The recession has reached its tendrils into Russia's energy complex, the world's largest. While Russia's natural gas monopoly Gazprom is currently Europe's favorite bete noire for its dispute with Ukraine, much less known but equally influential is its oil pipeline twin sister Transneft, which is responsible for all Russia's oil exports.

Transneft was formed in the aftermath of the 1991 collapse of communism, when the administration of President Boris Yeltsin on Nov. 17, 1992, issued Presidential Decree 1403, establishing Transneft as the legal successor to the Soviet Union's Ministry of Oil Industry Main Production Department for Oil Transportation and Supplies (Glavtransneft). Despite the Yeltsin administration's fire sale of former Soviet assets, the government retained 100 percent of Transneft's shares.

With the global slump in oil prices, Transneft's revenues also have plummeted at a time when more and more revenue is needed to renovate an increasingly decrepit network. Unlike Western energy companies, accountable to their shareholders and accordingly reining in their expansion plans, however, Transneft intends to beef up its activities.

There is no denying the massive impact that the global recession has had on the Russian energy sector, even in Moscow. Earlier this week Russian Finance Minister Alexei Kudrin remarked that in 2009 the Kremlin's budget revenue may slump by 4.4 trillion rubles ($124.6 billion) as the freefall in oil prices reduces the government's tax income.

Even Kudrin's projected figures may be too low; while Russia's current budget is projected on an average oil price of $70 a barrel, today Urals crude, Russia's chief export blend, slumped 71 percent from a July 11 record of $147.27 a barrel to $42.38 a barrel at 1 p.m. on Jan. 30 on the New York Mercantile Exchange. On Jan. 22 Prime Minister Vladimir Putin ordered the Finance Ministry to recalculate the budget, which is now forecasting oil to trade at an average of $41, producing an anemic economic growth rate for 2009 of just 0.2 percent.

Russia is heavily reliant on hydrocarbon exports, with hydrocarbons accounting for some two-thirds of the country's exports overall. In 2006 revenue from hydrocarbon exports comprised around 50 percent of the Russian federal budget. By another estimate, in 2007 the federal budget depended on oil and gas taxes for more than 60 percent of revenues.

It is a stunning economic fall from grace -- when oil hit $100 a barrel early last year, Russia was earning about $800 million daily from its oil and gas exports, about $250 million per day more than two years earlier. Given that hydrocarbons account for around two-thirds of Russia's overall exports, in turn generating more than 60 percent of the federal budget's revenues, the Kremlin is desperately hoping for price stabilization.

Transneft does not share the doom and gloom prognoses, however, and is focusing on extending its network to reach a market that Moscow previously largely overlooked: Asia. During a Jan. 27 meeting with U.S. Ambassador to Russia John Beyrle, Transneft Chief Executive Officer Nikolai Tokarev informed him that the global economic crisis did not affect Transneft's plans to construct and commission new facilities. The centerpiece of Tokarev's optimism is the opening of the first line of the East Siberia-Pacific Ocean oil pipeline from Taishet in the Irkutsk region to Skovorodino near the border with China, tentatively scheduled for December.

ESPO's throughput capacity is estimated at 214 million barrels a year. Nor is that all -- according to Tokarev, ESPO's second line, extending from Skovorodino to the port of Kozmino on Russia's Pacific coast, will be constructed by the end of 2013 or the beginning of 2014, while Putin added, "In the long term, a gas pipe may be laid in the direction of the Pacific Ocean and China parallel to the oil pipeline."

Tokarev also discussed with Beyrle two other Transneft projects, the first line of the Baltic Pipeline System-2, tentatively scheduled to begin operations in autumn 2012, as well as the expansion of the Caspian Pipeline Consortium pipeline, which transits Western Siberian and Kazakh crude to Russia's Novorossiisk Black Sea port.

The two most interesting aspects about Transneft's plans are that its ESPO line represents Russia's interest in developing a long-term presence in the Asian markets of China, Japan and South Korea even as both BPS-2 and an expanded CPC carry an element of allaying European fears about Russia's reliability as an energy partner, damaged by both the Russian-Georgian military clash last August and the Russian-Ukrainian gas dispute earlier this month. While the Transneft network is the largest pipeline system in the world, with a total of almost 31,000 miles, the two disputes highlighted the vulnerability of Russian exports crossing former Soviet republic transit nations. Both BPS-2 and ESPO will be completely across Russian territory, while CPC transits Kazakhstan, a nation hardly likely to interfere with the Russian exports that comprise 25 percent of CPC's throughput, as Kazakh crude makes up the remainder, which is shipped from Novorossiisk.

In a further sign that Transneft is willing to work in concert with the international community to prevent further disruptions of supplies, Tokarev told the Czech Republic's energy envoy Vaclav Bartuska at a meeting in Moscow on Jan. 22 that a new international treaty is necessary that clearly delineates the obligations of transit nations to safeguard the rights of oil consumers and exporters.

If, however, the global capitalist jungle fails to respond to Russia's diplomatic energy initiatives, then at least Transneft and Gazprom personnel will not be left defenseless against Wall Street's depredations: On Dec. 29 Putin signed a directive permitting their security services to carry weapons and security equipment similar to those used by the police, including handguns, gas pistols, Tasers and truncheons. In a nod to supporting the national economy, the decree stipulates that most of the equipment must be Russian-made.

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