internals***

2NC Link Wall

US exports are the key threat to Gazprom --- critical to overall
Russian economy.
Richard Weitz, 10/11/2012. Senior fellow at the Hudson Institute. Russia: Is Putinomics
Unsustainable? EurasiaNet, http://www.eurasianet.org/node/66039.

Aslund cast Gazprom, the natural gas giant, as a bellwether for the future of
state capitalism in Russian. Natural gas exports are one of the most vital
components of the Russian economy, enabling Putin to indulge in vast
spending schemes, especially an ambitious military buildup. Aslund
described Gazproms contributions to state coffers as the dominant
source of rents for the Kremlin. But Gazproms ability to remain
competitive in international markets is coming under extreme pressure .
Where Gazprom Goes, Russia Goes, Aslund said. The top threat to Gazproms
global position is the explosion of shale gas extraction in the United
States, which is fostering Washingtons energy independence and causing a dramatic fall in
global natural gas prices, especially in Europe, which is Gazproms crucial export market. As
a result, Gazproms profits are plummeting.
*Anders Aslund, senior fellow at the Peterson Institute for International Economics
specializing in Russia.

Its the lynchpin of their economy.

Kim Zigfeld, 10/5/2012. New York City-based writer who publishes her own Russia
specialty blog, La Russophobe. She also writes about Russia for the American Thinker and for
Russia! magazine. Severe Economic Crisis in Russia Looms, PJ Media,
http://pjmedia.com/blog/severe-economic-crisis-in-russia-looms/.
But perhaps even more disturbing for Russians these days than the horrific extent of
the bad news is the type of bad news they are getting, namely news that deals with the
lynchpin of the Russian economy its energy sector . Hydraulic fracking

technology threatens to disengage the U.S. market from foreign imports, or

even to turn the U.S. into an energy exporter despite its massive consumption.
Plummeting demand would dramatically reduce prices, placing Russia in
dire financial jeopardy since it depends on gas revenues to balance
its budget. Already, the U.S. has overtaken Russia as the worlds leading producer of
natural gas.

Its not just Europe --- U.S. exports will undermine Russias attempt to
expand exports to Asia.
Natalya Skorlygina and Olga Mordyushenko, 9/16/2012. Kommersant. Gazproms
outlook liquefied, Russia Beyond the Headlines,
http://rbth.asia/articles/2012/09/06/gazproms_outlook_liquefied_16797.html.

After changing the game in the global natural gas marketplace once before
by starting the shale revolution, the United States is gearing up for yet
another coup, this time through liquefied natural gas (LNG) exports. ExxonMobil
and Qatar Petroleum will invest up to $10 billion in a gas liquefaction plant and an export
terminal. A similar project by Cheniere Petroleum has already been approved, with China and

Singapore ready to invest state funds. The US authorities have received applications for a
total of 110 billion cubic metres in annual liquefaction capacity. If all known projects go
ahead, the combined capacity would exceed 200 billion cubic metres, which is a third more
than Gazprom currently exports. Moreover, Americas LNG is intended for the Asia-

Pacific market the market that the Russian gas monopoly has been trying
to penetrate without much success. ExxonMobil and Qatar Petroleum, who hold a 30%
and 70% share in Texass Golden Pass Products regasification terminal respectively, have
applied to the US Department of Energy for authorisation to build the second phase of the
terminal. It will comprise a 15.6 million-tonne per year liquefaction plant and an export
terminal. The project is valued at around $10 billion. The proposed expansion of Golden Pass
is an opportunity to capitalise on Americas abundant natural gas resources. The Energy
Information Administrations (EIA) Annual Energy Outlook 2012 shows that the

United States has substantial gas supplies that can support gas exports,
including LNG exports, over the longer term, the companies said. The EIA report
in question, which was released in June, contains a revised forecast of natural gas production
in the United States. According to the agencys model, US natural gas production will match
domestic consumption there in 2021 at the 722.4 billion cubic metres mark (Russia produced
670 billion cubic metres of gas in 2011) and will continue to grow at an even faster pace.
Export potential will reach 40 billion cubic metres by 2035. Unlike oil, whose imports meet
4060% of US domestic demand, the country is more independent in terms of natural gas.
Imports accounted for just 5% of consumption in 1984. But in the late 1990s, consumption
started to outstrip production by a noticeable margin, with imports reaching 16% of total
consumption (around 100 billion cubic metres) by 2001. It was at that time that Gazprom
accelerated the development of the Shtokman gas and condensate field, which was originally
supposed to produce LNG for export to the United States. The Russian monopoly even started
trial LNG deliveries to the US under swap terms, and was considering the possibility of
participating in regasification terminals there. However, the rapid development of shale gas
reserves in the US suddenly changed the whole picture. The share of shale gas in total
production rose from 1% in 2000 to 34% in 2011, and is expected to rise to 43% by 2015 and
to 60% by 2035. As a result, according to the EIA, US natural gas imports have shrunk by
45% over the past ten years. In 2011, natural gas imports fell by 25% to the 1992 level, while
LNG imports decreased by 19%. Meanwhile, the Shtokman development project stalled, as
the US not only ceased to be the main prospective buyer of its gas, but also stepped up
competition for supplies to other markets. US export of LNG is practically nonexistent, owing to the lack of liquefaction capacity (a liquefaction plant has not
been built in the US since 1967). The only operating plant at Kenai in Alaska was slated for
closure in 2011 because it was not making a profit. But after the Fukushima nuclear plant
disaster, its owners changed their minds and resumed supplies to Japan (378,000 tonnes in
2011). At the same time, because of domestic market saturation, the US
started re-exporting previously imported LNG in 2009. According to the EIA, reexports soared 55% to 1.12 million tonnes in 2011 alone. The United States started reexporting LNG to China for the first time in 2011. These operations are highly
profitable. For example, according to the US Department of Energy, America imported 1.14
million tonnes of LNG over a three-month period, and exported 0.22 million tonnes. Whereas
import prices averaged $2.164.13 per MBtu depending on the supplier, re-exports to Brazil,
India and Japan were priced at $10.10, $10.50 and $12.33 per MBtu respectively.

Encouraged by re-export profits, investors have been rolling out large-scale

plans to build LNG capacity. According to the Federal Energy Regulatory Commission

(FERC, in charge of granting LNG terminal construction approvals), it had received seven
applications for LNG export terminals by July with a combined annual capacity of 110 billion
cubic metres. FERC also said it had been notified of four more projects totaling 63.8 billion
cubic metres per year. Those numbers do not include the Exxon project, nor does it include
the only project that has already been approved by both the US DOE (which is in charge of
LNG export permits) and the FERC: Cheniere Energy, a little-known company to people in
Russia with a re-gasification terminal in Louisiana, was authorised in April to build an LNG
export infrastructure (four stages of 4 million tonnes per year each). Production is scheduled
to begin in 2015. Asian investors were quick to come on board: Singapores
government-owned Temasek fund and the Hong KongSingapore investment fund RRJ Capital

bought 19% of Cheniere for $468m in May. Reuters reported that Chinas (CIC) and
Singapores (GIC) sovereign wealth funds were about to invest another $1 billion in the
company. According to The Financial Times, Temasek and RRJ plan to set up a

separate marketing subsidiary together with Cheniere to sell LNG in Asia .

The head of East European Gas Analysis, Mikhail Korchemkin, believes that a manifold price
differential between the US and the Asia-Pacific region will persist over the next few years,
with export projects continuing until physical limits on available natural gas volumes are
reached. Competition will benefit all except Gazprom: Korchemkin

reminds us that a drop in US spot prices had already nudged Gazprom

towards reducing the prices it charges its European customers . He added that

the interests of Russian consumers were protected by the government-mandated principle of

equal returns on exports; therefore they also stand to benefit from heavy competition in the
global natural gas marketplace. Korchemkin thinks that Gazprom will be able to

compete against American gas exporters for external markets, including the
Asia-Pacific market, if it makes concessions on price and cuts pipeline
construction costs. Gazprom itself prefers not to comment publicly on the American
threat for now.

The China deal has given Russia a lifeline but U.S. exports are the
key threat.
The Hill, 5/24/2014. Russia-China gas deal fuels U.S. export push,
http://thehill.com/policy/energy-environment/207139-russia-china-gas-deal-fuels-us-exportpush.

a 30-year, $400
billion deal for China to buy energy from Russias state-owned gas supplier a
Lawmakers who want the United States to export more natural gas called

wake up call for Washington.

Sen. John Hoeven (R-N.D.) said he worried the deal would strengthen Russia amid
crisis in Ukraine and urged his colleagues to approve more gas exports from the U.S.
This gives Russia another option. It strengthens their hand vis--vis what they
decide to do in Eastern Europe, Hoeven said. And it makes it even more

the

imperative that we advance our legislation to allow exports of LNG ( liquefied

natural gas) to Europe so that they have alternative sources.
The deal inked this week provided Russia with an economic lifeline and
raised fears Moscow could cut off gas supplies to its neighbors to strong-arm
them into supporting Putins policies.
Hoeven and other lawmakers, though, say the only response is for the U.S. to boost
its own LNG exports, which they say would weaken Russias energy
influence while helping American allies.
Chinas deal with Russian-firm Gazprom is only helping them make the case, they say.

Hoeven said the Gazprom agreement shows more than ever that exports
from the United States would hurt Russia.
Clearly, our providing LNG to Europe and working with Europe for them to develop
other sources of energy supply weakens Putins hand, he said.

2NC Perception Link

The perception of U.S. moves towards gas exports immediately
undermines Russia by giving countries leverage to negotiate lower
prices.
Washington Post, 3/22/2014. Using U.S. natural gas as an energy wedge against
Russia, Editorial Board, http://www.washingtonpost.com/opinions/using-us-natural-gas-as-anenergy-wedge-against-russia/2014/03/22/634ae586-b13b-11e3-95e839bef8e9a48b_story.html.
DEBATE HAS raged over whether the United States can fight Vladimir Putin on the
Russian presidents most favorable ground: energy politics. It can, and it should,
particularly because theres an obvious path forward that coincides with the United States
indeed, the worlds economic interests. That path is lifting irrational restrictions on
exports and making it easier to build natural gas export terminals.
For years, Mr. Putin has used his nations wealth of oil and natural gas as a cudgel to bully his
neighbors. At present, the European Unions large imports of Russian natural

gas discourage a forceful Western response to Russias aggressive actions in

Ukraine. Meanwhile, the United States is tapping massive reserves of
unconventional natural gas. That has not only made the U.S. self-sustaining
in gas, but also driven down the price of U.S. gas to a point well below what
Europeans are paying for the Russian stuff . If the federal government allowed more
of it to be liquefied and exported,would the Russians lose a share of the European market?
The story is more complicated than that. Russian gas, which doesnt need to be liquefied to
move (by pipeline) into the European market, would enjoy significant price advantages over
imported U.S. gas. The interaction of private buyers and sellers would probably direct U.S.
exports to places where gas is more profitable to sell, such as Japan and Korea. The result
would be a bounty for the U.S. economy and an improved American trade deficit but not
much direct displacement of Russian gas in Europe.
But thats also not the end of the story. The U.S. entry into the Asian marketwould
diminish Russias opportunity to profit there, as it aims to do. Contributing to

an already widening and more diverse global supply of liquefied natural gas
(LNG) would also give European importers more flexibility in sourcing their
fuel from the United States, Qatar, or others the sort of market conditions that
have already enabled Europeans to renegotiate gas contracts with Russia .
The Council on Foreign Relations Michael Levi points out that Mr. Putin might end up
with an uncomfortable choice between maintaining market share in Europe
and slashing his prices more.
Ramping up U.S. exports would take years, but the effects would not only be
long-term, as some critics charge. Action that communicates a certain
intent to allow more LNG exports would send a signal that the U.S.
is open for business, as the Eurasia Groups Leslie Palti-Guzman puts it.
That could deter Mr. Putin from playing the energy card and help many
buyers in negotiating long-term contracts .

Ext Exports Hurt Russia

Lack of diversification means US exports will crush Russia.
Ian Pryde, 12/14/2011. Founder and C.E.O. of Eurasia Strategy & Communications in
Moscow. Russia's energy strategy must look to the future, Russia Beyond the Headlines,
http://rbth.ru/articles/2011/12/14/global_energy_reserves_to_grow_13997.html.

its no wonder that officials from Russian gas giant Gazprom have been
rather skittish on shale gas, trying to downplay its potential impact: Russia has around
So

one-third of the worlds conventional gas reserves and exports mostly to Europe, which has
large shale deposits. The existence of shale gas has been known for years, but extracting
the tiny bubbles of oil or gas trapped in rock was difficult and expensive, especially at lower
depths. But fracking, a new technique that involves forcing liquids into shale rock at high
pressure to break it apart and allow the trapped gas to be captured, has transformed the

U.S. energy industry in recent years, not only driving down natural gas
prices, but increasing American energy reserves by decades and enabling
the country to switch from being a major importer of gas to an exporter in
the near future. The obviously conclusion is that other countries with plentiful domestic
reserves will also have far less need of energy imports, although this could be balanced by
rising energy demand, even if, as many experts argue, the development of shale gas in

Europe and Asia will be much slower than in the U.S. due to tighter
regulation and the environmental concerns arising from fracking . The threats
from the process include earthquakes from drilling and the potential contamination of ground
water. And while natural gas emits less CO2 than oil and coal, it nevertheless emits more than
renewable energy sources and nuclear power. Some researchers even argue that shale gas is
actually dirtier than coal. Additionally, Europe and Asia are much more densely

populated than the U.S., so popular opposition to fracking could be much

greater than in the United States. France, for example, has already banned
fracking, but Poland, which has plentiful reserves, is pushing ahead to reduce its
dependence on Russian gas. The world remains very uncertain about energy policy and it is
still too early to assess the effect the development of shale gas may have on global energy
security, domestic politics and foreign policy and the global economy. But despite the
accusations of hype regarding shale, the American experience has shown that it is
potentially transformational, opening up the promise of domestically produced energy
for decades to come. The Kremlins stubborn refusal since 2000 to diversify the

economy away from energy could well come home to roost far sooner
than anyone in Russia expects.
US exports weaken Russia.
CEE Insight, 9/13/2012. Central and Eastern Europe Insight, a Polish Consulting Group.
Russia sidelined by the US in LNG exports, http://ceeinsight.net/article/336/russiasidelined-by-the-us-in-lng-exports.

The United States will be the dominant supplier of LNG gas to the European
market surpassing Russian exports in the near future, predicted experts at
the 22nd Krynica Economic Forum taking place between Sept. 4-6, 2012. "By
2020, there will be more US LNG gas on the European market than
unconventional gas from European sources," said Adnan Vatansever , a senior
fellow at Carnegie Endowment Institute. US LNG exports will capture around 10-15 percent
of the global LNG market. There is strong support from the gas industry in America to realise

LNG projects as in the long term they will contribute to the price stability of the gas sector,
Vatansever added. Europe is the second-largest market in the world in terms of LNG
consumption, following the Asia. The European share in global LNG imports comes
to 27-percent and increases annually by 10-percent on average . The Russian
side of the panel seemed to disagree stressing that "American gas will stay in the American
market because the low gas prices are important for the stimulation of the American
economy," according to Mykhailo Gonchar, director of the Energy Programme at the NOMOS
Centre. American imports will weaken the Russian monopoly over

European energy imports. Currently, the European Union imports a third

of its gas from Russia, which makes up 80-percent of, Russian gas giant Gazprom?s

revenues. Energy security is a key EU priority following a Russian-Ukrainian gas dispute in

2006 and again in 2009 that painfully revealed Europe's dependency on Russian gas. A
disagreement over gas prices saw Russia cut off supply to Ukraine, which led to widespread
gas supply disruptions across Central and Eastern Europe. LNG imports from America
will add to the supply diversification that the EU has been pushing for .
"European consumers will prefer to buy US LNG gas if prices are marginally
higher because of diversification reasons," Vatansever added .

US exports will undermine Russia.

Reuters, 9/24/2012. Russia's TMK expects U.S. gas export boom,
http://www.reuters.com/article/2012/09/24/us-russia-summit-tmk-idUSBRE88N0MB20120924.

Pumpyansky, TMK's chairman and majority stakeholder, said exports of

natural gas from the United States, following its boom in shale gas exploration,
would have important implications for the global energy sector . "I am
Dmitry

absolutely convinced that the United States will become a net exporter," he told the Reuters
Russia Investment Summit in an interview. "This will increase demand for various products
necessary to extract (shale) gas including pipes." Booming shale gas output in the

United States has caused prices there to plummet and the U.S. government
is considering whether to grant permission to export excess supply as
liquefied natural gas. This would ease the domestic glut and help satisfy
demand in growing markets in Asia. "This will be a revolution in the global energy
sector," Pumpyansky said. "If the U.S. government gives permission (to export
gas), it will flow to Asia and Europe, which have significantly higher gas price than
the U.S."

U.S. gas production is the key threat to Russian gas.

Leon Aron, 5/29/2013. Resident Scholar and Director of Russian Studies @ AEI. The
political economy of Russian oil and gas, http://www.aei.org/outlook/foreign-and-defensepolicy/regional/europe/the-political-economy-of-russian-oil-and-gas/.

The immediate challenge to natural gas rents, however, is a sharp loss of

profit because of the competition from alternative modes of production made
possible by new technologies. The latter includes horizontal drilling to tap
shallow but broad deposits and hydraulic fracturing (or fracking) when sand, chemicals,
and water, gel, or liquefied gases are injected under great pressure into shale rock formations
to extract gas and oil. As a result, over the last decade US gas imports have shrunk

by 45 percent. By contrast, Gazprom has yet to start tapping these

resources. Instead, the companys president, Alexei Miller, has repeatedly decried shale gas
as a myth and a well planned propaganda campaign.[44]

The drop in US imports has freed up large volumes of natural gas and
lowered prices on the world market. In addition, LNG transported by tankers

from the Middle East has increased significantly, Europes reliance on LNG has expanded,
and Europes LNG infrastructure has grown. The rapidly changing supply and price

structure will be further altered by a possible (or even probable)

transformation of the United States from an importer to an exporter of
natural gas.

2NC Spot Market I/L

U.S. exports will be the decisive factor in creating a spot market.
Matthew Hulbert, 8/5/2012. Senior fellow at the Clingendael International Energy
Programme, The Hague. He was previously senior research fellow at the Center for Security
Studies, ETH Zurich, leading its work on energy security and political risk, senior energy
analyst at Datamonitor in the City of London. Why America Can Make or Break A New
Global Gas World, Forbes, http://www.forbes.com/sites/matthewhulbert/2012/08/05/whyamerica-can-make-or-break-a-new-global-gas-world/3/.

The same debate is raging in the US. Despite the phenomenal breakthroughs in
American shale developments, the front runner of the revolution now risks becoming a victim
of its own success in terms of Henry Hub prices dropping so low, that full cycle economics for
US shale gas plays have become negative. Unless prices organically firm, or US producers
learn the dark art of supply restraint, current output levels will be difficult to maintain or
enhance for American consumers. Companies will fold; fields will be mothballed, with
Chesapeake providing the best poster boy example of how precarious shale gas economics
have become. The quick fix option to get Henry Hub back at a sustainable $47/MMbtu level (and by far the most lucrative for some of the mid-cap players involved), is
to sign up international LNG contracts. Thats exactly whats being done,
with some of the larger IOCs (Royal Dutch Shell, BP and ExxonMobil) also
aggressively pushing for LNG exports to capitalise on huge spreads, not to mention
preventing further write-downs on shale assets. Its not like Chinese champions working on
US plays would have any ideological opposition to such a prospect. In total, FERC has
around 125bcm/y of LNG applications currently awaiting approval even on a
bad day 40-50bcm exports should be very feasible by 2020. That would make the US

the third largest LNG player in the world. Its also going to be the crucial
factor over the next five years to decide where gas markets are
heading. America will be decisive for future pricing models, whether
they shift to gas (rather than oil) fundamentals. US LNG could be the
straw that breaks oil indexation back.
That crushes Russias economy.
David G. Tarr, March 2010. Adjunct Professor, New Economic School, Moscow. Export

Restraints on Russian Natural Gas and Raw Timber: What are the Economic Impacts? Centre
for Energy Policy and Economics at ETH-Zurich Working Paper,
www.cepe.ethz.ch/publications/workingPapers/CEPE_WP74.pdf.
Russias proved natural gas reserves at the end of 2008 were 43.3 trillion cubic meters, which
constitute 23.4 percent of the worlds proven reserves.3 Its 2008 production of 602 billion
cubic meters (BCM) constituted 19.6 percent of world production. Its reserves to production
ratio in 2008 of 72 years, is higher than any other significant producer except Saudi Arabia.
Russia is also by far the worlds largest exporter of natural gas . In 2008,
Gazprom exported about 154 BCM to Europe (including Turkey). Russia, in 2008, had a
market share of approximately 28 percent of natural gas sales in Europe . In
the year 2008, Europe including Turkey consumed about 547 billion cubic meters (BCM) of
natural gas, while importing 154 BCM from Russia. It is in Russias interest to try to

maximize its profits from exports of natural gas. Given the need to ship
natural gas from Russia to Europe through a pipeline, Russia is able to
segment the European market from the Russian market , and competes in

Europe only with pipeline supplied gas subject to an upper limit on its price equal to the price

of delivered liquefied natural gas. The Russian government has given Gazprom exclusive right
to use the pipelines for the export of natural gas to Europe.4 Given its market share, this
implies Gazprom has some market power in Europe.5 Russian domestic consumption
in 2008 of 420 BCM was 2.7 times Russias sales in Europe . The key point is that
to sell significantly more of its gas in Europe, Gazprom would have to accept a lower price,
i.e., it faces a downward sloping demand curve. This means that there is no world
price of gas that Russia faces. In this situation, it is optimal for Gazprom to set

marginal revenue equal to marginal costs on exports to exploit this market

power, which implies its price will exceed its long run marginal costs . Tarr
and Thomson (2003) estimated that uniform pricing of Russian natural gas
would be extremely costly to Russia.6 If Gazprom were to sell its gas in
Europe at long run marginal costs (including transportation costs), its lost profits
would equal about two percent of Russian GDP.

Ext U.S. kt Spot Prices

U.S. is the key determinant for spot prices --- exports determine it.
Matthew Hulbert, 5/26/2012. Senior fellow at the Clingendael International Energy
Programme, The Hague. He was previously senior research fellow at the Center for Security
Studies, ETH Zurich, leading its work on energy security and political risk, senior energy
analyst at Datamonitor in the City of London. Why American Natural Gas Will Change The
World, Forbes, http://www.forbes.com/sites/matthewhulbert/2012/05/26/why-americannatural-gas-will-change-the-world/2/.
This 2020 lead time is important for Europe, not just because its going to take some time
for US LNG trains to gather speed, but because the first wave of exports will predominantly
go to Asia. Japan has been in the headlines post-Fukushima boosting short term demand, but
the real prize remains China. Gas demand has been going up 5% year on year, while LNG
shot up 31% once Chinas fifth import terminal went online. Thats closely followed by India
where LNG remains a strategic priority given the impossibility of getting pipelines into Delhi
via Pakistan or Afghanistan. Although India and China are actively developing domestic shale
reserves, (Beijing has earmarked no less than 30bcm capacity), America should have little
problem taking Asian market share, particularly if it provides greater flexibility on take or pay
contracts to hedge long term price risk. Indeed, the mere prospect of US LNG is

Asia is already creating major problems for Middle East and Russian players
trying to sell gas (LNG or pipeline) on an oil indexed basis. Australia is in no
better shape; despite headline figures of 80mt/y of LNG by 2018 (i.e. the world leader),
cost inflation is rife and coal bed plays are looking more costly to develop than originally
thought. International players are still investing in Australia (ironically as a
double hedge against US LNG flopping), but given that Australian LNG

docks into Asian ports for around $17-$18MM/Btu, any softening of prices
could leave current (and prospective) LNG projects in the red. That might sound
problematic for future supply prospects, but its also extremely interesting when we consider
that Cheneries Sabine Pass output will be sold into South Korea at $8/MMBtu. Sure,
Chenerie is more desperate than most to secure long term supply contracts to ease domestic
credit constraints give its junk status (CCC+), but it actually took its pricing cue in Asia from
deals brokered by BG Group. The general formula is to set a minimal $3/MMBtu (i.e. Henry
Hub) capacity leasing charge as default payment if gas isnt lifted, with a 115% mark up to
bridge differentials on actual deliveries. Obviously its very early doors to call a
decoupling of international gas prices from oil (Japanese Crude Cocktail (JCC)) in

Asia towards Shanghai Spot for gas in China, but at the very least, we can
expect the likes of Qatar, Russia, Australia (and even Canada) to be more
flexible on contractual terms / oil indexation if they want to secure Asian
markets and stymie a Pacific Basin price war. Its either that or theyll hold out on
sales, and hope US LNG doesnt pan out. When the market gets razor tight,
get Asian governments to sign on the oil indexation line . Fair enough, traditional
producers are probably safe to assume that bigger American beasts wont be nearly as
generous as Cheniere have been on terms, but if further US developments such as Cove
Point, Lake Charles or Jordan Cove retain even notional links to underlying Henry
Hub prices (plus mark-ups), then traditional oil indexation pricing methods
could be in deep trouble. Long term contracts remain crucial for getting stuff built, but
pricing references within them would be far more dynamic. It could also mean more LNG
capacity is reserved to feed genuine spot markets rather than the 10-15% typically used in
developments today. No one is saying this equates to international gas price parity just yet
not by a country mile; the spreads between US domestic prices and Asian spot will remain
huge. But the logic of any global commodity market is to develop a single price rule across
vast geographical locations. Physical assets go from low price markets to high yield plays
over time, arbitrage does it work: You end up with price parity. Thats probably why BG Group

isnt particularly bothered about being so flexible over take or pay clauses on long term
contracts. If Asia eventually ends up oversupplied, whatever BG fails to sell in the East, it will
get similar prices for on European hubs, and perhaps even one day, in New York. As scary as
that might sound, given that anything up to 250mt/y of LNG might make its way onto global
markets over the next twenty years from every point on the compass Nigeria, Indonesia,
Israel, PNG, Mozambique, Equatorial Guinea you name it, now would seem a good time to
organise the gas world on global gas fundamentals. The next five to ten years will
largely determine which direction were heading, but liquid markets are good for
fungibility, they are good for supply and good diversity of sources. And its US LNG that
could tip the balance towards those interests. Traditional petro-state would be put on
the back foot; gas would finally break its oil indexation shackles , new market
designs would development. US deliveries would also help to put the transatlantic
energy relationship back on track for the more market minded , at least once the
hidden hand has done what it should do first; let US majors make loads of money in Asia
before things globally level out. American natural gas has the potential to

change the world the only question that remains, is whether US

politicians will let glorious global convergence play out .
Only U.S. exports will trigger spot pricing.
The Economist, 7/14/2012. A liquid market,
http://www.economist.com/node/21558456.

that market is still small. Mr Barallat reckons that, although the LNG spot
market is growing fast, in 2011 the industry delivered only three cargoes a
day under spot or short-term contracts, about a quarter of total LNG traded
volumes. Still, there are signs that LNG markets are getting more flexible ,
But

partly because Europe, unwilling to let Gazprom dominate supplies, is adding more LNG
import capacity. Asian buyers, for their part, are getting more reluctant to sign 20-year oilindexed contracts in current negotiations with Canadian suppliers. In future LNG contracts
may be drawn up for just two or three years rather than decades, according to Holman
Fenwick Willan, a law firm that specialises in oil and gas. Japan is still the worlds biggest
LNG importer, and its utilities can pass high oil-linked gas prices onto consumers. But
Cheniere has done deals with Mitsui and Mitsubishi linked to Henry Hub prices. Much of the
global growth in demand will come from China. It is building LNG import terminals fast, with
four up and running, five under construction and a dozen more at the planning stage. And
Shanghai is vying with Singapore to become a regional hub to develop spot markets based on
competition between LNG, pipeline gas and domestic production. China has been in
negotiations about a pipeline deal with Russias Gazprom for a decade but has so far refused
to sign. Meanwhile it has secured competing gas supplies by building both LNG terminals and
pipelines from Myanmar and from Turkmenistan. A question of price Plans for the Russian
pipeline remain on the drawing board. Gazprom wants to sell gas to China in order to become
less reliant on exports to Europe, and China is sure to need Russian gas in the future. The
most recent set of talks broke up because China will not pay Asian oil-indexed prices, as
Russia demands, or even European oil-indexed prices. It wants something closer to European
spot prices, which Russia will not entertain. But a deal may eventually be struck. In the

longer term, as shale gas becomes more widespread outside America, some
countries will no longer need to import LNG, freeing up more supplies for
the spot market. Yet it will take a lot of spot LNG to create a big, liquid
global market. Mr Stoppard of IHS thinks this will happen only if
America takes to exporting LNG on a large scale.

US exports put unique pressure for Russia to give up oil indexing.

Michael Ratner et al, Paul Belkin, Jim Nichol, and Steven Woehrel, 3/13/2012.
Coordinator Specialist in Energy Policy @ Congressional Research Service; Analyst in
European Affairs @ CRS; Specialist in Russian and Eurasian Affairs @ CRS; Specialist in
European Affairs @ CRS. Europes Energy Security: Options and Challenges to Natural Gas
Supply Diversification, CRS Report, www.fas.org/sgp/crs/row/R42405.pdf.

Despite its growing dependence on Russian natural gas, Europe is well

positioned geographically to benefit from recent changes in global natural gas
development. Since the advent of shale gas in the United States, the world appears to be
potentially awash in natural gas. A 2011 study commissioned by the U.S. Energy Information
Administration (EIA) showed that technically recoverable shale gas resources worldwide may
exceed current global natural gas reserves.1 Other key developments and possible
alternatives to Russian natural gas are outlined below:
Taken as a whole, North Africa could pose a credible alternative to Russian
natural gas supplies. The change of regimes in Libya, in particular, and in Egypt as a
result of the wave of regional unrest known as the Arab Spring, poses a potential
opportunity to increase natural gas production and exports from these countries. Both

Libya and Egypt have large natural gas reserves, but production and exports
have been hampered by domestic policies. Algeria, the largest exporter of natural
gas in North Africa and the third largest supplier to Europe behind Russia and Norway, may
also hold large volumes of shale gas yet to be developed in addition to their substantial
conventional reserves.
Central Asia may hold the greatest potential for new natural gas supplies for
Europe, but currently those supplies would have to transit Russia to arrive in the
European market. The delays in developing a southern corridor natural gas

pipeline route to Europe have forced Central Asian countries to look east
instead of west to bypass Russia and open new markets.2
Liquefied natural gas (LNG) imports pose an additional alternative to Russian
natural gas. In 2010, LNG comprised almost 20% of the EUs natural gas imports and over
15% of its consumption. The EU has LNG import capacity to meet its peak winter demand for
natural gas, but during most of the year the facilities are underutilized. Nevertheless, some

countries are considering building additional LNG import terminals to

diversify their sources of natural gas. In addition to LNG import terminals, the EU could
benefit from increased natural gas storage facilities in order to manage their import capacity
during non-peak periods, as well as more pipeline interconnections to move natural gas
where it is needed. EU officials have identified both improvements as priorities and they are
being pursued, but not without some difficulty.
The prospect of significant U.S. LNG exports may pose an opportunity for

the United States to play a bigger role in European energy security and
global natural gas markets.3 Most of the proposed U.S. LNG export projects
are located on the Gulf coast or east coast of the United States, making
shipments, at least initially, more likely to go to Europe than Asia .
Additionally, the U.S. natural gas market is one of the only markets in the
world where natural gas is not priced against oil , giving it a cost advantage in most
of Europe. Should future U.S. LNG contracts not include an oil-indexed
formula, pressure would be added for other countries, including Russia, to
follow suit. Russian companies, including state-controlled natural gas giant Gazprom, have
adamantly defended oil-indexed natural gas prices.

Ext Spot Prices Hurt Russia

Gazprom key --- spot pricing kills.
The Economist, 7/14/2012. Gas pricing in Europe: Careful what you wish for,
http://www.economist.com/node/21558433.

long-term take-or-pay contracts that guarantee minimum purchases of

gas indexed to oil pricesthe customary method for buying and selling gas
in Europeare coming under enormous pressure. This is upsetting Russias
Gazprom and Norways Statoil, which between them supply 40% of the continents gas,
mainly on those terms. Even Vladimir Putin, Russias president, acknowledged in a speech
in March that competition from shale gas would have a big impact on Russias
gas suppliers. Gazprom is having to gauge ever more carefully how much it can charge its
European customers without putting them off. Gas accounts for 10% of Russias GDP
and makes a handsome contribution to the states coffers, so Mr Putin is right to be
worried.
The

US Exports Kill Gazprom

US exports destroy Gazprom.
Washington Post, 9/25/2012. U.S. gas exports could limit Putins influence, Editorial
Board, http://www.washingtonpost.com/opinions/us-natural-gas-exports-could-limit-vladimirputins-influence/2012/09/25/e949342c-0691-11e2-858a-5311df86ab04_story.html.

the United
States plentiful reserve of unconventional natural gas is an exceptional
national asset, not only revolutionizing the energy business at home but also
benefiting America and its allies abroad. Over the past decade, new drilling
ONE THING THAT this years presidential candidates both get right is that

methods have made oceans of fuel once trapped in subterranean rock formations easily
accessible. The result is that the United States, which used to worry about

importing huge quantities of natural gas, is now producing loads of its own,
so much that domestic prices have tumbled and energy companies are asking for
permission to liquefy and export some of the countrys output. Thats good
for a variety of reasons, including, as The Posts Will Englund and Kathy Lally reported
Monday, accelerating the decline of Gazprom, Russias natural-gas
monopoly.

Russia Gas Key

Gas is key to Russias economy.
Sergey Paltsev, 2011. Massachusetts Institute of Technology, Cambridge, USA.
Supplementary Paper SP 3.1: Russias Natural Gas Export Potential up to 2050, MIT Energy
Paper, mitei.mit.edu/system/files/NaturalGas_Sup_Paper3.1.pdf.

Natural gas exports from Russia get special attention in comparison to other
energy exports, because Russia has less diversified ways to export natural
gas in comparison to oil and coal, which are in general easier to transport. On the demand
side, it is also relatively easier to switch from one oil or coal supplier to another, hence the
importers have fewer concerns about relying on a single supplier or a limited number of
suppliers. As a result, Russian oil and coal exports have not had the disruptions seen in the
gas transit routes through Ukraine and Belarus. Russia tries to find a way of reducing
reliance on transit countries as disputes with them hurt stable gas supplies. Europe, as the
largest importer of Russian gas, tries to find a way of reducing reliance on Russia by moving
to liquefied natural gas (LNG) imports by tankers from Africa, the Middle East, and Latin
America. The development of shale gas in USA has resulted in a substantial

price differential between North American and European (and Asian) natural
gas markets. This price differen- tial creates a potential for LNG exports
from USA. Future LNG development and emergence of shale gas pose
questions about the ability of Russia to keep gas exports to Europe at the
recent levels, when about 5.5 trillion cubic feet (Tcf)1 out of a production of 1921 Tcf
were destined to European markets.

Russia dependent on gas --- key to economic growth and political

stability.
Barnato 14 (Katy Barnato May 21, 2014 China and Russia's Gazprom sign key gas
agreement Associate Producer, CNBC.com, http://www.cnbc.com/id/44202393)AM

Russia's state-controlled Gazprom signed a long-awaited megadeal to supply gas to

China on Wednesday, which could ease the impact of Western sanctions on the country. The deal

would see Gazpromthe world's largest extractor of natural gassupply 38 billion cubic meters of gas to
China annually for 30 years, according to Reuters, under a contract valued in excess of $400 billion.
The deal was signed with China National Petroleum Corp, which is also state-controlled. Reuters reported
that Russian President Vladimir Putin and his Chinese counterpart Xi Jinping applauded as they
witnessed the deal being signed. Gazprom said it would publish further details of the deal later in the
day. The agreement followed a gas summit in China, where Putin was one of the most high-profile

The importance of Russia's energy industry and its dependence on

natural resources has been highlighted by the Ukraine crisis. If there
is a serious threat to its ability to export oil and gas, not only will
Russia's economy come under threat, but its political stability could as
guests.

well. Malcolm Graham-Wood, founding partner at energy consultancy HydroCarbon Capital, said the

deal made sense for both China and Gazprom. "it is important for Gazprom to get outlets for its gas, if it
alienates Europe much more. Plus, it has a need for a bigger market," Graham-Wood told CNBC over the
phone on Wednesday. "On the other hand, there is China's need for a secure supply of gas. On that basis
it is an eminently sensible deal on both sides." China is a highly desirable market for energy suppliers to
tap, according to Graham-Wood, because its energy demand is rapidly rising, although it remains
significantly below the more saturated U.S. market. "It makes sense for China to sign up for as much
reasonably priced gas it can," he said. He added that the deal also relieved pressure on Russia as a
whole, following the West's economic sanctions on the country following its incursions in Ukraine.

"Russia has critical difficulties with its economy ,

so it needs to sign up for this,"

 Gazprom is the only producer and exporter of liquefied natural gas in Russia. It
is among Russia's five largest oil producers and it is the largest owner of power-

Graham-Wood said.

generating assets in the country. Nicholas Spiro of Spiro Sovereign Strategy said the geopolitical
importance of the deal was "plain for all to see". "While a Rubicon has been crossed in East-West
relations, Mr Putin will attend the St Petersburg (International Economic) Forum with a spring in his
step, after clinching the deal," he told CNBC via email. Kyle Davis, partner and energy expert at
international law firm Goltsblat, said Russia would continue to push into Asian markets, even if relations
with the West improved. "Russia does not see its relationship with Europe and Asia being an 'either-or'
proposition," he said via email. "Russian

politicians and business leaders have been

talking up the 'Eurasian' advantages of Russia's resource wealth and
proximity to key markets and will continue to push into Asian markets and
seek Asian investment even after relations with the West have normalized."
Natural gas equates to 70% of Russias exports key to their
economy
Alanna Petroff, 3/12/2014. London-based business reporter for @cnnmoney. Covers
markets, companies, investments, economics and technology in Europe and the U.K. 4
reasons Russia will keep gas flowing,
http://money.cnn.com/2014/03/12/news/economy/russia-gas-threat/ KT.

Russia's weakening economy is heavily reliant on exports of oil and natural

gas, with energy accounting for roughly 70% of annual exports. The
consequences of a stoppage could be far more devastating to Russia than
anyone else. The Russian government is already forecasting that overall
exports will decline by roughly 2% this year, and a gas disruption would
make matters worse.
Gazprom's gas exports are worth about $66 billion a year, roughly 13% of
total Russian exports of $515 billion. They also account for 5% of tax
revenues. Russia's economy is weaker than it was in 2009. Gross domestic
product grew by about 1.3% last year compared to 3.4% in 2012. Many
forecasters were expecting a slight upturn in 2014 but the standoff with
Ukraine may mean it struggles to grow at all this year, according to some
analysts.

AT: Gas Dependence Causes Russian

Deindustrialization (Diehl)
No evidence that resource dependence is causing Russian deindustrialization.
Mark Adomanis, 12/18/2012. Degrees in Russian Studies from Harvard and Oxford,
contributor for Forbes. Has Russia Deindustrialized? Forbes,
http://www.forbes.com/sites/markadomanis/2012/12/18/has-russia-deindustrialized/.

In the course of making an argument about the coming collapse of China and Russia, Jackson

Diehl made a rather forceful statement about Russias deindustrialiation

under the malignant influence of Vladimir Putin. I dont want to get pulled into a

larger discussion about the accuracy of Diehls thesis, needless to say Im skeptical that both
China and Russia will collapse in the near future, but I did want to focus in on his comment
on the supposed death of industrial Russia (emphasis added):
For Russia, the dilemma is summed up in the prices of oil and gas, and the role those two
commodities have come to play during the Putin era. When Putin first took office in 1999, oil
and gas earned less than half of Russias export revenue. Now that share is more than twothirds. In part this increase is due to rising prices and production, but Russia has also
deindustrialized under Putin. According to a report in Business New Europe, this year the
country gave up the effort to maintain its own auto industry, and stopped producing the Lada
sedan. The company that manufactures the iconic AK-47 rifle went bankrupt, largely because
of its failure to develop a more modern version of the Kalashnikov. And a new civilian
passenger jet promoted by Putin as an answer to Boeing and Airbus flew into a mountainside
during one of its first demonstration flights, killing the deputy transport minister of Indonesia
and forty-four others and throwing its future into question.
This is a pretty damning indictment, but is it true?
Heres, from FRED, is a graph of Russian industrial production since 1994:

I chose 1994 because the figures from 1992-93 tend to be inaccurately inflated by the
inclusion of worthless and non-competitive Soviet production that was only possible with
absurd state subsidies (once the subsidies were removed, the production promptly ceased).
Soviet industrial production really was worthless, made up of goods that no one wanted
produced so inefficiently that many enterprises were negative value-added. That is to say
many Soviet industrial firms were so poorly run that their businesses processes actually
substracted value from their raw inputs. However, regardless of which year you use

as the starting point, even if you take the inflated numbers of the immediate
post-Soviet years, the upward trend since the 1998 debt default
is impossible to miss.
Other data sources also suggest that Russian industry has not withered on
the vine under Putins rapacious and incompetent rule. Heres a graph from a recent
EBRD report:

Services grew sharply during the 1990s as you would expect since the
Soviet command economy actively suppressed most service industries and
consistently over-promoted heavy industry. However the change since 2002
has not exactly been overwhelming manufacturings share of the economy
has fluctated within a very narrow range.
But hey, maybe the EBRD is full of Putin-lovers. As yet more confirmation that
Russian industry isnt dead yet, heres a graph of World Bank data on the
percentage of GDP that comes from manufacturing value added :

And here is UN data on the share of manufacturing in Russias gross value

added, a different formula that gives broadly the same result :

While I suppose its sad that the Lada is no more*, theres a lot more going on than Diehls
doom and gloom. Inded there are shiny new factories producing Fords, Toyotas,

and Nissans outside of Saint Petersburg. By Diehls standards (he cites the
fate of three companies to prove deindustrialization) that ought to mean that
Russia is undergoing some sort of dramatic industrial renaissance .
You can accurately blame Vladimir Putin for quite a lot of things, but I dont think you can
blame him for the deindustrialization of Russia because no such de-industrialization
appears to have taken place. Should Russia do a better job of fostering innovation? Sure.
Does the economic model of the early Putin years need to be modified? Absolutely. Is the

Russian economy ultra-competitive? Not at all. But it simply isnt the case that Russia is now
a giant wasteland of shuttered factories, a place where they dont build things anymore. As

shown by statistics from a wide range of respected international institutions,

Russian industrial production has basically been increasing about as fast as
the rest of the economy. Its quite possible, indeed its very likely, that a better-run
economic policy would have fostered more industrial growth, but Russian industry
actually seems to be doing OK.

***Impacts***

2NC Impacts
Russian economic decline causes nuclear war and terrorism.
David 99 (Steven, professor of political science at johns hopkins, foreign affairs, jan/feb)
If internal war does strike Russia, economic deterioration will be a prime
cause. From 1989 to the present, the GDP has fallen by 50 percent. In a society where, ten years ago,
unemployment scarcely existed, it reached 9.5 percent in 1997 with many economists declaring the true
figure to be much higher. Twenty-two percent of Russians live below the official poverty line (earning
less than $ 70 a month). Modern Russia can neither collect taxes (it gathers only half the revenue it is
due) nor significantly cut spending. Reformers tout privatization as the country's cure-all, but in a land
without well-defined property rights or contract law and where subsidies remain a way of life, the
prospects for transition to an American-style capitalist economy look remote at best. As the massive
devaluation of the ruble and the current political crisis show, Russia's condition is even worse than most

If conditions get worse, even the stoic Russian people will soon
run out of patience. A future conflict would quickly draw in Russia's
military. In the Soviet days civilian rule kept the powerful armed forces in check. But with the
analysts feared.

Communist Party out of office, what little civilian control remains relies on an exceedingly fragile
foundation -- personal friendships between government leaders and military commanders. Meanwhile,
the morale of Russian soldiers has fallen to a dangerous low. Drastic cuts in spending mean inadequate
pay, housing, and medical care. A new emphasis on domestic missions has created an ideological split
between the old and new guard in the military leadership, increasing the risk that disgruntled generals
may enter the political fray and feeding the resentment of soldiers who dislike being used as a national
police force. Newly enhanced ties between military units and local authorities pose another danger.

Draftees
serve closer to home, and new laws have increased local control over the
armed forces. Were a conflict to emerge between a regional power and
Moscow, it is not at all clear which side the military would support. Divining the
Soldiers grow ever more dependent on local governments for housing, food, and wages.

military's allegiance is crucial, however, since the structure of the Russian Federation makes it virtually
certain that regional conflicts will continue to erupt. Russia's 89 republics, krais, and oblasts grow ever
more independent in a system that does little to keep them together. As the central government finds

With
the economy collapsing, republics feel less and less incentive to pay taxes to
Moscow when they receive so little in return. Three-quarters of them already have their
own constitutions, nearly all of which make some claim to sovereignty. Strong ethnic bonds
promoted by shortsighted Soviet policies may motivate non-Russians to secede from the
Federation. Chechnya's successful revolt against Russian control inspired similar movements for
autonomy and independence throughout the country. If these rebellions spread and Moscow
responds with force, civil war is likely. Should Russia succumb to internal war, the
itself unable to force its will beyond Moscow (if even that far), power devolves to the periphery.

consequences for the United States and Europe will be severe. A major power like Russia -- even though

An embattled Russian Federation might

provoke opportunistic attacks from enemies such as China. Massive flows of
refugees would pour into central and western Europe. Armed struggles in Russia
could easily spill into its neighbors. Damage from the fighting, particularly
attacks on nuclear plants, would poison the environment of much of Europe
and Asia. Within Russia, the consequences would be even worse. Just as the sheer brutality
of the last Russian civil war laid the basis for the privations of Soviet communism, a
second civil war might produce another horrific regime . Most alarming is the real
possibility that the violent disintegration of Russia could lead to loss of control
over its nuclear arsenal. No nuclear state has ever fallen victim to civil war, but even without a
in decline -- does not suffer civil war quietly or alone.

clear precedent the grim consequences can be foreseen. Russia retains some 20,000 nuclear weapons
and the raw material for tens of thousands more, in scores of sites scattered throughout the country. So
far, the government has managed to prevent the los of any weapons or much material. If war erupts,

Moscow's already weak grip on nuclear sites will slacken, making

weapons and supplies available to a wide range of anti-American groups and states.
Such dispersal of nuclear weapons represents the greatest physical threat
America now faces. And it is hard to think of anything that would increase this threat more than
however,

the chaos that would follow a Russian civil war.

Russian economic collapse causes extinctionnuclear & biological

use, proliferation, terrorism, and environmental disaster.
Oliker 2 (Olga and Tanya Charlick-Paley, RAND Corporation Project Air
Force, Assessing Russias Decline Trends and Implications for the United
States and the U.S. Air Force,
www.rand.org/pubs/monograph_reports/MR1442/)
Russias decline affects that country and
may evolve into challenges and dangers that extend well beyond its borders.
The political factors of de- cline may make Russia a less stable international actor and other factors
may increase the risk of internal unrest. Together and sepa- rately, they increase the risk of
conflict and the potential scope of other imaginable disasters. The trends of regionalization,
The preceding chapters have illustrated the ways in which

particu- larly the disparate rates of economic growth among regions com- bined with the politicization of
regional economic and military inter- ests, will be important to watch. The potential for locale, or possibly

factors have
the potential to feed into precisely the cycle of instability that political
scientists have identified as making states in transition to democracy more
likely to become involved in war. These factors also increase the potential for
domestic turmoil , which further increases the risk of international conflict ,
ethnicity, to serve as a rallying point for internal conflict is low at pre- sent, but these

for instance if Moscow seeks to unite a divided nation and/or demonstrate globally that its waning power

Given Russias conventional weakness, an

increased risk of conflict carries with it an increased risk of nuclear
remains something to be reckoned with.

weapons use , and Russias demographic situation increases the potential for a
major epidemic with possible implications for Europe and perhaps beyond. The dangers posed
by Russias civilian and military nuclear weapons complex, aside from the
threat of nuclear weapons use, create a real risk of proliferation of
weapons or weapons materials to terrorist groups , as well as
perpetuating an increasing risk of accident at one of Russias nuclear power
plants or other facilities. These elements touch upon key security interests, thus raising serious
concerns for the United States. A declining Russia increases the likelihood of conflict
internal or otherwiseand the general de- terioration that Russia has in common with failing states

A crisis in large,
populous, and nuclear-armed Russia can easily affect the interests of the
United States and its allies. In response to such a scenario, the United States, whether alone or as
raises se- rious questions about its capacity to respond to an emerging crisis.

part of a larger coalition, could be asked to send military forces to the area in and around Russia. This

A wide range of
crisis scenarios can be reasonably extrapolated from the trends implicit in Russias decline.
A notional list includes: Authorized or unauthorized belligerent actions by Russian
troops in trouble-prone Russian regions or in neighboring states could lead to armed
conflict. Border clashes with China in the Russian Far East or between Russia
and Ukraine, the Baltic states, Kazakhstan, or another neighbor could escalate into interstate
combat. Nuclear-armed terrorists based in Russia or using weapons or materials diverted
from Russian facilities could threaten Russia, Europe, Asia, or the United States.
chapter will explore a handful of scenarios that could call for U.S. involvement.

Civil war in Russia could involve fighting near storage sites for nuclear,
chemical, or biological weapons and agents, risking large-scale
contamination and humanitarian disaster. A nuclear accident at a power plant
facility could endanger life and health in Russia and neighboring states . A

or

chemical accident at a plant or nuclear-related facility could endanger life and health in Russia and
neighboring states. Ethnic pogroms in south Russia could force refugees into Georgia, Azerbaijan,

ethnic conflicts in Caucasus

could erupt into armed clashes, which would endanger oil and gas pipelines in the region.
A massive ecological disaster such as an earthquake, famine, or epidemic could
spawn refugees and spread illness and death across borders. An
increasingly criminalized Russian economy could create a safe haven for
crime or even terrorist-linked groups. From this base, criminals, drug traders, and terrorists
could threaten the people and economies of Europe, Asia, and the United States. Accelerated
Russian weapons and technology sales or unautho- rized diversion could foster the
proliferation of weapons and weapon materials to rogue states and nonstate
Armenia, and/or Ukraine. Illustrative Scenarios Economic and

terrorist actors,

increasing the risk of nuclear war .

This list is far from exhaustive.

However significant these scenarios may be, not all are relevant to U.S. military planning. We therefore
applied several criteria to the larger portfolio of potential scenarios, with an eye to identifying the most
useful for a more detailed discus- sion. First, only those scenarios that involve a reasonable threat to U.S.
strategic interests were considered. Second, while it is impor- tant to plan for the unexpected, it is
equally crucial to understand the likelihood of various events. We thus included a range of probabili- ties
but eliminated those that we considered least plausible. Third, we only chose scenarios for which the
Western response would likely be military or would rely on considerable military involvement. Lastly, we
wanted to select a variety of situations, ones that created differing imperatives for the U.S. government
and its Air Force, rather than scenarios, which, while equal in significance, present fairly similar
problems. We therefore offer the following four story- lines as illustrative, if far from exhaustive, of the
types of challenges that would be presented by operations on or near Russian territory.

Russian economic collapse causes extinctionnuclear conflict,

nuclear power accidents, famine, disease, and terrorism.
Oliker 2 (Olga and Tanya Charlick-Paley, RAND Corporation Project Air
Force, Assessing Russias Decline Trends and Implications for the United
States and the U.S. Air Force,
www.rand.org/pubs/monograph_reports/MR1442/)
IS RUSSIA IN DECLINE? To what extent are the processes of decline and the dangers they embody

there exist real concerns about the

direction of trends in political and economic development, the health and well-being of
the population, the state of the Russian military, and the condition of Russias
nuclear power plants and its nuclear-related sector. Moreover, the regional
variation in these problems creates additional concerns about the potential for
internal unrest and division. We focus on a few key areas in which recent trends suggest
present in Russia? In this report, we argue that

signifi- cant decline. These areas do not comprise the sum total of Russias problems, but we believe they
do include the problems that are most likely to lead to crises that affect U.S. interests and might escalate

the continuing evolution of Russias political and economic

structures and institutions is moving in some potentially disturbing
directions. It is unclear as yet to what extent President Vladimir Putin and his administration will be
to involve U.S. forces. First,

able to reverse the processes of political decentralization that gathered force during his predeces- sors
tenure. Although the current administration has taken a number of steps to reassert central control, the
divergence in regional economic, political, and demographic indicators suggests that administrative
changes may be insufficient to stem this trend and that efforts to do so may even backfire. Moreover, the
costs to public and press freedoms that Putins other reforms appear to be engendering create additional
concerns for Russias future. The prevalence of corruption and the routinization of crime or force in
economic life are further symptoms of decline, as is the trend toward the demonetization of Russias

economy. Although recent indicators of economic growth in Russia are positive, their basis in high oil
prices and a weak ruble suggests that without comprehen- sive reform they are likely not sustainable.
Russias shrinking population suffers from low fertility as well as from high rates of disease and
shockingly high levels of mortality among working-age males. If these trends continue, Russia will face a
continued graying of its population, which will place added strain on its economy. It will also raise
concerns about Russias ability to man its military. Finally, insofar as demographic factors, no less than
economic and political factors, affect regions and ethnic groups dif- ferently, they have the potential to
play into efforts to mobilize parts of the population in ways that increase the risk of interethnic or interregional conflict, although this is not highly likely. The Russian military is affected not only by the
problems of the country as a whole but by difficulties of its own. The demographic downtrends mean that
each year the young men who report for duty are sicker and fewer. The collapse of law and order means
that many have criminal backgrounds. The existing military structures are not immune, and tales of
corruption and crime extend to the highest levels. Underfunding and poor maintenance continue to take
their toll. Equipment ages unrepaired, and troops are sent into battle without adequate training. Soldiers
and officers go without pay for months at a time and are increasingly dependent on local govern- ments
for political, financial, and other support. In this environ- ment, order and discipline must be questioned,
with potentially terrifying implications especially for Russias nuclear weapons arsenal and related
infrastructure, although the impact on the conventional forces alone is sufficient grounds for serious
concern. Finally, there is the decline in Russias transportation and industrial sectors, including the
civilian nuclear power sector. There are mixed reports about the state of Russias road, rail, and other
transport networks. Although the networks appear to be functioning, they are far from a peak condition
of efficiency and safety. In the industrial sectors, including nuclear power, production and efficiency are
low, workers are unpaid for months at a time, and facilities are aging. The risk of accidents and the
difficulties of responding to such accidents quickly and effectively are thus increased.

These factors,

singly and together, increase the likelihood of crisis and demonstrate the extent of Russias
decline as a great power. While Russias relative weakness makes it unlikely that it will wage aggressive

theory and experience of both declining states and

suggest the possibility of Russia
lashing out against a neighbor or a weaker state. The possibility of
internal conflict rooted in ethnic tension within Russia or its political devolution is also
increased. Both increased conflict propensity and Russian infrastructure deterioration
in turn increase the likelihood of a humanitarian catastrophe, whether from
war itself, from an industrial or nuclear accident , from a health crisis ,
or from physical and economic isolation of parts of the country. Whether the
result is refugees ; hunger and mass starvation; spread of radiation ; or
war against another great power, the

those undergoing complex and un- certain transitions

an epidemic , the situation is unlikely to be limited to Russian soil alone.

Moreover, Russian weakness makes it more difficult for its own security and
emergency forces to effectively respond, aggravating the problem. There are
those who would argue that while this bodes ill for Russia, it has little impact on the United States. Such

key U.S. interests that are directly affected by Russias

future. The security of Washingtons European and Asian allies who are directly
an argument ignores several

affected by what happens in and near Russia and by stability on Russias periphery. Whether the threat is
from radiation or refugees or involves the spread of violence, U.S. allies have excellent reasons to fear an
increased Russian propensity to crisis.

resources

The secure and reliable export of energy

from the Caspian basin.10 Most of the export pipelines from the Caspian basin go

through Russia. Furthermore, Russias strong interests in the Caspian ensure that it will remain deeply
involved there, even if more non-Russian pipelines are built.

The assurance of nuclear

security and prevention of nuclear use , either sanctioned or otherwise. Insofar as

Russian deterioration increases the risks that portions of its nuclear
weapons stockpile (or other materials) could be employed or diverted into
dangerous hands, the United States has a vital interest in these events. The
prevention of the rise, growth, maintenance, or acquisition of weapons of mass
destruction (WMD) by terrorist groups. The growth of criminal activity in Russia combined with
the potential for failure of central control in parts of the country create a real danger of cooperation
between

criminals and terrorist groups

in ways that

can hurt the United States

The threat of diversion or acquisition of nuclear or other WMD

material by either criminal or terrorist groups also cannot be ignored.
and/or its allies.

The alleviation of mass human suffering wherever it may occur. The United States has set precedents of
willingness and ability to help when a wide range of states have faced humanitarian catas- trophes.
Washington could well feel a similar imperative to assist Russia in a crisis situation.11 In succeeding
chapters, we discuss these key factors of Russias de- cline and how continuing deterioration could lead
to crisis in ways that affect U.S. interests.

Russian economic collapse causes a nuclear Russia-China war.

Oliker 2 (Olga and Tanya Charlick-Paley, RAND Corporation Project Air
Force, Assessing Russias Decline Trends and Implications for the United
States and the U.S. Air Force,
www.rand.org/pubs/monograph_reports/MR1442/)
conventional wisdom and the political science literature posit
state decline, or the appearance thereof, can invite foreign

WAR IN ASIA Both

that substantial

adventurism .

To date, Russias military weakness has not been seen as an invitation for ambitious

rival states to wrest away a chunk of Russian territory. Russias large arsenal of strategic and
nonstrategic nuclear weapons is no doubt a factor. This may change over the next decade or so,
particularly if Russia continues to weaken and demographic trends stay on their present downward
paths. The Scenario This scenario takes place around the year 2015 and assumes that Russia has
continued to deteriorate militarily throughout the inter- vening period. This decline has been especially

in the Far East, where troops are unfed, unpaid, and untrained, and
equipment is obsolete. Chinese migration into the Far East and Russian
emigration from it have continued, and significant numbers of Chinese have
settled permanently in the area. Beijing, whose military might has increased
as Russias has declined, has begun to make noises about its historic right to
southeastern Russia, territory that was annexed between 1858 and 1860 from a China weakened
severely felt

by the Opium Wars. In 2015, with a rapidly growing Chinese population in that area (where families are
unhindered by population control regulations), Beijing is able to create considerable domestic support for
reclaiming the territory. Domestic pressure in China to take back the lost territories is bol- stered by
an increasingly hostile Russian policy and attitude toward Chinese immigrants. Driven by ethnic tensions
that have increased along with the Chinese population, laws now limit the duration and location of
Chinese residency. Discrimination in employment and housing against people of East Asian ancestry is
rampant.
Despite this, economic opportunities attract more and more Chinese to the area.

Whatever strategic partnership might once have been evolving between

Beijing and Moscow has long disappeared and relations between the two
countries are poisoned by Russian anti-Chinese sentiment and Beijings insistence
on pursuing the rights of co- ethnics living in Russia and rumblings about regaining long-lost land. In
addition to historical claims and the desire to protect the rights of ethnic Chinese, China has a strategic
interest in the land southeast of the Amur River. This territory provides an outlet to the Sea of Japan, an

Chinas strategy for acquiring the territory

is based on a plan to provoke Russia into attacking Chinese forces in the
outlet China now lacks. Illustrative Scenarios

region. China, pleading self-defense, could then counterattack into Russia. Beijing,
possessing by now a large strategic nuclear force, is confident that Moscow will not risk nuclear war and
the destruction of European Russia to defend the poor and underpopulated Far East. The Peoples
Liberation Army (PLA) therefore begins to shift more forces toward the border with Russia. The plan goes
awry, however, when Chinese forces get into a firefight with Russian border guards near the border at the
Ussuri River. Chinese commanders on the scene seize territory in Primorsky Krai; the weak and

disorganized Russian forces in the region are able to put up little resistance.
With this fait accompli, Beijing orders its navy to gear up for an amphibious landing at Vladivostok and
elsewhere on the coast. See Figure 8.1. Japan is alarmed by this turn of events. It sees the land grab in
Russia as an example of aggressive Chinese military adventurism and feels particularly threatened by the
prospect of a Chinese outlet to the Sea of Japan. After consultations, Japan and Russia decide that, given
both states relative military weakness, it is time to call on the United States for help. Washington initially
offers to mediate, but while China responds that it is willing to enter into talks, the PLA continues to shift

more forces to the Russian border and ships are heading for Vladivostok. Russia therefore invokes its
status as a Partnership for Peace state to request NATO consultations. Japan, in turn, asks the United
States to assist in rolling back the Chinese land grab in Russia. Implications This scenario may at first
read more like fiction than a plausible future. Projecting 15 years forward is difficult under the best of
cir- cumstances, and doing it with regard to two states in as much flux as Russia and China is particularly
challenging. Furthermore, even if events were to evolve as outlined, the United States would retain
freedom of choice: it would be under no obligation to intervene to defend Russia against the Chinese. On
the other hand, especially if U.S.-Chinese relations continue to deteriorate, the United States may find it

a conflict
between Russia and China would be a clash between two nuclear weapon
difficult to refuse the request of its close ally, Tokyo, and a Russia in need. Furthermore,

states . Although China has a no first use policy, Russia does not. This scenario posits that Beijing is
bet- ting that the nuclear taboo will hold, but one can easily imagine that a Russia that is
weakened conventionally and facing a foreign incursion onto its soil may feel
that it has no choice but to escalate to nuclear use . Thus, this scenario is not
likely but is included because it has serious implications for U.S. interests. While the probability of such a
course of events is low, it is far from negligible, for China does have interests in the Russian Far East, and
Japan (like other states in the region) is highly attuned to the possibility of Chinese adventurism.

Russia-China escalates.
Nathan Nankivell, Senior Researcher at the Office of the Special Advisor
Policy, Maritime Forces Pacific Headquarters, Canadian Department of
National Defence, 10/25/2005. China's Pollution and the Threat to
Domestic and Regional Stability, China Brief 5.22,
http://www.zmag.org/content/showarticle.cfm?ItemID=9509.
In addition to the concerns already mentioned, pollution, if linked to a specific issue like water shortage,

China's northern plains, home to

hundreds of millions, face acute water shortages. Growing demand, a
decade of drought, inefficient delivery methods, and increasing water
pollution have reduced per capita water holdings to critical levels. Although
could have important geopolitical ramifications.

Beijing hopes to relieve some of the pressures via the North-South Water Diversion project, it requires
tens of billions of dollars and its completion is, at best, still several years away and, at worst, impossible .

Yet just to the north lies one of the most under-populated areas in Asia, the
Russian Far East. While there is little agreement among scholars about whether resource
shortages lead to greater cooperation or conflict, either scenario encompasses security considerations .

Russian politicians already allege possible Chinese territorial designs on the

region. They note Russia's falling population in the Far East, currently estimated at some 6 to 7

million, and argue that the growing Chinese population along the border, more than 80 million, may soon
take over. While these concerns smack of inflated nationalism and scare tactics, there could be some

The method by which China might annex the territory can

only be speculated upon, but would surely result in full-scale war
between two powerful, nuclear-equipped nations.
truth to them.

That outweighs --- largest population centers.

Mark W. Hughes, 2/15/2006. An Analysis of Recent Moves By China Which
May Signal Intentions To Invade Russia, Infoshop News,
http://news.infoshop.org/article.php?story=20060215180623912.
Should China invade without a nuclear first-strike, then Russia would likely
not respond with nuclear weapons, at least not initially. However, if nations
armed with such weapons go to war, then the potential for a nuclear war
always exists. Moreover, once one side sees that it is clearly loosing, and if

the stakes are high for each nation, then there is a strong possibility that the
losing side will attempt to gain some advantage by utilizing nuclear weapons
on the battlefield. Once a war has gone nuclear, escalation is almost
inevitable, as the other side retaliates, and the targets of the nuclear
exchanges become more significant until a full-scale nuclear war in which
populations of the largest cities will likely be targeted and killed. The
implications of even a small-scale nuclear exchange (to the extent a nuclear
exchange can be small-scale) in Central Eurasia are staggering. The death
toll would be in the millions and the region would be poisoned with radiation
and fallout. Since China lacks the massive nuclear arsenal of Russia, even a
full-scale nuclear exchange would not quite be the global doomsday scenario
that would arise from a U.S.-Russian exchange, since the total number of
nuclear detonations would be barely more than half of the doomsday
scenario and would be restricted to a much more narrow targeting area. But
the war would take place in the most populated part of the entire
world, Central Eurasia, and where a huge amount of global resources are
found. The radiation and fallout would affect other large parts of the world,
and the death toll from the initial nuclear detonations combined with those
suffering radiation sickness and long-term related illnesses would no doubt
be in the hundreds of millions. And of course, the political and economic
impacts would be earth-shattering, especially in light of the scenarios
leading up to the war and if North Korea were enlisted to attack South
Korea at the same time. China would have to be willing to gamble that the
war would not turn nuclear, unless they devised a way to take out Moscow
without any danger of being detected. Most likely, China will bet on keeping
the war conventional and hope that surprise and a quick victory will make
the operation a success before events spiral out of control. They might also
count on Europe and the U.S. pressuring Russia not to respond with nuclear
weapons. Ultimately, the realities of peak oil and the survival of China's
current government combine to leave China with little choice but to place
their bets and face the risk of the conflict becoming nuclear. Whether China
will ultimately embark on such a risky venture is, obviously, to be seen.
However, the recent developments in relation to China, Russia, and the
Middle East, and the increasingly evident crisis regarding peak oil, all
combine to suggest that the possibility of a Chinese invasion of Russian
territory looks more plausible with each passing day.

2NC Turns Heg

Russian collapse will shift the balance of power away from the US
towards Chinathis terminally jacks hegemony.
Zeyno Baran et al, Summer 2007. Senior Fellow and Director Center for
Eurasian Studies, Hudson Institute. U.S. RUSSIAN RELATIONS : IS
CONFLICT INEVITABLE? Hudson Institute Symposium on US-Russian
Relations, www.hudson.org/files/pdf_upload/Russia-Web%20(2).pdf.
The West needs a stable Russia in order to maintain the global balance of
power against China. In the event of Russias disintegration, her resources
will go to China, not the West. The West cannot stop Russias slide into a systemic cri- sis,

and can only help get out of it once it has begun. This is a challenge for the future. Currently, the West
needs a Cold War only with Russias new masters, not with the Russian people. Russians are protesting
against the politics of the Russian bureaucracy, and their protest should not be re-directed at the
bureaucracys strategic partners in the West. If the West understands and accepts this, it needs to learn
to acknowledge Russians rights to patriotism and to a normal level of freedomnot as a religious
symbol, but as the only path to prosperity and justice. Russian democrats and liberals have forgotten
these demands and rights, and therefore the terms dem - o crat and liberal are cursed in Russia.
Official propa- ganda uses this to divert Russian citizens from asserting their interests and rights to
fighting the West. The West needs to explain to Russia that these rights have been destroyed not by
rivalry with the West, but solely by the avarice of the new Russian leaders. It is true that in the future, the
issue of global competition will arise. Currently, however, there is only one key prob- lemcorruption
(including, of course, corruption in the interests of the West) and a lack of bureaucratic integrity. After
Russia experiences a systemic crisis the West must be able to say to Russians; You see? We are for
democracy, but not for democrats, for law, but not for lawyers, for prosperity, but not for prospering
oligarchs. All of these are things that the West could not say after the 1990s. Russia will be useful to the
West if the West can side with Russia against China and global Islam in foreign policy and with the

If the West attempts to

transform Russia according to its own conceptualization of the correct societal order, or simply to seize
Russian raw materials, intellect, and money, it will destroy Russia and pay
dearly for the rela- tively small gain. As a consequence of doing so, the West
will experience large-scale, global systemic problems.
Russian people against the Russian bureaucracy in domestic policy.

2NC Turns Econ

DA turns the case, but the case cannot turn the DA
Martin Gilman, 1/16/2008. Former senior representative of the IMF in
Russia and professor at the Higher School of Economics in Moscow. WellPlaced to Weather an Economic Storm, Moscow Times,
http://www.moscowtimes.ru/stories/2008/01/16/008.html.
Faced with this gloomy global outlook, Russia is well placed to weather the
storm. In fact, not only is the Russian economy likely to decouple largely
from a sagging U nited S tates and even Europe, but its continuing boom -mostly but not solely fueled by high energy revenues -- is sucking in both consumer
and investment goods, and so acting as a motor of world growth. And the
planned $1 trillion public investment program over the next decade should
ensure that the country remains decoupled for years to come .

2NC Defense Base Impact

US exports are the key threat to Gazprom --- critical to overall
Russian economy AND funding military spending.
Richard Weitz, 10/11/2012. Senior fellow at the Hudson Institute. Russia: Is Putinomics
Unsustainable? EurasiaNet, http://www.eurasianet.org/node/66039.

Aslund cast Gazprom, the natural gas giant, as a bellwether for the future of
state capitalism in Russian. Natural gas exports are one of the most vital
components of the Russian economy, enabling Putin to indulge in vast
spending schemes, especially an ambitious military buildup. Aslund
described Gazproms contributions to state coffers as the dominant
source of rents for the Kremlin. But Gazproms ability to remain
competitive in international markets is coming under extreme pressure .
Where Gazprom Goes, Russia Goes, Aslund said. The top threat to Gazproms
global position is the explosion of shale gas extraction in the United
States, which is fostering Washingtons energy independence and causing a dramatic fall in
global natural gas prices, especially in Europe, which is Gazproms crucial export market. As
a result, Gazproms profits are plummeting.
*Anders Aslund, senior fellow at the Peterson Institute for International Economics
specializing in Russia.

Conventional weakness causes accidents --- resources for

modernization are key.
Bruce Blair and Clifford Gaddy, 1999. President of the Center for Defense
Information, former Senior Fellow at the Brookings Institution, Minuteman
launch control officer in the Strategic Air Command, Ph.D. in Operations
Research from Yale, has taught security studies as a visiting professor at
Yale and Princeton and Senior Fellow at Brookings. "Russia's Aging War
Machine,"
http://www.brookings.edu/~/media/Files/rc/articles/1999/summer_russia_bru
ce%20blair%20and%20clifford%20gaddy/Blair.pdf.
For Russias conventional forces, the combination of lack
of resources and the time and effort that must be diverted to sheer survival has been
devastating to combat readiness. But nowhere does the weakness and
inefficiency of Russias state economy have more serious implications than
famous nuclear suitcases that accompany the president and other top
authorities are falling into disrepair. Prestigious institutes, such as the laborator ies that
Effects on the Nuclear Forces

design nuclear weapons, build the deep underground command posts, and engineer the communications
links that would be used to send the go code to the strategic weapons. But conditions that might drive
individuals or groups to violate nuclear safety rules or threaten to fire weapons are ripening. At the least,
worsening conditions of life and work in the nuclear forces decrease proficiency in managing weapons
and sap motivation to adhere strictly to safety rules. [continues] If we are very lucky, the Russian nuclear
arsenal and control system will atrophy without incident, coming to a safe instead of deadly end. In such
a happy scenario, this atrophy will also encourage Russia to ratify the START II arms reduction treaty and
negotiate even deeper bilateral reductions, lowering the ceiling on strategic deployments from 3,500
(START II) to 2,500 (START III) or fewer.Within a decade or so Russias aging force could easily shrink to
500 or fewer, creating enormous latitude to negotiate vast reductions in deployments. But this scenario is
wishful thinking loaded with untenable assumptions.The START process has stalled and may not be
revived any time soon, leaving in place increasingly decrepit and hazardous forces that Russia might not
retire after all.The

decay of the Russian arsenal is certain to run growing risks of

proliferation and to erode safety along with basic offensive capability . For
example, a degraded early warning network is less able to detect an actual
attack but also less able to screen out false indications of attack. Similarly, failure in
the nuclear command link between the General Staff in Moscow and the launch crews in the field would
disrupt not only the ability of the General Staff to quickly transmit the go code, but also the feedback loop
from the missiles to the General Staff that detects and prevents an unauthorized launch attempt at any
subordinate level of command. Finally, the departure of security guards from their posts at weapons
depots to forage for food or escape inclement weather may not only impede the authorized dispersal of

the
danger is not merely theoretical. A 1996 CIA report noted that broken
locking devices on some Russian nuclear weapons had not been repaired for
lack of spare parts. In short, progressive nuclear deterioration in Russia
increases the risks of mistaken, illicit, or accidental launch, and the loss of strict central
control over Russias vast nuclear complex bodes ill for non proliferation. If Russias nuclear
those weapons during a crisis but also increase the vulnerability of the weapons to theft. And

designers, producers, and custodians surrender to economic pressure, they could open the to the illicit
transfer of nuclear materials, weapons, and delivery technologies to Americas adversaries. A meltdown
of Russian nuclear control could be catastrophic for Americans. Securing Russias nuclear weapons and
materials and strengthening safety and control over operational deployments deserve top billing among
the security priorities of the U.S. government. To alleviate the immediate danger, Russian and U.S.
strategic missiles should be taken off hair-trigger alert so that none could be fired on a moments notice.
De-alerting our arsenals, ideally by detaching the warheads from missiles,would reduce their
susceptibility to illicit or mistaken launch.Today it takes only minutes to prepare those forces for launch.
Reducing the interval to days or longer would provide a far larger margin of safety against many
scenarios, ranging from the temporary loss of legitimate civilian control over Russian weapons to false
warning in Russias early warning system both more plausible dangers than a deliberate, cold-blooded
attack by Russia or the United States against each other. The challenge of deterrence today pales beside
the challenge of operational safety. But even a comprehensive nuclear stand-down falls short over the
long run.As

long as Russia remains mired in economic, political, and military despair,

the nuclear threat will continue. Russia will not be able to reduce its
reliance on nuclear weapons until it can afford an adequate conventional
military force. It will not be able to ensure control over its nuclear weapons
and materials until it has a strong state, one based on a healthy economy and a civil
society. The Wests vital stakes in this process of nation-building have not diminished, despite all the
failures and frustrations of the past decade. If anything, those stakes have grown as have the cost and
effort needed to stabilize and transform Russia.

Thats the most probable scenario for extinction.

John Leslie, 1996. Professor Emeritus of philosophy @ University of Guelph.
The End of the World: The Science and Ethics of Human Extinction, p. 32.
Probably, however, it has been accidental nuclear war between the United
States and Russia which has represented the most immediate danger to
humankind since Russia's development of the H-bomb. This statement is as
defensible today as it ever has been. The fragmentation of the Soviet Union
has presumably made it easier, if anything, for missiles to be launched
without authorization, and an attack from a s low as the regimental level
could result in three hundred nuclear explosions.19
[Only scenario for extinction]
Nick Bostrom, 2002. Professor of Philosophy and Global Studies at Yale.
"Existential Risks: Analyzing Human Extinction Scenarios and Related
Hazards," 38, www.transhumanist.com/volume9/risks.html.
A much greater existential risk emerged with the build-up of nuclear arsenals in the US and the USSR. An all-out nuclear war was a
possibility with both a substantial probability and with consequences that might have been persistent enough to qualify as global and

a nuclear
Armageddon would occur and that it might annihilate our species or
permanently destroy human civilization. Russia and the US retain large
nuclear arsenals that could be used in a future confrontation, either
accidentally or deliberately. There is also a risk that other states may one day build up large
nuclear arsenals. Note however that a smaller nuclear exchange , between India and
Pakistan for instance, is not an existential risk, since it would not destroy or
thwart humankinds potential permanently.
terminal. There was a real worry among those best acquainted with the information available at the time that

AT: Modernization Bad

Modernization not offensive and long timeframe.
McDermott et al 09 [Roger, Senior Fellow on Eurasian Military Affairs for
the Jamestown Foundation. He specializes in Russian, Central Asian and
South Caucasus Security and Military Affairs. He is also an honorary senior
research associate, department of politics and international relations,
University of Kent at Canterbury (UK), Dale Herspring, University
Distinguished Professor, "Medvedev Overplays the Military Card in Trying
to Impress Obama," 3/29, http://www.cdi.org/russia/johnson/2009-62-30.cfm]
Medvedev
raised the specter of a strong and robust Russian military . The fact is that while
Russia is undergoing a major reform of its armed forces, and beginning to
pump money into it, it will be several years, 2020, according to many
Russian officers, before the Russian armed forces will be equipped with
modern weapons. The reality is that the Russian military is in no position to
threaten anyone. By their own admission, Russian generals view the war in Georgia as a
In his March 17, 2009 speech to Russias top military brass, Russian President Dmitri

disaster. Russia won, but only by using outdated weapons and equipment and the kind of frontal
military attack that was more reminiscent of World War II, than of the modern type of warfare. In short,

Medvedevs effort to play the military card was nothing more than an effort
to gain a diplomatic advantage by pulling the wool over the Wests eyes.
Modernization will be peaceful and conventional --- shift in Russian
nuclear doctrine proves.
Nikolai Sokov, 2/5/2010. CNS Senior Research Associate. The New, 2010 Russian Military
Doctrine: The Nuclear Angle, James Martin Center for Nonproliferation Studies @ Monterey Institute,
http://cns.miis.edu/stories/100205_russian_nuclear_doctrine.htm.

Russia finally published its new Military

Doctrine, which replaces an earlier document adopted in 2000. At the same time as he signed the
On February 5, 2010, after multiple delays,

Military Doctrine, President Dmitri Medvedev also signed "The Foundations of State Policy in the Area of

Contrary to expectations,
the new Military Doctrine appears to reduce, at least somewhat, the role of
nuclear weapons in Russia's national security policy . Together with the START followNuclear Deterrence until 2020," which has not yet been made public.

on treaty that might be signed as soon as in March or April this year, this could strengthen Russia's
position at the forthcoming 2010 NPT Review Conference. One also wonders whether this shift in Russian
attitude toward nuclear weapons will affect the upcoming Nuclear Posture Review in the United States.
Nuclear policy was clearly one of the elements of the new Military Doctrine that generated considerable

Experts who tried to follow

these closed-door debates were unpleasantly surprised by an October 2009
interview of Nikolai Patrushev, who serves as secretary of the Security Council, an interagency
controversy within the Russian political and military establishment.

body, roughly similar to the National Security Council in the United States, which was charged with the

Patrushev indicated that the new Doctrine might assign

nuclear weapons to "local conflicts," which would have represented a
massive expansion of the role of these weapons in Russian security policy.[1] That statement
drafting the new Doctrine.

caused serious criticism inside Russia, including from the military, and many students of Russian nuclear
policy waited with some concern to see the outcome of that debate. The end result was a pleasant

the new Military Doctrine, in

fact, somewhat reduced it by setting stricter criteria for the use of such
surprise instead of expanding the role of nuclear weapons,

arms. Like the previous Doctrine, the new document differentiates between four types of military
conflicts: * armed conflict (basically, a small-scale clash between two states or within one state similar to
the war in Chechnya); * local war (war with limited goals that affects only the interests of the immediate
participants a good example is the 2008 Russian-Georgian war); * regional war (war that involves
significant forces, including naval and airspace, which affects a large region and perhaps even coalitions
of states); and * large-scale war (war with radical, far-reaching goals that involves all or most great
powers; fundamentally, a new world war). The 2000 Military Doctrine assigned nuclear weapons to the
third and the fourth types of conflicts, which represented a major expansion of the role of these weapons
(the earlier, 1993 Doctrine only assigned them to global war). Obviously, Patrushev's hint that nuclear
weapons might have a role in local conflict was met with concern one needs only to imagine nuclear
threats issued by Moscow during conflicts similar to the 2008 war in the Caucasus. The final version of
the 2010 Military Doctrine kept the earlier language, however. Nuclear weapons are still assigned to
regional and large-scale wars and are regarded as "an important factor in the prevention of nuclear
conflicts and military conflicts that use conventional assets (large-scale and regional wars)." Like the
earlier version, the new document clearly indicates that a conventional regional war could escalate to the
nuclear level. In a slight change from 2000, this provision is formulated in broader terms this is now
not only seen as a means of deterring or dissuading states that might attack Russia with conventional

The
most significant change in the language pertaining to nuclear policy is the
new criterion for the employment of nuclear weapons . It has become tighter.
Whereas the previous, 2000 Doctrine foresaw the resorting to nuclear
weapons "in situations critical for [the] national security" of Russia, the 2010
version allows for their use in situations when "the very existence of [Russia]
is under threat." Like the earlier document, the new Doctrine reserves the right to use nuclear
armed forces, but also an expression of concern that similar escalation might take place elsewhere.

weapons not only in response to a nuclear attack or an attack with other WMD (a slight revision of the
negative assurances that has become common among nuclear weapons states since 2000), but also in
response to a conventional attack. In other words, it keeps the first-use plank. The main mission assigned
to nuclear weapons by the new Doctrine is the "prevention of nuclear military conflict or any other
military conflict." This mission assumes "the maintenance of strategic stability and the nuclear
deterrence capability at the level of sufficiency." In a different part of the document the notion of
"sufficiency" is defined as ability to inflict "predetermined" (alternative translation, "tailored") damage to
an aggressor under any circumstances. While these provisions are reasonably standard for any nuclear

the Doctrine contains one new element: it assigns high-precision (apparently,

conventional) weapons to the mission of strategic deterrence. This clearly
indicates that Russia plans to follow the same trajectory as the United States
and equip a growing share of its strategic delivery vehicles with
conventional warheads. An interesting feature of the 2010 Doctrine is the emphasis on strategic
deterrence capability. The choice of terms seems to indicate that Russia does not
assign a visible role to substrategic (or tactical) nuclear weapons.[2] Overall, the
2010 Doctrine devotes less attention to the nuclear component of Armed
Forces than the previous one. This is clear at the most superficial level: there are fewer
paragraphs about the use of nuclear weapons and nuclear posture In general, the doctrine
places considerably more emphasis on conventional forces and in
particular on high-precision assets, communications, command and
control systems, and other elements in which Russia has been traditionally
behind other major military powers. This shift of emphasis probably reflects the
focus of the current political and military leadership on the
undergoing military reform as well as the provision, contained in the 2000
National Security Concept, which regarded reliance on nuclear weapons as a
"stop-gap" measure until thorough modernization of the Armed
Forces is complete.
weapons state

Russian moves that appear hostile are actually defensive.

George Friedman, Fall 2009. Founder and Chief Executive Officer of STRATFOR, Ph.D. in

Government from Cornell University. The Coming Conflict With Russia, Journal of International Security
Affairs No 17, http://www.securityaffairs.org/issues/2009/17/friedman.php

Between their geopolitical, economic, and demographic problems, the Russians have to make a
fundamental shift. For a hundred years the Russians sought to modernize their country through
industrialization, trying to catch up to the rest of Europe. They never managed to pull it off. Around the

Instead of focusing on industrial development as

they had in the past century, the Russians reinvented themselves as
exporters of natural resources, particularly energy, but also minerals,
agricultural products, lumber, and precious metals . By de-emphasizing industrial
year 2000, Russia shifted its strategy.

development, and emphasizing raw materials, the Russians took a very different path, one more common
to countries in the developing world. But given the unexpected rise of energy and commodity prices, this
move not only saved the Russian economy but also strengthened it to the point where Russia could afford
to drive its own selective reindustrialization. Most important, since natural resource production is less
manpower-intensive than industrial production, it gave Russia an economic base that could be sustained
with a declining population. It also gave Russia leverage in the international system. Europe is hungry
for energy. Russia, constructing pipelines to feed natural gas to Europe, takes care of Europes energy
needs and its own economic problems, and puts Europe in a position of dependency on Russia. In an
energy-hungry world, Russias energy exports are like heroin. It addicts countries once they start using
it. Russia has already used its natural gas resources to force neighboring countries to bend to its will.
That power reaches into the heart of Europe, where the Germans and the former Soviet satellites of
Eastern Europe all depend on Russian natural gas. Add to this its other resources, and Russia can apply

A militarily
weak Russia cannot pressure its neighbors, because its neighbors might
decide to make a grab for its wealth. So Russia must recover its military
strength. Rich and weak is a bad position for nations to be in. If Russia is to be rich in natural
significant pressure on Europe. Dependency can be a double-edged sword, however.

resources and export them to Europe, it must be in a position to protect what it has and to shape the

In the next decade, Russia will become

increasingly wealthy (relative to its past, at least) but geographically
insecure. It will therefore use some of its wealth to create a military force
appropriate to protect its interests, buffer zones to protect it from the rest of
the worldand then buffer zones for the buffer zones. Russias grand strategy involves
the creation of deep buffers along the northern European plain , while it divides
and manipulates its neighbors, creating a new regional balance of power in Europe. What Russia
cannot tolerate are tight borders without buffer zones, and its neighbors
united against it. This is why Russias future actions will appear to be
aggressive but will actually be defensive.
international environment in which it lives.

***AFF ANSWERS***

N/U Ukraine
Crimea conflict and the resulting sanctions have already pushed
Russia into recession.
Russia Today, 7/3/2014. HSBC: Russia enters technical recession, as Ukraines drag
weighs, http://rt.com/business/170188-russia-technical-recession-hsbc/.

Russia has slipped into a technical recession, as the growth has been
negative for the past two consecutive quarters, and stagflation could be on
the horizon, a new HSBC report reveals. Political tension in neighboring Ukraine is
being blamed.

In June, the Russian economy showed zero growth, and slipped into a
technical recession in the first half of 2014, HSBC analyst Artem Biryukov
commented in a Thursday note.
Unfortunately, the recent spike in geopolitical tensions amid the RussiaUkraine standoff will likely have long lasting negative effects on private
fixed investment growth in Russia. This will hamper economic recovery in
Russia in 2014-15, despite large investments further to the signing of the
Russia China gas deal, Biryukov said.
Ukraine is Russias third largest trading partner with a turnover of around
$22 billion in 2013. Souring relations with some western countries that don't
agree with Russia's actions in Ukraine is hitting Russian foreign trade. In
March 2014 it fell 11.4 percent compared to March 2013.

According to Biryukov, the most likely outlook for the second half of 2014 is
stagflation - low economic growth coupled with high inflation .
Stagflation remains our baseline scenario for 2H 2014. The shaky improvement of
manufacturing and services sector activity in June is unlikely to be sustained
for purely statistical reasons. Once positive base effects fade in 2H 2014, we
could see even negative annual GDP growth data appearing, Biryukov
wrote.
Russia could further fall into the financial abyss, HSBC warns. In the first
quarter of 2014, between January and March, Russias seasonally adjusted
GDP fell by 0.5 percent.
HSBC analysts used manufacturing, service industry, and business activity
indicators as proof the Russian economy has slowed, nearly to a halt .
Ukraine conflict aftermath will lead Russia to economic decline
Linda Kelly, 3/27/2014. Journalist specializing in Russian affairs. Russia economy faces
bumpy ride on Crimea crisis, http://www.bdlive.co.za/world/europe/2014/03/26/russiaeconomy-faces-bumpy-ride-on-crimea-crisis.

The Russian economy may contract markedly this year and the country
could see record capital outflow of $150bn if the crisis over Moscows
annexation of Ukraines Crimea deepens, the World Bank warned on

Wednesday. In the first estimate by a leading international institution of the likely economic
damage from the Kremlins standoff with the West over Ukraine, the bank said in a

report on Russia that the countrys gross domestic product (GDP) might
shrink 1.8% this year. "We assume that political risks will be prominent in the short-

term. "If

the Russia-Ukraine conflict escalates, uncertainty could rise around

sanctions from the West and Russias response to them ." The US and European
Union have called the takeover of Crimea illegal, and imposed asset freezes and visa bans on
selected Russian and Crimean officials. These moves, and the threat of harsher

sanctions if Moscow goes further by intervening in eastern Ukraine, have

shaken Russian financial markets. The forecast 1.8% contraction represents the
World Banks high-risk scenario, but still assumes the international community will refrain
from trade sanctions. In an alternative low-risk scenario, assuming only a short-lived impact
from the Crimean crisis, the bank sees GDP growth of 1.1% this year, compared with the 2.2%
it predicted in its last report in December. "No matter how the Crimean crisis plays

out, there is the risk that the Russian government will be put back into a
crisis mode to uphold macroeconomic stability ," the bank said. "It is likely that
policy choices will be about managing short-term issues, and the medium-term agenda of
structural reforms will continue to take a back seat." Russian assets have rebounded this
week, calmed for now by signs that the crisis may ease. But the situation there remains
fragile. "An intensification of political tension could lead to heightened uncertainties around
economic sanctions and would further depress confidence and investment activities," the
World Bank said. Birgit Hansl, the banks chief economist for Russia, said: "Recent events
around the Crimea have compounded the lingering confidence problem into a crisis of
confidence. The issue was "the decisive factor affecting Russias economic outlook".

Deteriorating confidence has already led investors to transfer massive sums

outside Russia. The Economy Ministry estimates net capital outflow at up to
$70bn in the first quarter alone, compared with $63bn in the whole of last
year. In the bleaker of its scenarios, the World Bank envisages capital
outflow at $150bn this year and $80bn in the next. This years forecast
exceeds the $120bn in capital flight that Russia saw in 2008 during the
global financial crisis. The outflow of money will put further pressure on the
rouble, which despite its recent firming is still 7% down against the dollar
this year, according to Reuters calculations. "We assume the rouble depreciates both in
2014 and 2015 and we see a high volatility in its exchange rate," Ms Hansl said. The
weakening of the currency is likely to put upward pressure on inflation,
which the World Bank sees at 5.5% this year , higher than the upper end of the
central banks targeted range of 4%-5%. Meeting the target would require further monetary
tightening, the bank said. The Economy Ministry has yet to revise its growth

forecast of 2.5% for the year, but a deputy minister said on Monday that it
was expecting GDP growth of "around zero" for the first quarter . In its lowrisk scenario, the World Bank expects Russias economic growth to inch up to 1.3% next year.
The high-risk scenario envisages 2.1% growth, largely due to a low base this year. "If there
is an orderly resolution to the Crimean crisis, the economy would recover in 2015," the Bank
said. "Nevertheless, there would remain some tail risk of continued tensions, which would
adversely affect growth over a longer period."

N/U Sanctions
Even if current sanctions had limited effect, a future round will
devastate Russias economy.
Alexander Kolyandr, 7/3/2014. Sanctions Could Have 'Significant Impact' on Russia's

Economy, Wall Street Journal, http://online.wsj.com/articles/wider-western-sanctions-couldhave-significant-impact-on-russian-economy-1404389474.

Russia's Finance Ministry has warned that wider Western sanctions as a

result of the Ukraine crisis could have a "significant negative impact on
GDP."

In one of the most frank official assessments to date of the economic costs of the conflict and
effect of Western sanctions, the ministry warned in an internal document this week that
geopolitical tensions present "the greatest risks of destabilization of the Russian economy."
Publicly, the Kremlin has brushed off the impact of the sanctions , which so far
have been limited to a few dozen officials and businessmen and banks. But the U.S. and

European Union continue to threaten broader restrictions that would affect

entire sectors of the Russian economy, in the event Moscow doesn't do more to rein

in pro-Russian separatists fighting in eastern Ukraine.

The fear of those broader sanctions appears to have pushed the Kremlin to take a number of
steps toward de-escalation in recent weeks, including recent efforts to push for a negotiated
solution.
But officials in Kiev and many Western capitals say the Kremlin still needs to do more. For the
moment, however, the Kremlin's limited steps to reduce tensions have been enough to keep
major new sanctions off the agenda in the West, diplomats say.
The Russian Finance Ministry document an annual budget-planning report
discussed at a cabinet meeting Thursdayunderlines the internal alarm that the risk of
further sanctions has caused.

While it says the economy "has adequate reserves to compensate (for) the
majority of the economic losses caused by sanctions," restrictions on entire
sectors would knock growth this year to just above zero and would have a
"substantial impact" in future years by cutting off access to much-needed
technology.
The ministry report spells out a broad range of knock-on effects from sectoral sanctions in
dramatic terms.

"The imposition of sanctions on individual sectors of the Russian economy

could lead to a worsening of their financial condition, borrowing terms, a
rise in the risk premium and an increase in the capital outflow ," the report says,
adding that a further fall in the ruble, rise in inflation and decline in
consumer confidence and investment would also ensue .
The Russian economy was already on the brink of stagnation before the
sanctions. Gross domestic product grew 1.3% last year, a far cry from an
earlier forecast of 3.5%, and is expected to expand by only 0.5% this year ,
according to the government's forecast.

The crisis in Ukraine has made things worse. Officials and analysts now say
the economy could have fallen in the second quarter into recessiondefined
by most economists as two consecutive quarters of economic contraction .

Ukraine sanctions lead to Russian economic decline

Lidia Kelly, 7/1/2014. Journalist specializing in Russian affairs. Sanctions brought
Russian economic growth to standstill, Reuters,
http://in.reuters.com/article/2014/07/01/russia-economy-imf-idINL6N0PC22Q20140701.

Sanctions imposed on Russia over Ukraine have brought growth to a

standstill, had a "chilling effect" on investment and could force Moscow into
economic isolation, the International Monetary Fund said on Tuesday. The
Fund kept its forecast for gross domestic product (GDP) to grow 0.2 percent
this year, but said in a report that there were risks. Russia's Economy Ministry
said recently growth could come in above the official forecast of 0.5 pct and closer to 1
percent. "Even without the escalation (of the Ukrainian crisis), prolonged

uncertainty and the resulting deterioration of confidence could lead to lower

consumption, weaker investment, and greater exchange rate pressure and
capital outflows than assumed under the baseline," the IMF said in a report.
"Moreover, this risks derailing the reform agenda and a shift toward more
emphasis on economic self-reliance rather than integration with the rest of
the world." After annexing Ukraine's Crimea in March, Russia has been punished by
sanctions imposed by the European Union, the United States and other Western countries.
The punitive measures, including asset freezes and visa bans on officials, sent the rouble
spiralling and prompted capital flight of $80 billion in the first five months of the year.

Russian government and central bank officials have called the impact on
growth "negligible" and the rouble has since recovered much of its losses.
But former Finance Minister Alexei Kudrin said sanctions could mean Russia
loses between 1 and 1.5 percentage point in GDP growth . "Concern about a
possible escalation of sanctions has increased the uncertainty of doing
business in Russia and is having a chilling effect on investment, while bond
issuance has declined sharply," the IMF said. "This comes at a crucial moment
when the old growth model based on energy and use of spare capacity has
been exhausted and moving to a new growth model based on diversification
requires new investment, including foreign technology." Capital investment by
firms in their tangible assets, such as building and infrastructure, has been falling month
after month, down 2.6 in April. The IMF estimates that capital outflows could reach $100
billion this year, in line with the Russian government's estimates.

Russian Economy Unsustainable

Russian economic collapse inevitable.
Owen Matthews, 12/30/2012. Contributing Editor to Newsweek and The Daily Beast
based in Moscow and Istanbul. The End of Putinomics, The Daily Beast,
http://www.thedailybeast.com/newsweek/2012/12/30/the-end-of-putinomics.html.

Unfortunately for the Russian president, however, change is imminentand

in a form utterly beyond his control. Two words have already begun rocking
Putins world: shale gas. The new technology, which allows natural gas to be
extracted cheaply and in previously untapped places, is about to upend not only global
energy prices but also the geopolitical status quowith Russia as the prime
loser. For more than a decade, rising oil and gas prices have kept Putins
Russia aloft. The entire unwieldy apparatus, from massive military spending to the magical
thinking of Putins lowtax, high-spend policies, is based on petro-wealth. When Putin was
anointed as Boris Yeltsins successor in 1999, oil stood at $17 a barrel. Today its bumping
along at roughly $110. Th at windfall is the secret of Putins economic miracle, of his
popularity, and of his arrogance. But 2013 is shaping up to be the year when
the magic stops. Putinomics is in many ways like a gigantic Ponzi scheme .
Free money comes bubbling out of the ground; the government and its cronies skim off a
sizable chunk, and then spend the balance on keeping the people happysubsidizing a vast
and antiquated military-industrial complex, for example, thereby ensuring plenty of steady
jobs for defense workers. But just like a Ponzi scheme, it works only as long as
supplies of new cash keep growing. And Russias fountain of loot is

beginning to dry up. Although crude-oil prices have stayed pretty firm,
propped up by rising Chinese demand and continued unrest in the Middle
East, world natural-gas prices have fallen through the floor . In the past five
years the United States has overtaken Russia as the worlds largest naturalgas producer, and U.S. domestic prices are a quarter of what Russias gas
giant, Gazprom, has been trying to charge in Europe . Liquefi ed natural gas
(LNG), another growing piece of the global energy market, is trading at half the
Russians price, which is indexed to crude oil. The impact is already apparent at
Gazprom. The state-owned company employs nearly half a million people and accounts for 8
percent of Russias GDP; its taxes constitute roughly 20 percent of the state budget. And
according to preliminary figures, its profits fell by half in the last quarter of 2012. Its total
stock value has plunged from $365 billion in May 2008 to $120 billion as of this writing. The
road ahead looks no less grim. Although Gazprom remains the supplier for a quarter of
Europes gas, customers slashed orders and negotiated price discounts worth $4 billion in
2012 alone. Worse, the European Union is investigating Gazprom for allegedly

preventing the diversification of supply of gas and imposing unfair prices

on its customers by linking the price of gas to oil prices. A $20 billion
exploration project under the Arctic Sea was supposed to open Russias first new gasfields
since the 1960s, but it has been shelved after foreign partners dropped out, citing lack of
demand. For the foreseeable future, natural-gas prices are headed only one way: down.

Putin likes to think of his country as an energy superpower , and its true
that Russia remains the worlds biggest energy exporter. But shale gas and
LNG have broken Gazproms stranglehold on Europes energy supply . Th at in
turn is leading to a profound shift in the relationship between Russia and Europe. A decade
ago, Putin counted then German Chancellor Gerhard Schroeder among his closest friends and
shared traditional Russian saunas with him (not to mention signing him up for a cushy job at
Gazprom when Schroeder retired in 2005 ). But Schroeders successor, Angela Merkel, is not

so shy about taking Putin to task for human-rights abuses. The contrast was unmistakable
when Merkel traveled Moscow in late 2012. In the wake of a German parliamentary
resolution condemning the Kremlin for locking up opponents, the rapport between Merkel
and Putin was chillier than the November weather in Red Square. The air grew still more
frigid when Putin attacked Merkel for being soft on the jailed punk rockers Pussy Riot, whom
he falsely accused of anti-Semitism. (The activists were filmed at an antifascist rally carrying
ironic anti-gay, anti-Semitic and racist slogansbut Putin, who boasts that he doesnt use a
computer, couldnt check the clip on YouTube.) Putins falling out with Germany is likely to
portend frostier relations with Europe in general. For years the European Union has been
split over its ties with Russia. Countries like Poland and Estonia have favored a tough line
against the Kremlins human-rights violations, while like Germany and Italy have urged
leniency rather than risk their privileged access to Russian energy and Russian trade. Now
the continent has a chance to pull together at last, and Russian bureaucrats are threatened
not only with sanctions to punish their mistreatment of political dissenters but also with
Europe-wide action to freeze ill-gotten money and deny visas to corrupt officials. Still, its
ordinary Russians who are likely to feel the most severe impact from the shale-gas revolution.

The countrys 2013 state budget is predicated on oil selling at $117 a barrel.
According to Citibanks forecasts, however, the actual price will average
around $80. With energy accounting for more than half of Russias state
revenue, the country is facing a massive deficit . Until 2010, Russias
petrocash windfall was relatively well managed, parked in a stabilization
fund to cushion against future oil shocks . But that protection went away
when the government dumped the funds founder, Finance Minister Alexei
Kudrin, and Putin raided the stabilization kitty for a socialspending splurge
and a massive $770 billion, 10-year rearmament program, including Cold War
hardware like nuclear submarines and main battle tanks. In other words, this year
Putin should expect to run out of money. And if recent events in Athens, Lisbon,
and Madrid are any indication, the Russian people will respond with something less than
utter equanimity to cutbacks in government spending. Putin may remember the winter of
201112, when 100,000 Russians defied the arctic weather, filling the streets of Moscow to
protest against rigged elections and rampant corruption. The driving force behind
democratic change in Russia is young, educated, and politically savvy middle-class Russians
who grew up during the past 20 years of market reforms, says opposition leader Vladimir
Ryzhkov. And thats why the Kremlin, initially rattled, finally shrugged off the anti-Putin
demonstrations. Russias middle class may be angry, but its still only a tiny fraction of the
population. Until now, at least, the bulk of the Russian heartland has remained firmly behind
their president. As a result, Putins continued popularity depends on supporters like
Svetlana Kuritsyna. The young seamstress was given hero status on state-run television after
she was bussed to Moscow by a pro-Kremlin youth group during the 2011 protests and
publicly extolled the countrys progress under Putin in ungrammatical Russian. We have
started to dress more better, she said. And there are no problems with housing. But what
will ordinary Russians say when the Kremlins housing money evaporates and the people are
living more worse? The authorities made short work of its middle-class critics. Tall poppies
like Pussy Riot received brutal two-year labor-camp sentences. Dozens of others have been
detained on trumped-up charges. Opposition activist Leonid Razvozzhayev is charging that he
was kidnapped in Kiev, Ukraine, drugged, and spirited across the border, KGB-style, to face
charges of allegedly having stolen 500 fur hats 15 years ago. (Prosecutors straightfacedly
claim that Razvozzhayev came home on his own and turned himself in.) To Western observers,
the absurdity of accusations like those faced by Razvozzhayev only undermines the credibility
of the government that makes them. But to Russiansespecially those in the line of fireits
precisely the absurdity that conveys the real threat: we can convict you for anything, and you
have no chance of defending yourself. Its a modern-day version of the old Stalin-era dictum,
Show me the man, and I will show you the offense. Small wonder that so many young
Russian professionals are planning to emigrate, adding brains to Russias other two main
exports: hydrocarbons and stolen money. As always, Russias leaders and its government-run
media persist in blaming the countrys troubles on conspiracies and spy plots. U.S.
Ambassador Michael McFaul has been accused of being a paymaster for the protesters, and a
new law has massively expanded the definition of treason. Now nongovernmental
organizations that receive funding from abroad are being required to register officially as

foreign agents. Some have refused, like the venerable Memorial group, which documents
the victims of political repression from Stalins era to the present. Vandals responded by
smearing the groups offices with graffiti and anti-U.S. slogans. Meanwhile the countrys
bureaucrats continue to bleed the states coffers and the national economy for a total of $300
billion a year, according to the Moscowbased think tank Idem. The years of oil wealth
have only worsened the range and scale of corruption . Rapacious

officeholders have reinforced the countrys dependence on the oil industry

by strangling independent enterprise. Small businesses employing fewer
than 100 people make up just 7 percent of Russias economy , as compared with
Poland, for example, where they make up fully 50 percent. Russians see nowhere to turn for
help in curing the pervasive rot. State employees are universally despised and distrusted.
Putin seems never to stop announcing anticorruption drives, but everyone knows that graft
has become the governments lifeblood. Putins system is dependent on corruption

on corruption as a form of management and a guarantee of loyalty from

officials, says blogger and opposition leader Alexei Navalny. They will not
kick out from under themselves the stool that they are standing on . While
the oil money kept flowing, ordinary people laughed at corruption at least a
bit. One of the regular characters on the satirical television show Nasha Rasha is Nikolai
Laptev, the honest traffi c cop. His kids wear clothes made of sacking and his apartment is
bare of furniture, but crazy, dumb Nikolai keeps on congratulating himself for never having
taken a bribe. Cue hysterical audience laughter. Soon, however, that routine may not
seem so comical. During the winter protests of 201112, there was one issue on which
the metropolitan revolutionaries connected with grassroots support across Russia: everyone
was fed up with the countrys thieving bureaucrats. As the tide of money recedes, that
resentment will only grow. High-ranking heads will likely roll. Putins longtime defense
minister, Anatoly Serdyukov, has already been axed over a murky property deal. But going
after scapegoats in the governments senior levels will be a dangerous game. Infighting
among Putins former KGB associates has occasionally broken the surface over the past few
years, and the struggles have been ugly affairs involving cops raiding other cops, accusations
leaked to the press, and flurries of prosecutions and counterprosecutions by rival clans.
Expect much more of that as internecine conflicts break out over dwindling wealthand over
which former partners will be sacrificed in order to appease an angry public. The big
question is whether Putin will be able to stay above the fray, or whether hell get pulled down
into it. For 12 years he has systematically dismantled the countrys legitimate safety valves,
like independent media and organized political opposition, all in the name of stability. Now
there arent many ways left for frustrated Russians to vent their anger short of aiming it
directly at the leadership. In the past, the Kremlins political strategists have set up bogus
opposition parties to channel popular protest safely away from Putin. Theyre sure to try that
ploy again, but it may be useless against unrest like what Yeltsin faced during the 1998
economic crisis: nationwide strikes, railroad and highway blockages, and mass protests in
downtown Moscow. Putin had a tacit agreement with the Russian people: he

gave them stability and prosperity, and they gave free rein to him and his
associates. Now hes losing the wherewithal to keep his end of the bargain .
Russians can count on one thing: he wont give up quietly.

Putins refusal to entertain political reform guarantees economic

collapse.
Oleg Biklemishev, 12/24/2012. Russian economist. Sticky Stagnation: Russias

Economy In 2013, Eurasia Review, translation from original article in Novaya Gazeta,
http://www.eurasiareview.com/29122012-sticky-stagnation-russias-economy-in-2013-oped/.

Every economist knows that the countrys GDP consists of consumption,

investment and net exports (excess of exports over imports).
Consumption has been growing slowly despite the disturbing Central
Bankss rapid expansion of individual loans. Capital is in its fifth consecutive

year of the massive flight from the country. Investment barely reached the
pre-crisis mark only by means of the mysterious additions by Rosstat, as well
as questionable mega-projects induced by the government . Exports, mainly
raw hydrocarbons, seem to hit the ceiling both in its physical and value
terms. Due to the failure of the national energy policy, global economic risks and the
shale revolution, a fall in exports, perhaps sharp, is not far off . In contrast,
imports after Russias WTO accession, despite all the tricks played by Russias vigilant main
doctor who had suddenly awakened to care about the environment, is bound to rise.
In other words, it is unclear how economic growth will begin in general, not even speaking
about the target of 5-6%.
Afterword.

It seems that Putin, having returned to the Kremlin, has begun to realize
that he has entered uncharted waters: he has become much weaker, and Russia, on

the contrary, has changed a lot in recent months, and one cannot simply rule it as it used to
be ruled. There is a sharp conflict between the dynamic development of the country on a par
with world leaders and total impracticality of the system constructed by Putin. Exactly the

same problem in the past inspired Gorbachev to announce the two logically
contradictory slogans perestroika and acceleration. Both signs are present
in Putins speeches, but there is no serious determination to initiate
changes: the Russian elite is well aware that perestroika would cause
unpredictable consequences for the elite.
Unfortunately, there is only one alternative to the catharsis of perestroika,
and that is a viscous stagnation, eventually turning into a full-scale
catastrophe.
Russian econ cant rely on gas exports --- structurally screwed.
Vladimir Milov, 4/4/2012. President of the Institute of Energy Policy and former Deputy
Energy Minister. Changing Russia: The Politics of Economic and Energy Development,
Presentation @ CSIS, summary written by interns and edited by Dr. Andrew Kuchins,
csis.org/files/attachments/120404_Milov%20Lecture%20Summary.pdf.

Energy exports are no longer capable of serving as the lifeline for

Russias economy. Gazproms lack of competitiveness is undermining its
access to European markets, culminating in a situation where the company only
managed to export 117 billion cubic meters (bcm) of gas outside of the former
Soviet states in 2011. For comparison, Gazprom was able to export 154 bcm as
recently as 2008. European countries are increasingly turning towards the
spot market for gas, rather than signing new long-term contracts with
Gazprom. As a result of these developments, Gazprom will never be able to
return to its pre-crisis gas export levels.
Russia needs to develop new fields, especially offshore, for both oil and
gas. Russian companies, however, lack the proper expertise and training to
develop many of these new fields. Russia requires investment from Western
oil companies in order to bring in foreign technology and expertise, but the
government continues to maintain restrictions on foreign investment in
strategic industries. The combination of these restrictions, along with
Russian companies history of reneging on deals (such as when Shell was forced to
sell a majority stake in Sakhalin- 2), will make it exceedingly difficult to develop
these new fields.

Gas cant sustain economic growth without significant reform.

Gerard Wynn, 6/23/2014. Senior Environmental Markets Correspondent @ Reuters.
Russia failing to reap benefit of oil and gas IEA, Responding to Climate Change,
http://www.rtcc.org/2014/06/19/russia-failing-to-reap-benefit-of-oil-and-gas-iea/.

Russia will have to liberalise energy prices, upgrade its infrastructure, curb
domestic demand and appeal to foreign investors to reap the benefit of its oil
and gas resources, the International Energy Agency said.
Such measures would boost the countrys competitiveness, turn around a sluggish economy,
and help cut carbon emissions to tackle climate changes which would impact Russia, the IEA
added.

Russia would have to attract foreign investors, to develop unconventional oil

and gas resources and maintain output, where western condemnation of
Moscows annexation of Crimea may not have helped.
These challenges will require large investments in a range of USD 100
billion per year over the next 20 years, mainly from private domestic and foreign
sources, the IEA said in its report, Russia 2014.

Infrastructure in the electricity and heat sectors is ageing and needs rapid
replacement and modernisation: This poses risks to the countrys energy security
(especially for heat and power supplies), as well as its competitiveness and wellbeing.
SLUGGISH

Russias economy is sluggish even while hitting record oil production and
enjoying prices consistently above $100 a barrel.
In spite of record high liquids production (close to 11 million barrels per day) and oil price
levels (about USD 110 per barrel for the Urals), Russias oil and gas sectors are no

longer sufficient to ensure steady and robust economic growth as the

economy has slowed since the end of 2012 to growth levels of around 1.5%.
Regulated power and heating prices and the absence of residential heat metering were not
helping, by boosting energy consumption.
The governments recent decision to freeze regulated tariff increases may

have limited a loss in competitiveness in the short term and inflation, but is
sending the wrong signal for energy efficiency and is likely to slow down
infrastructure investments as well as enduse energy efficiency
investments.
The IEA highlighted energy waste as a key threat, given the country was using twice as much
energy per unit of GDP compared with OECD countries, of which Russia is not a member.
Energy efficiency investments in the industrial sector, but also in the

residential sector, have not occurred at the required pace. Russias energy
intensive goods are facing increasing global competition in domestic and
export markets.

Unsustainable AT: Diversification

Russian diversification efforts failing --- economy unsustainable.
Isabel Gorst, 12/14/2012. FT journalist focusing on Russian energy sector. EBRD to
Russia: diversify, Financial Times, http://blogs.ft.com/beyond-brics/2012/12/14/ebrd-torussia-diversify/#axzz2GxBX50sF.

Russia has talked a lot about economic diversification over the past two
decades but it has made little progress in weaning itself off revenues from
natural resources. A new report by the European Bank for Reconstruction and
Development sets out recommendations that might stimulate industrial modernization and
tries to make sense of Russias abiding addiction to oil. Although diplomatically worded, the
EBRDs 88 page Diversifying Russia report published on Friday will make
uncomfortable weekend reading for Vladimir Putins administration . Despite a
series of high profile government initiatives to stimulate economic modernization, Russia is
more hooked on oil today than at any time over the last 15 years . As the
report says:
Oil and gas now account for almost 70 per cent of total goods exports and the structure of
exports has narrowed somewhat since the mid-1990s. Oil and gas revenues also contribute
about half of the federal budget. The non-oil fiscal deficit has averaged more than

11 per cent of GDP since 2009, while the oil price consistent with a balanced
budget is now in the region of $115 a barrel and rising. The economy also
remains highly energy-intensive , not least because of the persistent underpricing of energy seen until recently.
Delving into the problem, the EBRD report says Russias poor business
environment, failures in the education system and a lack of skilled managers
exacerbated by restrictive immigration policies have combined to stymy
government efforts to modernise and kick its addiction to oil . Russia is not the
only oil-rich country facing such challenges. Indeed, possession of large oil and gas
reserves is widely regarded as at best a mixed blessing and at worst a
curse. Petro-economies are inherently vulnerable to boom bust cycles
driven by swings in world oil prices. Excessive reliance on natural resources
tends to corrode economic and political institutions and undermine the
competitiveness of other sectors weakening productivity growth . Although the
EBRD gives the Russian government credit for admitting the scale of the problem, the report
warns that top down efforts to modernise are not the solution. A series of
government initiatives such as the creation in 2006 of Rusnano, the state nanotechnology
company and, more recently, the Skolkovo innovation hub outside Moscow, have absorbed
billions of dollars of public funds. But efforts might have been better directed into fostering
education and skills and encouraging private investment in new industries. Russia invests

only 1 per cent of its GDP in research and development, lagging way behind
developed countries. Multinationals, the biggest contributors to R&D in developed
countries, are under represented in Russia largely because of the difficulty in finding
qualified managers locally a problem compounded by restrictive immigration policies that
limit the hiring of highly-skilled foreign personnel. The report urges Russia to

improve its business climate by reducing red tape and cracking down on
bureaucratic rent seeking: Effective reform in this area is difficult, as it
involves the state reforming itself akin to a man pulling himself up by his
own bootstraps. This is hard to achieve in any country, but is particularly

difficult as research shows in countries with significant revenues from

natural resources.
Rent-based economy blocks modernization.
Juliet Johnson, June 2012. Associate Professor @ McGill University, PhD Princeton.
Mission Impossible: Modernization in Russia after the Global Financial Crisis, PONARS
Eurasia Policy Memo No. 196, http://www.ponarseurasia.org/sites/default/files/policy-memospdf/pepm196.pdf.

The Russian political-economic system is one in which the state controls or

directs the commanding heights of the economy (particularly natural resources
and finance) through formal and informal means, and relies heavily on
revenues from natural resources channeled through the state-controlled
financial sector to subsidize inefficient economic sectors controlled by
insider elites. Richard Ericson has called this a constrained market economy, Neil
Robinson patrimonial capitalism, and Clifford Gaddy and Barry Ickes Putins Protection
Racket. This system privileges a small group of loyal economic elites and

informal rules to the detriment of medium/small business and foreign

investors. It is also not particularly compatible with democratic governance. The system
itself represents the major obstacle to modernization, as it promotes
economic uncertainty and stifles bottom-up innovation . Successful
modernization arguably requires an atmosphere of economic and
institutional predictability in order to attract and keep foreign investors and
domestic capital (both human and financial). The current system cannot provide
this predictability. As capital flight and ruble savings figures suggest, even
Russians do not trust their political-economic system. Furthermore,
modernization means developing innovative, high-tech export markets. Yet
money alone cannot create new high-tech industries from above in an
atmosphere without competition and burdened by corruption . Under the
current system, even Skolkovo may simply turn out to be another avenue for
shunting government resources to well-connected elites. To their credit, many
Russian leaders understand the problem, which is why anti-corruption policies and
privatization have held an important place in the modernization agenda. To date, however,

vested interests within the system have successfully beaten back anticorruption efforts and repeatedly delayed further meaningful privatization
efforts.
Russian political conditions prevent effective modernization or
diversification.
Juliet Johnson, June 2012. Associate Professor @ McGill University, PhD Princeton.

Mission Impossible: Modernization in Russia after the Global Financial Crisis, PONARS
Eurasia Policy Memo No. 196, http://www.ponarseurasia.org/sites/default/files/policy-memospdf/pepm196.pdf.

After the global financial crisis, Russian President Dmitry Medvedev made
modernization the centerpiece of his economic policy agenda . Most importantly,
modernization meant diversifying the Russian economy to become less
dependent on natural resource revenues. Medvedev, like many other policy makers
and scholars, argued that the financial crisis hit Russia especially hard because of Russias
overreliance on oil and gas revenues and its concomitant failure to nurture high-technology
export industries. The latest Putin administration now must decide whether or not to press

forward with an aggressive modernization agenda. Medvedev and economic liberals both
within and outside the government have lobbied strongly in favor of doing so. However,
seriously pursuing such a modernization agenda would be an impossible and
perhaps even counterproductive policy at this point in time, for three reasons. First, the

underlying structure of the Russian political-economic system makes

implementing modernization policies quite difficult. Second, rather than
challenging this system, Russias response to the global financial crisis
reinforced its central characteristics, in the process rendering it even more resistant
to modernization efforts. Finally, Putins return to the presidency in the context
of a highly visible protest movement and restless political elites puts him in
no position to carry out a meaningful modernization agenda, even if he made
doing so his top priority. Focusing the governments efforts on modernizing the Russian
economy is an attractive goal in principle, but right now it cannot work in practice.

N/U European Shale

EU shale already checks Russian leverage.
Paul Saunders, 7/9/2012. Executive director of the Center for the National Interest. The
Shale Gas Revolution, The Tokyo Foundation,
http://www.tokyofoundation.org/en/topics/washington-update/shale-gas-revolution.
At the level of international politics, the United States as a natural gas exporter could be less
dependent on the Middle East, particularly if projects like the Keystone XL pipeline
simultaneously allow for greater oil imports from Canada. Still, even if America imported no
Middle East energy, its domestic prices would be shaped by international markets and
Washington would likely remain quite concerned with the regions security and stability. One

unknown is how the United States would conduct itself as a net exporter of
energyand whether and how US leaders might try to employ energy politically. The
success of shale gas outside the United States could ultimately prove equally
if not more significant to global affairs. If China, Ukraine, and Poland
developed extensive production, for example, Russia could lose some of its
important current and future export markets. China, in particular, may have
shale gas reserves even greater than those in the United States ; if Beijing were
close to self-sufficient in natural gasor even looked like it would beMoscow might have to
give greater attention to Japan and South Korea as possible customers for its eastern-oriented
exports. If Australia were developing its shale gas reserves at the same time,
Asian gas markets could evolve rapidly. Even if it did not make a dent in

Germanys gas relationship with Russia, substantial production in Ukraine

and Poland could significantly undercut Russias energy leverage over many
central and southern European nations, which are highly dependent on
Gazprom but require relatively low volumes of gas. With more LNG available
from the Middle East for the large western European economies, Russia
could see its principal claim to international influenceand a large source of
economic growth and taxesslowly erode.

No Link US Not Impact Russia

US production wont impact Russian economy.
Platts, 3/27/2014. US LNG exports pose no short-term threat to Russian sales to Europe:
analysts, http://www.platts.com/latest-news/natural-gas/moscow/us-lng-exports-pose-noshort-term-threat-to-russian-21392003.

US LNG exports are unlikely to pose a major threat to Russian natural gas
sales to Europe anytime soon despite indications from the US that energy
may be part of the sanctions imposed against Russia in the wake of its
annexation of Crimea, analysts said Thursday. The analysts' comments came
after US President Barack Obama late Wednesday said energy is a key area
of consideration for sanctions against Russia and the US has already
approved the export of as much natural gas as Europe uses each day. But
the fact that US LNG exports will likely move to higher priced Asian markets
and that Russian gas will remain priced below US LNG are two key reasons
why Russia is in a good position to maintain market share in Europe if
additional sanctions are in effect when US exports begin to flow.

US gas exports wont impact Russia --- AND domestic problems

swamp threat of U.S. competition.
Moscow News, 9/10/2012. U.S. gas exports are set to start, but there are bigger

threats to the monopoly's dominance, http://www.russialist.org/russia-gazprom-problemsahead-880.php.

By the end of the decade, increasing shale gas production could make the
United States the world's largest exporter of liquefied natural gas , if 11
projects awaiting regulatory approval get the green light. The presence of a new gas
player will inevitably have an impact on global prices , including in the
traditional markets of Russian gas monopoly Gazprom, but analysts doubted
that the effect on the company, which accounts for 12.5 percent of Russia's total
exports, would be immediate or significant. Instead, more serious
problems are threatening Gazprom's dominance of the European and
domestic gas markets, taking small pieces out of its market share . Minimal
impact Yulia Voitovich, oil and gas analyst at Investcafe research firm, noted that
American gas should not be expected to compete with Russian gas directly ,

but increasing LNG production in the United States may lead to a drop in Russian exports
anyway. "Growing American production is leading to redistribution of gas
supplies from exporting countries, such as Algeria, Qatar, Nigeria and Australia, as
they are seeking new markets in Europe and the Asia-Pacific region ," Voitovich
said. "Gazprom already has to offer discounts on gas it supplies to Europe , and
prices could further fall as competition grows stiffer." Large-scale exports may not be on the
cards for the United States, said Alexei Kokin, senior oil and gas analyst at Uralsib Capital, as
the Federal Energy Regulatory Commission may decide that cheap gas could benefit the U.S.
economy more if provided to domestic industries first. An Asian outlet Alexander Nazarov,
senior oil and gas analyst at Gazprombank, believes that the effect of American exports will
be felt primarily in Asian markets, where LNG prices are currently about seven times higher

than in the United States, and demand is outpacing supply. "Gazprom's position as the main
gas supplier to Europe will not be jeopardized by American exports," Nazarov said. All the
same, Gazprom's dominance on the European market does not look secure,

though for a different reason: the European Commission launched an

antimonopoly investigation against the company last week . Anti-monopoly
fines in the EU can amount to 10 percent of annual revenues made in the
country where violations have been exposed. Investcafe's Voitovich estimates that
Gazprom thus risks fines of around $4 billion, and may have to revise its
pricing policies for exports. Spiraling problems Dissatisfaction with Gazprom's
high prices is pushing its European consumers to find other forms or sources
of energy. For example, Ukraine Russia's largest importer is cooperating with
China to partly replace natural gas with coal, Voitovich said. A decline in demand
has also raised questions about the relevance of Gazprom's ambitious South Stream pipeline
to Southern and Central Europe, she said. Uralsib's Kokin said that Poland and
Lithuania are considering constructing an LNG import terminal . Ukraine's
participation, meanwhile, is not ruled out. But Gazprom faces even bigger

problems on the home front, such as a 23 percent drop in profit in the

first quarter and high operating costs at the troubled Shtokman field, which
have forced it to postpone the high-profile project. A low likelihood of tax
breaks means that it may be unable to pursue two other offshore projects
aimed at the Asian-Pacific market, leading to an inability to make up for
declining European demand. "Given that the government is reluctant to cut taxes,
Gazprom will not necessarily receive tax breaks in the near future, which will lead to further
postponing the launch of its projects or to financial losses," Voitovich said. The specter of
Novatek More fundamentally, Gazprom's domestic share of the market is

declining. Production fell 2.5 percent between the first quarters of 2011 and
2012, year-on-year, while share of the country's biggest independent firm,
Novatek, rose from 6.6 percent to 7.6 percent over the same period. Novatek
has also made strong purchases and agreements , becoming a monopoly in the
Chelyabinsk region by taking over a regional Gazprom subsidiary late last year, and this
summer signing deals with steelmaker MMK and German energy firm E.ON, a former
Gazprom partner. The market is also anticipating the entry of a Rosneft-Itera
joint venture over the next few years.

AT: Spot Market Link

U.S. shale rev already increasing consumer leverage --- Qatar
diverted U.S. bound exports to EU market.
Michael Levi, June 2012. David M. Rubenstein senior fellow for energy and environment at
the Council on Foreign Relations. A Strategy for U.S. Natural Gas Exports, Brookings
Institution, www.brookings.edu/research/papers/2012/06/13-exports-levi.

The surge in U.S. shale gas production has already had major consequences
for geopolitics. There was a widespread expectation, only a few years ago,
that the United States would become a major natural gas importer . Potential
suppliers, most prominently Qatar, began to develop LNG export
infrastructure in anticipation of serving the U.S. market. The U.S. shale boom,
however, has quickly eliminated the prospect of significant U.S. demand for
imported LNG (UPI 2011). (Some residual demand remains for logistical reasons.) With
would-be suppliers to the United States looking for new markets, consumers
have gained greater bargaining power. A leading indicator of this growing
bargaining power has been the attempt, starting in 2011, of Germanys main
natural gas importer, E.ON Ruhrgas, to renegotiate its politically charged
gas contracts with Russias Gazprom (Powell 2011). Many analysts now
expect Europe to move gradually from a system of negotiated gas
prices, which inevitably draws in politics, to a system where natural
gas is priced transparently through markets.
Inevitable --- other LNG producers creating global market now.
The Economist, 7/14/2012. A liquid market,
http://www.economist.com/node/21558456.

The LNG glut after 2008 that led to Europes row over oil indexation
between the big energy firms and Gazprom shows how events in other parts
of the world can put pressure on regional price mechanisms . The same is true of

the boom in shale gas in America, the recession in Europe and the accident at the Fukushima
nuclear-power plant in Japan. As the trade in LNG grows, it will bring more price competition
between America, Europe and Asia and so loosen the tie of gas to oil prices. Oil, too, used

to be bought and sold largely in regional markets in the 1950s and 1960s,
but the development of supertankers has since made it a global product . Paul
Stevens of Chatham House points out that in the early 1950s transport accounted for a third
of the cost of Persian Gulf oil shipped to America. Only 20 years later that share had dropped
to a mere 5%. The industry had been convinced that the world would become ever thirstier
for oil, so it made huge investments in refining capacity, infrastructure and tankers. The oil
shock of 1973 made a big dent in demand, but it also left a large fleet of tankers ready to
move oil at much lower prices. A similarly dramatic change in the economics of shifting gas
is much less likely. Pipelines remain costly to build, and a buyer has to be found and a price
(generally linked to that of oil) agreed on before construction can start. Much of this applies
to LNG too. The technology for LNG was not developed until the 1960s, and
even now only 19 countries export liquid gas. Global trade went from 3bcm
in 1970 to 331bcm in 2011. The technology allowed stranded gas, too far from its
markets to travel down pipelines, to get to customers. Costs became less steep as technology
improved. By the early 2000s LNG had at last established itself as a mainstream transport
technology. Qatar, a tiny country with enormous gasfields, now leads the way. Its first LNG

cargo left port in 1997. By 2006 it had become the worlds largest exporter, overtaking
Indonesia, Malaysia and Algeria. It now accounts for a quarter of the worlds LNG exports. It
wont come cheap But the economics of LNG still resemble those of pipelines.

Big LNG projects need customers in order to secure finance for building the
liquefaction and regas terminals and the specialist tankers that shuttle
between them. And costs have been increasing steeply, making it ever harder to raise the
money. In the 1980s building a liquefaction plant cost around $350 per tonne of LNG a year.
By the 2000s the figure, in current terms, had fallen to $200 as technology improved. Now
some facilities cost as much as $1,000 a tonne. One reason is that steel, which LNG projects
use in large quantities, has shot up in price. And LNG terminals are now being built in
Australia, which is set to become a bigger producer than Qatar within a few years, rather
than in low-wage developing countries. Australian workers do not come cheap, and wages
make up a big part of the total cost. Tankers to tote the LNG round the world are pricey too,
at around $200m apiece. Liquefying the gas, carrying it to its destination and regasifying it
can cost between $4 and $7 mBtu, a lot more than the $2.50 mBtu that the gas itself
currently sells for in America. But global LNG trade has been growing fast all the
same, far faster than the gas market as a whole . Countries with gas that are far
from their customers have no choice but to liquefy. Jefferies, a bank, says that LNG

demand has doubled over the past decade. Eurasia Group, a consultancy,
expects global LNG capacity roughly to double again by 2020 , from 278m tpa in
2011 to 526m tpa. Some gas-market pundits reckon that the growth in LNG and
its ability to link regional markets will cause a more global and competitive
market to emerge. Chenieres export deal is ground-breaking in one respect. The
company has agreed to sell American gas to a number of shippers, including BG Group and
Fenosa, at Henry Hub prices with a 15% mark-up and liquefaction fees of $2.15 mBtu. Its
destination is likely to be Asia, explicitly linking prices in the two markets. After transport and
regas costs, the price will probably be around $10 mBtu, still significantly lower than the $16
for oil-indexed gas. Even if American gas prices were to go up to $4-5, there would still be
money to be made. Cheniere has managed to get an export licence, but it is not clear how
many other LNG plants in America will be permitted to send cheap gas abroad. Some think
that it will be political suicide for any president to allow large-scale exports, which could push
up prices at home. But Mr Souki says the abundance of gas in America will make it more
difficult not to export, and the 30 states which benefit from taxes and royalties on
hydrocarbons will want to keep the gas flowing. Transport costs remain uncertain. The
Panama canal authorities have yet to decide whether they will charge a special premium for
LNG tankers heading from the Gulf of Mexico to Japan, South Korea or China. If they do, the

United States might become a modest exporter of gas rather than a big
one. But there are other suppliers of LNG aside from the United States, and
they could be exporting a lot more of it in a few years time . Luis Barallat of
Boston Consulting Group expects a supply surge in LNG during 2015-16 .
Canada has large quantities of shale gas that it could send to Asia, and
shipping costs from its west coast will be far lower than from the Gulf of
Mexico. Exporting westwards will get Canada out of a bind. Its energy infrastructure is tied
to that of the United States, where gas is cheap. Canada would get a lot more in Asian
markets. Shale gas from the Horn River or Montney field in the far north is expected to get to
the Pacific coast through pipelines. According to some estimates, Canada could end up
exporting 30m tpa by 2020, almost half as much as export-happy Qatar. LNG will also

start shipping from east Africa, the eastern Mediterranean and other newly
discovered basins as well as from more obvious sources . Russias Gazprom and
its partners, Total and Statoil, have been delaying a final investment decision on Shtokman, a
big gasfield in the Barents Sea. Its Arctic location makes it technologically tricky, but the
main problem is marketing the gas. It was originally intended to produce LNG for America,
but if and when it gets the go-ahead its output is now likely to be destined for Asia. Thanks

to advances in technology, more LNG is becoming available all the time. One
innovation is floating LNG, vast vessels that can process gas from smaller

offshore fields and then move on when the fields are exhausted. Shells Prelude, a huge
gas-liquefaction project, will be the worlds biggest floating vessel when it takes to the ocean
waves. Construction began in May and the facility is set to start producing in 2017. Some
smaller floating LNG vessels are also in the works. Squeeze harder De-bottlenecking of
LNG liquefaction plantsupgrading or replacing bits of equipment over timewill also add to
gas supplies. This usually increases output by 5-10%, says Pascal Menges of Lombard Odier,
an investment firm. This gas will not be under contract and should find its way onto the spot
market. In 20 years time gas around the world will probably be sold under an array of
contractual arrangements based on a single price, set by supply and demand But that
market is still small. Mr Barallat reckons that, although the LNG spot market is growing fast,
in 2011 the industry delivered only three cargoes a day under spot or short-term contracts,
about a quarter of total LNG traded volumes. Still, there are signs that LNG markets

are getting more flexible, partly because Europe, unwilling to let Gazprom
dominate supplies, is adding more LNG import capacity . Asian buyers, for
their part, are getting more reluctant to sign 20-year oil-indexed contracts in
current negotiations with Canadian suppliers. In future LNG contracts may be
drawn up for just two or three years rather than decades, according to Holman Fenwick
Willan, a law firm that specialises in oil and gas. Japan is still the worlds biggest LNG
importer, and its utilities can pass high oil-linked gas prices onto consumers. But Cheniere
has done deals with Mitsui and Mitsubishi linked to Henry Hub prices. Much of the global
growth in demand will come from China. It is building LNG import terminals fast, with four
up and running, five under construction and a dozen more at the planning stage. And
Shanghai is vying with Singapore to become a regional hub to develop spot markets based on
competition between LNG, pipeline gas and domestic production. China has been in
negotiations about a pipeline deal with Russias Gazprom for a decade but has so far refused
to sign. Meanwhile it has secured competing gas supplies by building both LNG terminals and
pipelines from Myanmar and from Turkmenistan. A question of price Plans for the Russian
pipeline remain on the drawing board. Gazprom wants to sell gas to China in order to become
less reliant on exports to Europe, and China is sure to need Russian gas in the future. The
most recent set of talks broke up because China will not pay Asian oil-indexed prices, as
Russia demands, or even European oil-indexed prices. It wants something closer to European
spot prices, which Russia will not entertain. But a deal may eventually be struck. In the

longer term, as shale gas becomes more widespread outside America, some
countries will no longer need to import LNG, freeing up more supplies for
the spot market. Yet it will take a lot of spot LNG to create a big, liquid global market. Mr
Stoppard of IHS thinks this will happen only if America takes to exporting LNG on a large
scale. Nevertheless the LNG trade will put pressure on oil indexation in Asia. Mr Stoppard

reckons that in 20 years time gas around the world will probably be sold
under an array of contractual arrangements based on a single price, set by
supply and demand. When deep, liquid markets with credible prices develop,
supply is assured and long-term contracts become unnecessary . MITs boffins
believe that integrated global markets would increase gas supplies, raise demand and bring
down prices. It may be a long way off, but the foundations for such a market are starting to be
built.

AT: Russia Gas No I/L

Russia not dependent on gas --- consumer based growth is
sustainable.
Chris Weafer, 1/2/2013. Chief strategist at Sberbank Investment Research. Russia's
consumer boom: debt poses no threat to growth, The Telegraph (UK),
http://www.telegraph.co.uk/sponsored/russianow/opinion/9775636/russia-consumerboom.html.

Although Russia is usually viewed by investors as a petro-state , the reality is

different, says investment strategist Chris Weafer. Almost all of the countrys
economic growth since 2005 has come from consumer sectors and the
general expansion of the domestic economy. While the countrys budget
depends on oil and gas revenues for just under 50pc of the total (a figure
that has been steadily falling as tax revenues from individuals and other
industries have been growing), extractive industries have contributed
almost nothing to GDP growth in six years. Retail sales in Russia expanded
by almost 7pc, year-on-year, through the first half of 2012, fuelled by an 11.3pc gain in real
wages and a rise of 2.7pc in real disposable incomes. There has also been a 40pc rise in retail
lending by banks and other finance organisations in the past 18 months. The obvious
questions are: is this growth sustainable? And are we seeing a bubble effect
developing in the retail debt market? The answer to the first question is that

while the pace of growth in the retail sector is likely to ease a little, as the
base effect grows, conditions are in place to sustain meaningful growth for
the foreseeable future. Russias federal budget spending has moved toward
social spending, and the government is also prioritising the boosting of
wages in the state-funded sector. In addition, the post-Soviet generation is
becoming a bigger part of the workforce, with western spending habits and
lifestyle ambitions. Previous demographic concerns have also been
resolved as the birth rate increases, people live healthier lives and
emigration is reversed. This year, Russia will see a net increase in the
population for the first time since the early Nineties, and revised projections
predict population growth in the coming decades. In terms of debt
expansion, there is no issue here either, for while the pace of growth is very
high in absolute terms, it comes from a very low starting point . Russian
households are among the least leveraged in the world and, as a legacy of
the Soviet era, the country has one of the highest levels of unmortgaged
property ownership in the world. So there is plenty of scope for further debt
expansion without approaching risk levels. Of course, that pace of growth does
have implications for banks. To fund consumer-driven growth, the sector will have to tap
markets for new capital to stay within the Central Banks stringent capital adequacy
guidelines. But so long as the capital asked for is to fund continued growth, there is no
problem with investors. The banking sector is a kind of proxy for the expanding domestic
economy and fast-growing consumer sector, which can otherwise be difficult for the biggest
investment funds to access. Only about 17pc of the value of Russias stock market represents
companies in the domestic sector, while an additional 12pc is represented by banks. The bulk
of the stock market is accounted for by extractive industries and big state corporations.

Investors, who can ignore the short-term volatility that has afflicted all
markets since the 2008 crisis started, still have an attractive entry level into
Russias consumer sector one of the fastest expanding economic themes in

the world. Current valuations are typically at a discount to global emerging market peers
because of the risk-contagion from the perceived oil threat to the economy. Yet Russian
earnings growth rates in the consumer sectors remain in double digits. Over the next

few years, the stock market is set to expand and, in time, the opportunities
for investors will become more diverse and more liquid. The valuation of
existing listed stocks that offer exposure to Russias expanding consumer
and other sectors will clearly benefit from that trend.

Russia Economy Resilient

Russia resilient, even to energy shocks --- low debt and solid fiscal
and monetary policies.
Martin Gilman, 10/9/2012. Former senior representative ofthe International Monetary
Fund inRussia, is aprofessor atthe Higher School ofEconomics. Russia Overtakes
Portugal and Spain Is Next, The Moscow Times,
http://www.themoscowtimes.com/opinion/article/russia-overtakes-portugal--and-spain-isnext/469517.html.
Some cliches bear repetition. A relatively recent one, in reference to the global economy, is
how the tables have turned. As we know, once relatively poor countries such as
Brazil, Russia, India and China have been growing rapidly relative to the so-

called advanced economies and have also become the main drivers of global
growth, especially once they had bounced back from the financial crisis that began four

years ago. This outcome was far from obvious when Goldman Sachs created the BRIC
moniker in 2001, leading to a much-quoted study in 2003 that contained some seemingly
fanciful projections to 2050. At the time, it was only a study. Of course, no one, at least among
mainstream analysts, envisaged the stagnation and even reversal of fortunes of the oncedominant Western economies. Confirming the cliche, the International Monetary
Fund just published its semiannual World Economic Outlook . In its own
understated manner, it highlights just how much, and how rapidly, the tables have turned in
the global lineup of nations. Not surprisingly, progress in re-allocating the control of the
institution to the world's new group of creditor countries has been grudging and partial. Just
a little over a decade ago, China's per capita gross domestic product was the equivalent of
only $945, compared with $35,252 in the United States, or a ratio of 1:37. The IMF is
projecting that this ratio will shrink to 1:8 next year. Other emerging countries display a
similar progression. In the case of Russia, the change is even more dramatic. Its

per capita GDP in 2000 was $1,775 but is projected to rise to $16,338 in
2013. Thus, the ratio relative to the U.S. is expected to decrease from 1:20 to 1:3. This,

however, is only a part of the dramatic reversal of fortunes related by the IMF, which studied
the data of about 100 countries over 60 years. Many Russians with a long memory will savor
the new IMF data by recalling that on Dec. 30, 1999, then-Prime Minister Vladimir Putin said,
"It will take us about 15 years and an annual growth of our gross domestic product by 8
percent a year to reach the per capita GDP level of present-day Portugal or Spain, which are
not among the world's industrial leaders." At the time, this seemed utopian, but according
to the just-published IMF data, last year Russia overtook Portugal's 2000 per capita GDP in
U.S.-dollar terms and will overtake Spain's 2000 benchmark by the end of this year. Moreover,
when Putin made the comparison, Russia's per capita GDP was only 15 percent of Portugal's.
By 2013, it will rise to 78 percent of Portugal's projected per capita GDP, a difference of well
under $5,000. The IMF also notes that "the resilience of emerging market

and developing economies measured by their ability to sustain

economic expansions and recover quickly from downturns has
increased markedly. The past decade was the first time that these economies spent

more time in expansion, and had smaller downturns, than advanced economies." In other
words, while the BRICs may have some way to go to catch up to the standard

of living in advanced economies, they have already displayed the type of

sustained periods of economic growth and ability to snap back quickly
when an external shock hits. In fact, as evidenced by the record of the past decade,

the BRICs are now, as a group, better performers than the advanced countries, many of which
are mired in stagnation. As the leaders of world finance gather in Tokyo at the end of this
week for the annual IMF meeting, they will no doubt be preoccupied by a crisis in the global
economy that stubbornly refuses to subside. Aside from the U.S., where there seems to be
feeble but positive growth, the only bright spot for the moment is the emerging and

developing economies. At the same time, however, the IMF has warned that the relative calm
these economies enjoyed the past two years could well be temporary and that they would not
be immune to the poor prospects in their main trading partners. With a significant risk that
advanced economies could experience another downturn, it is likely that emerging-market
and developing economies will likely end up "recoupling" with advanced economies, much as
they did during the global financial crisis. Yet it is in this subdued context that
Russia looks good. This perspective may be hard to square for those who view the glass
as half empty. Russia surely has its problems with corruption, the rule of law
and the government's dawdling over structural reform. But Russia is also

clearly one of the countries characterized in the IMF study that has created
a buffer to external shocks through broad countercyclical fiscal and
monetary policies. There is no doubt that the Russian government will take
heart in the IMF's recommendation that in the context of volatility and
possible external shocks, it would be prudent to strengthen the buffers
through a flexible exchange rate policy and a prudent fiscal stance. Russia
has the lowest ratio of public debt to GDP in the Group of 20 countries and
has been adding to its public and external reserves . For once, it would
seem, Russia is on the right side of history. It has the economic profile of a
country that could stay that way. Real GDP growth, fueled by domestic
demand, is on track for this year at about 4 percent , higher than the rate for
Brazil and all the major advanced economies. Russia's low debt, rising reserves and
willingness to allow the exchange rate to adjust mean that it is not a given,
as many assume, that a negative oil shock will lead to economic
dislocation.

AT: Russia Economy Impact

Impact empirically deniedRussias economy is endemically weak
and has been wrecked many times
Friedman, 9 Founder and CEO of STRATFOR, founder of the Center for
Geopolitical Studies, former professor of political science, PhD in
Government
(George, 7/2The Russian Economy and Russian Power.
http://www.cdi.org/russia/johnson/2009-141-11.cfm)
Russia has been an economic wreck for most of its history , both under the czars
and under the Soviets. The geography of Russia has a range of weaknesses, as we
have explored. Russias geography, daunting infrastructural challenges and
demographic structure all conspire against it. But the strategic power of Russia was

never synchronized to its economic well-being. Certainly, following World War II the Russian economy
was shattered and never quite came back together. Yet Russian global power was still enormous. A look
at the crushing poverty but undeniable power of Russia during broad swaths of time from 1600 until

The problems of the

1980s had as much to do with the weakening and corruption of the
Communist Party under former Soviet leader Leonid Brezhnev as it had to do with
intrinsic economic weakness. To put it differently, the Soviet Union was an
economic wreck under Joseph Stalin as well. The Germans made a massive mistake in
Andropov arrived on the scene certainly gives credence to Putins view.

confusing Soviet economic weakness with military weakness. During the Cold War, the United States did
not make that mistake. It understood that Soviet economic weakness did not track with Russian strategic
power. Moscow might not be able to house its people, but its military power was not to be dismissed.
What made an economic cripple into a military giant was political power. Both the czar and the
Communist Party maintained a ruthless degree of control over society. That meant Moscow could divert
resources from consumption to the military and suppress resistance. In a state run by terror,
dissatisfaction with the state of the economy does not translate into either policy shifts or military
weakness and certainly not in the short term. Huge percentages of gross domestic product can be
devoted to military purposes, even if used inefficiently there. Repression and terror smooth over public
opinion. The czar used repression widely, and it was not until the army itself rebelled in World War I that
the regime collapsed. Under Stalin, even at the worst moments of World War II, the army did not rebel. In

economic dysfunction was accepted as the inevitable price of

strategic power. And dissent even the hint of dissent was dealt with by the only truly efficient
both regimes,

state enterprise: the security apparatus, whether called the Okhraina, Cheka, NKVD, MGB or KGB. From
the point of view of Putin, who has called the Soviet collapse the greatest tragedy of our time, the
problem was not economic dysfunction. Rather, it was the attempt to completely overhaul the Soviet

to the collapse of the Soviet

Union. And that collapse did not lead to an economic renaissance. Biden might not have
Unions foreign and domestic policies simultaneously that led

meant to gloat, but he drove home the point that Putin believes. For Putin, the West, and particularly the
United States, engineered the fall of the Soviet Union by policies crafted by the Reagan administration
and that same policy remains in place under the Obama administration .

It is not clear that Putin

and Russian President Dmitri Medvedev disagree with Bidens analysis the
Russian economy truly is withering except in one sense. Given the policies Putin
has pursued, the Russian prime minister must believe he has a way to cope
with that. In the short run, Putin might well have such a coping mechanism, and this is the temporary
window of opportunity Biden alluded to. But in the long run, the solution is not improving the
economy that would be difficult, if not outright impossible, for a country as
large and lightly populated as Russia. Rather, the solution is accepting that Russias
economic weakness is endemic and creating a regime that allows Russia to be a great power
in spite of that.

AT: Russia Turns Global Economy

Russian decline wont impact the global economy.
Daniel Gross, 4/11/2014. Columnist and global business editor at The Daily Beast. Flex
Muscle Spending Has Left Putins Russia in an Economic Freeze Frame, The Daily Beast,
http://www.thedailybeast.com/articles/2014/04/11/flex-muscle-spending-has-left-putin-srussia-in-an-economic-freeze-frame.html.

the possibility of Russia spinning the whole world into recession is

really remote. Russia constitutes less than three percent of the worlds
economy. If it stops selling oil and natural gas into international markets
that could have an impact. But even here, its influence is declining . The US
surpassed Russia last year as the worlds largest producer of hydrocarbons
oil and natural gas combinedand Europeans are already moving
aggressively to diversify their supplies. That may be the ultimate insult: Russia
may shrink economically, but the rest of the world will hardly notice .
That said,

AT: US-Russia War Impact

No risk of U.S.-Russian war Russia knows the U.S. is infinitely more
powerful and that it couldnt be a threat.
Bandow, 8 (Doug, former senior fellow at the Cato Institute and former
columnist with Copley News Service, 3/Turning China into the Next Big
Enemy. http://www.antiwar.com/bandow/?articleid=12472)
In fact, America remains a military colossus . The Bush administration has proposed
spending $515 billion next year on the military; more, adjusted for inflation, than at any time since World
War II. The U.S. accounts for roughly half of the world's military outlays .
Washington is allied with every major industrialized state except China and Russia. America's avowed
enemies are a pitiful few: Burma, Cuba, Syria, Venezuela, Iran, North Korea. The U.S. government could

Russia has become rather

contentious of late, but that hardly makes it an enemy. Moreover, the idea
that Moscow could rearm, reconquer the nations that once were part of the
Soviet Union or communist satellites, overrun Western Europe, and then
attack the U.S. without anyone in America noticing the threat along the
way is, well, a paranoid fantasy more extreme than the usual science fiction
plot. The Leninist Humpty-Dumpty has fallen off the wall and even a bunch
of former KGB agents aren't going to be able to put him back together.
destroy every one of these states with a flick of the president's wrist.

AT: Accidental Launch Impact

Multiple safeguards prevent accidents and de-targeting means that a
weapon would just explode in the ocean
Slocombe 9 (Walter, senior advisor for the Coalition Provisional Authority in Baghdad and

a former Under Secretary of Defense for Policy, he is a four-time recipient of an award for
Distinguished Public Service and a member of the Council on Foreign Relations, De-Alerting:
Diagnoses, Prescriptions, and Side-Effects, Presented at the seminar on Re-framing De-Alert:
Decreasing the Operational Readiness of Nuclear Weapons Systems in the US-Russia Context
in Yverdon, Switzerland, June 21-23)
Lets start with Technical Failure the focus of a great deal of the advocacy, or at least of stress on past
incidents of failures of safety and control mechanisms.4 Much of the de-alerting literature points to a
succession of failures to follow proper procedures and draw from that history the inference that a
relatively simple procedural failure could produce a nuclear detonation. The argument is essentially that

nuclear weapons systems are sufficiently susceptible of pure accident

(including human error or failure at operational/field level) that it is
essential to take measures that have the effect of making it necessary to
undertake a prolonged reconfiguration of the elements of the nuclear
weapons force for a launch or detonation to be physically possible. Specific

measures said to serve this objective include separating the weapons from their launchers, burying silo
doors, removal of fuzing or launching mechanisms, deliberate avoidance of maintenance measures need
My view is that this line of action is unnecessary in
its own terms and highly problematic from the point of view of other aspects
of the problem and that there is a far better option that is largely already in
place, at least in the US force the requirement of external information a
code not held by the operators -- to arm the weapons Advocates of other,
more physical, measures often describe the current arrangement as
nuclear weapons being on a hair trigger. That is at least with respect to
US weapons a highly misleading characterization. The hair trigger figure
of speech confuses alert status readiness to act quickly on orders -- with
susceptibility to inadvertent action. The hair trigger image implies that a
minor mistake akin to jostling a gun will fire the weapon. The US
StratCom commander had a more accurate metaphor when he recently said
that US nuclear weapons are less a pistol with a hair trigger than like a
pistol in a holster with the safety turned on and he might have added that
in the case of nuclear weapons the safety is locked in place by a
combination lock that can only be opened and firing made possible if the
soldier carrying the pistol receives a message from his chain of command
giving him the combination. Whatever other problems the current nuclear posture of the US
nuclear force may present, it cannot reasonably be said to be on a hair trigger. Since the 1960s the
US has taken a series of measures to insure that US nuclear weapons cannot
be detonated without the receipt of both external information and properly
authenticated authorization to use that information. These devices generically
to permit rapid firing, and the like. .

Permissive Action Links or PALs are in effect combination locks that keep the weapons locked and
incapable of detonation unless and until the weapons firing mechanisms have been unlocked following
receipt of a series of numbers communicated to the operators from higher authority. Equally important

launch of nuclear weapons (including insertion

of the combinations) is permitted only where properly authorized by an
authenticated order. This combination of reliance on discipline and procedure and on receipt of
in the context of a military organization,

an unlocking code not held by the military personnel in charge of the launch operation is designed to
insure that the system is fail safe, i.e., that whatever mistakes occur, the result will not be a nuclear

Moreover, in recent years, both the US and Russia, as well as Britain

and China, have modified their procedures so that even if a nuclear-armed
missile were launched, it would go not to a real target in another country
but at least in the US case - to empty ocean. In addition to the basic advantage of
explosion.

insuring against a nuclear detonation in a populated area, the fact that a missile launched in error would
be on flight path that diverged from a plausible attacking trajectory should be detectable by either the
US or the Russian warning systems, reducing the possibility of the accident being perceived as a

De-targeting, therefore, provides a significant protection

against technical error. These arrangements PALs and their equivalents coupled with
continued observance of the agreement made in the mid-90s on de-targeting do not
eliminate the possibility of technical or operator-level failures, but they
come very close to providing absolute assurance that such errors
cannot lead to a nuclear explosion or be interpreted as the start of a
deliberate nuclear attack.6 The advantage of such requirements for external information to
activate weapons is of course that the weapons remain available for authorized use
but not susceptible of appropriation or mistaken use.
deliberate attack.