RUSSIAN ENERGY SECTOR: CURRENT STATUS & PERSPECTIVES Dr. Tatiana Mitrova Head of Oil and Gas Department Energy Research Institute of the Russian Academy of Sciences Moscow May 27, 215
Major new external challenges for the Russian energy sector Stagnant oil and gas demand, changing rules in the European energy sector (main market for Russia) Main demand growth moves to Asia, where Russian presence is very limited for the next 5-7 years and where huge new infrastructure development is required Increasing competition on the global energy markets, entrance of the new hydrocarbon suppliers (shale from the U.S., Iran, Iraq, Brazil, Australia, East Africa, etc.) Oil and gas prices declining trend until 222-225 and uncertain further dynamics Geopolitical threats, introduction of technological and financial sanctions against Russia, which limit its access to the new technologies, equipment and financial markets 1
Major new domestic challenges for the Russian energy sector Stagnation of the Russian economy slows down domestic energy demand. Lower investment availability and frozen energy prices cut investment programmes in the energy sector slowing don its renovation Worn-out and obsolete energy infrastructure Technological inferiority Low investment attractiveness (low domestic prices, unstable regulation, low efficiency of the current institutional framework in the energy sector) Russian GDP dynamics, % to 212 19 17 15 13 11 9 7 ES-23 Baseline ES-235 High (214) ES-235 Baseline (214) Baseline Risk analyses Sources: Ministry of Economic Development, ERI RAS 2
Primary energy production is assumed to grow by ~1-2%, primary consumption by ~1-15%, with the remaining dominant role of gas Russian primary energy production Russian primary energy consumption mtoe mtoe 16 14 9 8 7 12 6 1 5 8 4 6 3 4 2 2 1 21 215 22 225 23 235 24 Gas Oil Coal Hydro Nuclear Others 21 215 22 225 23 235 24 Gaseous fuel Liquid fuel Solid fuel Hydro Nuclear Others Source: Global and Russian Energy Outlook up to 24. ERI RAS-AC. 214. 3
Energy exports: all growth in the East Russia s net exports by energy resource type Russia`s net energy exports by direction mtoe 8 mtoe 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 21 215 22 225 23 235 24 21 215 22 225 23 235 24 Pipeline gas LNG Oil Oil products Coal, electricity CIS Europe Asia Source: Global and Russian Energy Outlook up to 24. ERI RAS-AC. 214. 4
Sustaining oil production is a challenge mt Russian oil production by Federal District 6 5 4 3 2 Far East province Eastern-Siberian province Western-Siberian province Southern regions of Russia, incl. Southern seas offshore Volga-Urals province 1 North-West (incl. Kaliningrad oblast) 21 215 22 225 23 235 24 Source: Global and Russian Energy Outlook up to 24. ERI RAS-AC. 214. 5
Oil sector is becoming more and more concentrated under the state control 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% Oil production in Russia by company in 23-214, mln t Others Surgutneftegas Lukoil Russneft ТНК-BP (excl Slavneft) Yukos Tatneft Slavneft Bashneft Sibneft Gasprom Neft (excl Slavneft) % 23 24 25 26 27 28 29 21 211 212 213 214 Rosneft (excl Slavneft) Source: ERI RAS. 6
Oil exports to Asia are replacing European supplies 3 Crude oil exports from the Russian Federation, million tonnes 25 2 15 4 53 65 79 8 85 86 1 5 182 16 152 124 18 9 83 21 215 22 225 23 235 24 CIS Europe Asia Source: Global and Russian Energy Outlook up to 24. ERI RAS-AC. 214. 7
Increasing pressure in the domestic gas market Bovanenkovo +7-8 bcm by 22 Novatek production +6 bcm by 22 Rosneft production +4 bcm by 22 APG production growth by VIOCs +15 bcm by 22 8
During the last decade IGPs are expanding their market share, providing already for more than 3% of Russian gas production bcm 7 Russian gas production structure in 199-214, bcm % 35 Russian domestic gas sales by company in 213, bcm 6 5 3 25 2% 13% 4% Gazprom domestic Novatek 4 3 2 2 15 1 1% 16% 56% Rosneft Lukoil Surgutneftegas Other NGPs 1 5 199 25 26 27 28 29 21 211 212 213 214 Other Rosneft Novatek Gazprom Share of non-gazprom producers Sources: Rosstat, Interfax, companies data, ERI RAS 9
Gas prices were frozen in 1991-22, then they were growing by 15-25% pa to reach netback parity and now they are frozen again, making export an extremely attractive alternative for the IGPs $/mcm Average weighted wholesale gas prices for industrial consumers in 1991-215 12 1 8 6 4 2 Sources: ERI RAS, Gazprom, Rosstat 1
Russian gas production is demand-constrained, only part of the production potential will be utilized, assuming growth of production by ~25-4% bcm Russian gas production forecast 1 9 8 7 6 5 4 3 2 1 Other regions European North and Northern seas Yamal New Tyumen Nadym Pur Taz region Far East Eastern Siberia 21 215 22 225 23 235 24 Source: Global and Russian Energy Outlook up to 24. ERI RAS-AC. 214. 11
The main increase in Russian gas exports will be to Asia bcm 3 Russian natural gas exports 25 Asia LNG 2 15 1 Asia pipeline Europe LNG Europe pipeline 5 CIS 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 Source: ERI RAS 12
Conclusions More competitive external environment and domestic challenges are creating less favorable conditions for the Russian energy sector. Oil production in Russia can be maintained for a period of time, but it demands serious reform of taxation and industrial structure. Russian gas industry still has a huge potential for production and export growth. Asia is obviously becoming the main Russia`s energy trade partner. 13
Contacts Energy Research Institute of the Russian Academy of Sciences "Global and Russian Energy Outlook up to 24" http://www.eriras.ru/files/global_and_russian_energy_outlook_up_to_24.pdf Vavilova str., 44/2, office 41 118333, Moscow, Russian Federation phone: +7 985 368 39 75 fax: +7 499 135 88 7 web: www.eriras.ru e-mail: mitrovat@me.com 14