The government of Russia adopted a new revision of the plan for the development of the energy sector up to the year 2030, according to R.F. Minister of Energy Sergei Shmatko.
All that remain to be done at this stage is to address several specific areas of the strategy at the level of tactical details. Minister Shmatko gave instructions that the plan be amended to provide for the priority access for independent producers of APG (associated petroleum gas) to the transmission networks, as well as to grant special incentives to companies that would process APG on site.
The provisions of the revised strategy dealing with energy conservation are not sufficiently “ambitious”, according to the Russian Minister. Later amendments of the master strategy may therefore reflect grander visions of Russian authorities with respect to the environment.
The strategy for the growth of Russia’s gas industry for the next 20 years will be released in November. The gas strategy will also encompass the Altai project for the transportation of gas to China.
The energy sector strategy is based on estimates that Russia’s oil production will reach 530 to 535 million tons by the year 2030. The production of gas is expected to be from 880 to 940 billion cubic meters. Electricity generation is anticipated to reach 1.8 to 2.2 trillion kilowatt hours.
With regards to the exports of petroleum, the strategy envisions that by 2030 Russia will be shipping abroad 329 million tons of oil and refined products. Gas exports are predicted to reach the level of 349 to 368 billion cubic meters. The strategy also provides for a geographical reorientation of Russia’s exports. By the year 2030, Eastern countries will account for 20 percent of Russia’s gas exports. Oil exports to the East that currently take only a 6-percent share of all shipments will account for 25 percent of the total volume.
The overall investment in the energy sector will rise to RUR 60 trillion by the end of the period of the forecast.
Prime Minister Vladimir Putin noted that the Sayano-Shushenskaya Hydropower Plant disaster underscored the need to have supplemental generating capacities. By 2030, extra capacity available for emergency situations should reach 17 percent of the country’s total needs. The demand is expected to grow, and so the accelerated replacement of reserves should be a priority.
The end phase of the strategy is targeted at optimizing the efficiency of energy use. The use of alternative and renewable energy should be intensified, and the transition to solar and geothermal energy should go more swiftly. Mr. Putin stated that renewable sources should account for 14 percent of Russia’s energy production.
The Russian Prime Minister also came forward with suggestions that the tax on natural resource extraction should be paid directly to the federal tax authority. Mr. Putin noted that the regions should receive adequate compensation for giving up this revenue. The government also expects that the rate of natural resources extraction taxes will decrease. For some commodities, the tax rate may even be reduced to zero.
Oil production
Estimates for the production of oil in Russia underwent a downward revision in the new version of the strategy – the figure decreased by 6.6 percent. While the previous prognosis envisioned that oil extraction would be between 540 and 600 million tons, the new numbers are only 530 to 535 million tons.
Gas production figures have instead increased by 4 percent. It is now estimated that by 2030, Russia will produce 880 to 940 billion cubic meters (the numbers in the last edition of the strategy were 870 – 880 billion cubic meters).
Russia’s production of petroleum products by 2030 should be between 275 and 317 million tons, which would include about 188 million tons of motor oil and about 30 million tons of fuel oil. The numbers for refined petroleum products were lowered in the new draft of the plan from a previous estimate of 285 million tons.
Exports
Exports of petroleum products and unrefined oil abroad are expected to reach 329 million tons by 2030. This indicator remained unchanged since the last revision. Governmental analysts now predict that gas exports would total 349 to 368 billion cubic meters in 20 years, not 353 – 380 billion cubic meters as thought previously. The share of liquefied gas in the total volume of exports should be from 14 to 15 percent.
The Eastern market for Russia’s gas, practically untapped by any domestic producer today, will come to account for nearly one fifth of the country’s gas exports. The supply of oil and oil products to the East will similarly rise to 25 percent. Currently, these exports stand at only 6 percent.
Russian experts believe that by 2030, the share of gas in the country’s overall consumption will decline to 47 percent from its current level of 52 percent. No changes to the ratio of gas and coal prices are anticipated in the near future. The rates of increase of gas and coal prices are not going to be disproportional.
The forecast is based on a conservative estimate of oil prices at USD 70 to 80 per barrel.
Replacement of reserves
The strategy for the development of the energy sector also includes plans for facilitating the replenishment of reserves. The increase in the unexplored gas, oil, and coal reserves will have to exceed the rate at which these resources would be used. The exploration of deposits located in the Far East, Eastern Siberia, and the Arctic shelf are assigned heightened priority.
The increase in proven oil reserves at fields offshore will be around 10 to 15 percent. For gas, the reserves should increase by 20 to 25 percent.
The ratio between the yearly increases of extraction and the discovery of new proven reserves will be more than 1 for coal, gas, oil, and uranium. The ratio of recovery at the fields of mineral deposits in Russia will rise to 35 – 37 percent.
Under the new energy strategy, the cumulative investment in the fuel sector made before 2030 will be RUR 60 trillion.
The domestic consumption of energy in Russia is estimated to rise by a minimum of 40 percent by the end of the period examined in the forecast.
The trading of energy resources at Russia’s exchanges as a proportion of the volume of the domestic market should reach at least 30 percent in 2030.
Standby capacity
Another interesting aspect of the revised energy plan is its emphasis on the creation of back-up generating capacities. Prime Minister Putin recently indicated that the goal is to have enough supplementary energy sources to provide for 17 percent of Russia’s overall needs. The barriers to achieving such targets are, first and foremost, infrastructural. Nevertheless, the Russian government realizes that considerable standby capacity must be created soon, especially in light of the recent catastrophe at the Sayano-Shushenskaya plant.
Since both the domestic and the foreign demand for energy resources will only go up in the future, Russia’s energy strategy, according to Mr. Putin, must assure that internal needs are met and that Russia remains a strong energy partner for foreign customers.
The generation of electricity in Russia will be around 1.8 to 2.2 trillion kilowatt hours by 2030. The current capacity of Russian power plants is 225 gigawatts, and it is expected to increase to between 355 - 445 gigawatts in 2030.
The efficiency of gas and coal electric power plants will grow by 40 percent by 2030. The efficiency of atomic power plants will rise by 15 percent.
Alternative sources
Russia’s energy strategy consists of three parts. In the initial phase that is to be implemented from 2013 to 2015, the energy sector will be recovering from the effects of the economic crisis and building a foundation for future development. The second phase that would last from 2015 to 2022 will see the introduction of modern innovative technologies to the energy sector. The final stage of the program from 2022 to 2030 will be marked by a focus on energy efficiency and serve as a beginning point for Russia’s transition to the use of fuels not based on hydrocarbons.
Alternative ways for generating energy, including nuclear power, wind, hydropower, and other renewable fuels, will be given special priority. By the end of the period of the forecast, renewable energy should account for 14 percent of the country’s demand.
Additionally, the current energy strategy foresees improvements in the refining process of hydrocarbons. The average yield of product at Russian refineries should rise from 73 percent to at least 90 percent.
In the long term, the domestic energy market needs to be liberalized. Altogether, the strategy should be founded on the principles of natural market forces, innovation, efficiency, and environmental quality.
NRET
Russia’s Prime Minister Vladimir Putin also made a proposal to have the NRET (taxes on extraction of hydrocarbons) be paid to the federal government in its entirety. Additional payments are needed to increase state revenues. Several legislative measures enacted recently, including amendments to the Budget Code and the Law on the Central Bank, will allow increasing state revenues by more than RUR 144 next year.
Today, Russia’s regions retain 5 percent of the NRET, while 95 percent goes to the federal tax authorities. As a result of the new change, Russia’s budget stands to gain close to RUR 46 billion in fiscal year 2010.
Russian officials want to provide adequate compensation to the regions for having to give up tax revenues. The regions will receive subsidies in proportion to their contribution of NRET revenues. These federal outlays will help regions balance their budgets. Altogether, it is estimated that 32 regions will be affected by the tax changes.
Additionally, the Russian government has decided to allocate the proceeds from the financial operations with the wealth reserve fund to the state budget. Moreover, the country’s Central Bank will be asked to turn over 75 percent of its profits to the state (the number was 50 percent in the past) for the next 3 years.
While the overall strategy for the development of the energy industry does not envision the complete removal of the NRET, it provides for a number of tax incentives and export duty reductions. In some cases, such as with coal extraction, the net effect may be the reduction of the NRET to zero.
Significant incentives will also attract businesses to explore new, alternative sources of energy.