the role of russia in global energy supply

National Energy Security FundNational Energy Security Fund

The Role of Russia in Global Energy Supply

Konstantin Simonov Konstantin Simonov

Dubrovnik Dubrovnik June, 18 June, 18

2010 2010


2009 – B2009 – Breaking reaking PPointoint of of World Energy?World Energy?

•Global consumption of eGlobal consumption of energy nergy rresourcesesources was decreased by 1.1% for was decreased by 1.1% for the first time during last 20 yearsthe first time during last 20 years

•Consumption of oil fell by 1.7%Consumption of oil fell by 1.7%•Consumption of gas fell by 2.1%Consumption of gas fell by 2.1%•The beginning of new trend? Era of The beginning of new trend? Era of

shale gas? Green energy and shale gas? Green energy and renewables? Escalation of competition renewables? Escalation of competition between fossil fuel producers? Ebetween fossil fuel producers? Epochpoch of cheap oil and gas? of cheap oil and gas?


But Situation is But Situation is not so Cnot so Categorialategorial

• Main problems and disproportions of world energy are still Main problems and disproportions of world energy are still the same the same

• Disbalance of resources and consumption Disbalance of resources and consumption

Four main drivers of increasing of energy consumption in Four main drivers of increasing of energy consumption in long long termsterms

• Increasing of population Increasing of population • The developing of Asian countries. The decline in energy The developing of Asian countries. The decline in energy

consumption in 2009 was concentrated in OECD countries consumption in 2009 was concentrated in OECD countries and the territory of the Former Soviet Unionand the territory of the Former Soviet Union

• RRenewableenewables: in need of technical revolution and huge s: in need of technical revolution and huge amount of investment amount of investment

• Fossil fuel: recourses are huge, but they are most of all in Fossil fuel: recourses are huge, but they are most of all in hard-to-reach category hard-to-reach category

Economic Crises may be onlyEconomic Crises may be only a pause but the beginning of new a pause but the beginning of new long term trendlong term trend


Reserves and Reserves and ConsumptionConsumption

Proved reserves of natural gas (at end 2009)

Reserves, trillion

cubic meters Share of total

(%) Russia 44,38 23,7

Iran 29,61 15,8 Qatar 25,37 13,5

Turkmenistan 8,10 4,3 Saudi Arabia 7,92 4,2

USA 6,93 3,7 UAE 6,43 3,4

Venezuela 5,67 3 Nigeria 5,25 2,8 Algeria 4,50 2,4

Consumption of natural gas

Consumption,

bcm Share of total (%)

USA 646,6 22,2 Russia 389,7 13,2

Iran 131,7 4,5 Canada 94,7 3,2 China 88,7 3 Japan 87,4 3 U.K. 86,5 2,9

Germany 78,0 2,6 Saudi Arabia 77,5 2,6

Italy 71,6 2,4

Source: BP



Proved reserves of oil(at end 2009)

Reserves, Thousand

million tonnes

Share of total (%)

Saudi Arabia 36.30 19,8 Venezuela 24,8 12,9

Iran 18,9 10,3 Iraq 15,5 8,6

Kuwait 14 7,6 UAE 13 7,3

Russia 10,2 5,6 Libya 5,8 3,3

Nigeria 5,3 3 Kuwait 5 2,8

Oil Consumers (at end 2009)

Consumption

(Million tonnes)

Share of total (%)

USA 36.30 21,7

China 24,8 10,4 Japan 18,9 5,1 India 15,5 3,8

Russia 14 3,2 Saudi Arabia 13 3,1

Germany 10,2 2,9 Brasil 5,8 2,7

South Korea 5,3 2,7 Canada 5 2,5

Source: BP


China and India: New China and India: New Drivers of Energy Drivers of Energy

ConsumptionConsumption

Production and consumption of gas in China (bcm)

0102030405060708090

100

1996

y

1997

y

1998

y

1999

y

2000

y

2001

y

2002

y

2003

y

2004

y

2005

y

2006

y

2007

y

2008

y

2009

y

Production

Consumption

Source: BP



Increasing of Consumption (2008, %)

4,80%3,00%3,30%

15,80%

0,00%2,00%4,00%6,00%8,00%

10,00%12,00%14,00%16,00%18,00%

Oil Gas

India

China

Increasing of Consumption (2009, %)

3,70%

25,90%

6,70%9,40%

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

30,00%

Oil Gas

India

China

Source: BP


Green TrapGreen Trap

• Renewables are very expansive. Renewables are very expansive. If you If you want substantial production of green want substantial production of green energy in the EU, fossil fuel must be energy in the EU, fossil fuel must be expensive! If fossil fuel is cheap, no expensive! If fossil fuel is cheap, no money will be invested to green energymoney will be invested to green energy

•The same situation with shale gas!The same situation with shale gas!• LLogical ogical ccontradictionontradiction: Brussels is saying : Brussels is saying

that oil and gas will be cheap because of that oil and gas will be cheap because of the development of production of the development of production of renewable. BUT! The development of renewable. BUT! The development of production of renewables is possible only production of renewables is possible only if oil and gas will be expansive if oil and gas will be expansive


Renewables are not Renewables are not SSalvationalvation

World Power Balance

34%

25%

21%

10%

6%4%

Oil

Coal

Gas

Biomass

Nuclear

Renewables

Source: Shell


Energy Problems of Energy Problems of Europe Europe

•Europe believes in diversification Europe believes in diversification and competition between fossil and competition between fossil fuel producers. That is why fuel producers. That is why Europe is struggling with Europe is struggling with traditional suppliers – first of all traditional suppliers – first of all with Russiawith Russia

•That is why Russia is thinking That is why Russia is thinking about new marketsabout new markets


Gas Trap of EuropeGas Trap of Europe

•With the struggle for cutting With the struggle for cutting emissions into the atmosphere, emissions into the atmosphere, natural gas seems to be the most natural gas seems to be the most environmentally friendly traditional environmentally friendly traditional energy source and the most efficient energy source and the most efficient one among relatively clean fuels. At one among relatively clean fuels. At the same time, the EU gas production the same time, the EU gas production keeps going down, which should result keeps going down, which should result in consecutive growth in importsin consecutive growth in imports


Is This Justified in Medium Is This Justified in Medium Term? Term?

The EU may be in for The EU may be in for 15-2015-20 years of difficulties because years of difficulties because • Demand for gas may begin to recover Demand for gas may begin to recover • Export of gas from Iran may not start in the next 15-Export of gas from Iran may not start in the next 15-

20 years 20 years • Central Asia will find itself politically dependent on Central Asia will find itself politically dependent on

China China • Qatar will seek to make supplies more profitableQatar will seek to make supplies more profitable• Internal production of conventional gas will be Internal production of conventional gas will be

seriously declining seriously declining • It will be difficult to finance grandiose energy It will be difficult to finance grandiose energy

efficiency projects efficiency projects • The “shale revolution” will require 15-20 years to The “shale revolution” will require 15-20 years to

move from words to actual projects, which US move from words to actual projects, which US experience has shown graphicallyexperience has shown graphically


Forecast of Forecast of Gas Consumption in Gas Consumption in

EuropeEurope

Source: IEA - 2010!


Gas Production in Gas Production in EuropeEurope

Source: IEA – 2010!


Gas Import of EuropeGas Import of Europe

Source: IEA – 2010!


Russia: Europe or ChinaRussia: Europe or China??

• Russia’s “symmetrical response”Russia’s “symmetrical response” for the for the energy policy of Europe – we are thinking energy policy of Europe – we are thinking about more serious energy cooperation with about more serious energy cooperation with China. But the problem is very simple: it will China. But the problem is very simple: it will be impossible to increase Russian oil and gas be impossible to increase Russian oil and gas export to China without decline of our supply export to China without decline of our supply to Europeto Europe

• The energy strategy stipulates sharp growth in The energy strategy stipulates sharp growth in the share of oil exports in the eastern the share of oil exports in the eastern direction – from 8% in 2008 to 22-25% in 2030direction – from 8% in 2008 to 22-25% in 2030

• The energy ministry officially proposes to cut The energy ministry officially proposes to cut oil exports to the west by 20% to 25% by 2030oil exports to the west by 20% to 25% by 2030


Russia: Europe or ChinaRussia: Europe or China??

• The diversification strategy is effective only amid growing The diversification strategy is effective only amid growing production. In this case one can afford entering new markets production. In this case one can afford entering new markets retaining the old ones. However, when one’s production declines retaining the old ones. However, when one’s production declines or at least stagnates, entering new markets means redirection of or at least stagnates, entering new markets means redirection of supplies because of the necessity to cut some deliveries to old supplies because of the necessity to cut some deliveries to old marketsmarkets

• Western Siberian deposits were actually launched to cater for Western Siberian deposits were actually launched to cater for the European market. It is indeed more logical to develop new the European market. It is indeed more logical to develop new provinces in Eastern Siberia and the Far East to target Asian provinces in Eastern Siberia and the Far East to target Asian markets. Yet, currently a system to deliver oil from Western markets. Yet, currently a system to deliver oil from Western Siberia to the east is being created, which looks rather strange Siberia to the east is being created, which looks rather strange from the economic point of view. Huge resources are being from the economic point of view. Huge resources are being invested in the infrastructure necessary to take oil from a more invested in the infrastructure necessary to take oil from a more profitable market profitable market

• Exports to the east are deliberately subsidized by the state. This Exports to the east are deliberately subsidized by the state. This includes zero export duties on hydrocarbons from Eastern includes zero export duties on hydrocarbons from Eastern Siberian fields, Transneft’s tariff policies and prices of oil Siberian fields, Transneft’s tariff policies and prices of oil transportation by railroadtransportation by railroad


Russian Gas Russian Gas

Gas Production in Russia

578 512 549 550462

0

100

200

300

400

500

600

700

1993y 2001y 2007y 2008y 2009y

Russia

Gazprom

Gas Production in Russia

582

618

581654

665

0

100

200

300

400

500

600

700

1993y 2001y 2007y 2008y 2009y

Source: Gazprom, Ministry of Energy of RF


Russian OilRussian Oil

6,07

7,67

9,05

11

8,89

2,44 2,24 2,24

1,12

-0,57

-2

0

2

4

6

8

10

12

2000y 2001y 2002y 2003y 2004y 2005y 2006y 2007y 2008y 2009y

Changes in Oil Production in Russia (%)

Source: Ministry of Energy of RF



Main Oil Producers (end 2009, million tonnes)

494,2459,5

325,3

202,4 189

0

100

200

300

400

500

600

Russia Saudi Arabia USA Iran China

Source: BP



Oil Production in Russia (million tonnes)

0

5

10

15

20

25

30

35

40

45

January February March April

2000y

2009y

2010y

Source: Rosstat


Problems in Upstream Problems in Upstream

• In the 1990s and 2000s producers of natural resources were actively raising output by developing deposits In the 1990s and 2000s producers of natural resources were actively raising output by developing deposits with the most easily extractable reserves and by using aggressive means of enlarging oil production. As a with the most easily extractable reserves and by using aggressive means of enlarging oil production. As a result, the sector reached record high results and now it is facing an objective to retain the positions result, the sector reached record high results and now it is facing an objective to retain the positions achieved. Production at major fields in Western Siberia is steadily easing back and there are not enough achieved. Production at major fields in Western Siberia is steadily easing back and there are not enough investments in eastern projectsinvestments in eastern projects

• Production at major fields in Western Siberia is steadily easing back Production at major fields in Western Siberia is steadily easing back • Production in the east is not growing as fast as planned. We rather hear talks about production but Production in the east is not growing as fast as planned. We rather hear talks about production but

upstream projects in Eastern Siberia are carried out very slowlyupstream projects in Eastern Siberia are carried out very slowly


Gas Supply to China: Risky Gas Supply to China: Risky GameGame

• Beijing has voiced ambitious plans for growth in gas consumption to 300 Beijing has voiced ambitious plans for growth in gas consumption to 300 billion cubic metres by 2020. The increase will amount to 10-20% per billion cubic metres by 2020. The increase will amount to 10-20% per annum even in crisis times. Import is expected to rise at even faster rates.annum even in crisis times. Import is expected to rise at even faster rates.

BUT BUT • The activity of Chinese companies purchasing the fuel does not lag behind The activity of Chinese companies purchasing the fuel does not lag behind

either though. A gas pipeline is being built from Central Asia to China with either though. A gas pipeline is being built from Central Asia to China with a capacity of up to 40 billion cubic metres a year (scheduled to be a capacity of up to 40 billion cubic metres a year (scheduled to be launched in December with an initial capacity of some 10 billion cubic launched in December with an initial capacity of some 10 billion cubic metres)metres)

• The state companies CNOOC and PetroChina have signed contracts to buy The state companies CNOOC and PetroChina have signed contracts to buy substantial quantities of LNG in the Pacific and the Middle East. The substantial quantities of LNG in the Pacific and the Middle East. The import of liquefied gas must grow to 14 million tonnes in 2012. About 3 import of liquefied gas must grow to 14 million tonnes in 2012. About 3 million tonnes is already supplied from the North West Shelf in Australia. million tonnes is already supplied from the North West Shelf in Australia. This year will see the beginning of gas supplies from Qatar (up to 5 million This year will see the beginning of gas supplies from Qatar (up to 5 million tonnes when a “plateau” is reached), Indonesia (up to 2.6 million tonnes), tonnes when a “plateau” is reached), Indonesia (up to 2.6 million tonnes), and Malaysia (up to 3 million tonnes)and Malaysia (up to 3 million tonnes)

• Besides, framework contracts have been signed with Exxon and Shell for Besides, framework contracts have been signed with Exxon and Shell for acquiring 4 million tonnes from the Gorgon project in Australia from 2014 acquiring 4 million tonnes from the Gorgon project in Australia from 2014 and with Exxon for 2 million tonnes from a plant in Papua New Guinea and with Exxon for 2 million tonnes from a plant in Papua New Guinea starting the same year. Thus, about 30 million tonnes of LNG a year has starting the same year. Thus, about 30 million tonnes of LNG a year has been contracted for in total, which is equivalent to half of today’s been contracted for in total, which is equivalent to half of today’s consumption in China. consumption in China.

• Coal-bed Methane ProductionCoal-bed Methane Production? ?


ConclusionsConclusions

• Russia has problems in Upsream but Russia has problems in Upsream but Russian’s main Russian’s main trump cardtrump card is proved is proved reservesreserves

• The increasing of export of oil and gas to The increasing of export of oil and gas to China means the decline of Russian export China means the decline of Russian export to Europe to Europe

• U-turn to China is very risky strategy U-turn to China is very risky strategy • European strategy of diversification is also European strategy of diversification is also

very riskyvery risky• Europe will still depend on import of fossil Europe will still depend on import of fossil

fuel and refusal from Russia can result in fuel and refusal from Russia can result in lack of energy resources in EU lack of energy resources in EU

• We must avoid possible mutual mistake We must avoid possible mutual mistake


Thank you! Thank you!

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