IEA: RUSSIAN ENERGY POLICIES
Since the last energy policy review of Russia conducted by the International Energy Agency (IEA) in 2002, there have been major developments especially in the sectors of hydrocarbon production, processing, exports and distribution. Investments in the up-stream oil and gas sector have enabled Russia to maintain its position as one of the most important energy players globally, continuing its essential role in global energy supply.
Crude oil and especially condensate production have reached historical highs against the backdrop of increasing global oil prices, higher investment and technology upgrades. New oil production centres were developed in East Siberia, and major crude oil exports to Asia, primarily to the People's Republic of China – where demand for Russian oil is in-creasing – have started. As refineries are being modernised and capacities expanded, production of oil products has increased and fuel quality has been improving to meet growing domestic demand. These changes have also supported Russia's economic growth during this period, its economic and energy sector modernisation and its own en-ergy supply security.
Gas production and distribution have been diversified, with legacy production increasingly replaced with new production areas and fields. Companies oter than Gazprom, in particular Novatek and increasingly also Rosneft, have expanded gas production, ob-tained access to the gas transmission system, taken significant shares in the wholesale gas market and consolidated their assets through acquisitions. Gazprom is playing a key role in Europe's gas supply and has expanded its gas exports to Europe over the past ten years and developed new gas export infrastructure. Russian companies are now prepar-ing to supply more gas to the booming Asian markets, including in partnership with for-eign companies following the partial liberalisation of liquefied natural gas (LNG) exports. The government has adopted an important package of oil and gas tax reforms aimed at unlocking the development of Russia's next generation of hard‐to‐recover and frontier hydrocarbon resources. The IEA welcomes the progress made in the liberalisation of the gas market, especially the most recent partial liberalisation of LNG exports.
However, 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), Russia's 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%. In order to maintain oil production and export volumes at the current historically high levels, Russia will need to develop new resources, maximise the remaining potential at existing brownfields, make the transport sector more efficient, and develop gas use for transport.
The power sector has also undergone profound reforms, which have enabled it to successfully liberalise, to attract investments to progressively replace ageing infrastruc-ture and meet growing demand. The IEA supports further efforts aimed at completing the liberalisation of the power market. Infrastructure in the electricity and heat sectors is ageing and needs rapid replacement and modernisation: This poses risks to the country's energy security (especially for heat and power supplies), as well as its competitiveness and well‐being.
Tackling the challenge of reforming district heating systems is complex but an essential step to foster security of heat supply and attract investments in the modernisation of ageing generation and transmission infrastructure, as well as to support investments in electricity and heat co‐generation.
Regulatory preparations are underway, but changes have been insufficient in past years in order to address the challenges.
Overall, energy markets in the area of gas, electricity and heat could be more efficient and deliver better quality, prices and service to end users.
The energy intensity of the Russian economy has improved since the 2000s but is still about two times higher than average IEA levels and has been slightly increasing in past years. Russia's energy‐intensive goods are facing increasing global competition in domestic and export markets, especially since regulated wholesale gas prices have been raised to a level close to USD 100 per 1 000 cubic metres, as electricity prices have increased and as energy efficiency investments in the industrial sector, but also in the residen-tial sector, have not occurred at the required pace. Russia has started to develop a policy and regulatory framework to unleash its substantial energy efficiency potential – a key potential driver of economic modernisation and sustainable growth, provided that large‐scale deployment is achieved. The IEA particularly commends Russia for having started to consider ambitious and comprehensive demand‐side management policies, especially with the introduction of energy efficiency legislation. Nonetheless, these much‐needed policy and legislative measures have not delivered in a timely fashion and stated objectives are not on track to be met. A strong and effective energy efficiency policy would foster the competitiveness of the Russian economy, help diversify economic activity, increase energy exports and enhance energy supply security. The modernisation of the Russian economy and energy sector depends to a large extent on energy efficiency deployment as the potential is huge in the industrial, residential, transport sec-tors and especially in the district heating and power generation sectors. In most of these areas, it can be achieved at relatively low cost.
Finally, the carbon intensity of the Russian economy, measured as carbon dioxide (CO2) emissions per real gross domestic product (GDP), is 60% higher than the average of IEA member countries. As the government has recognised, there is much scope to limit CO2 emissions, yet a comprehensive and effective strategy combining climate and energy policy will need to be developed and implemented as Russia is likely to be negatively af-fected by climate change. Developing renewable energy sources in Russia can foster sus-tainable economic growth and energy security, especially in remote regions. Energy effi-ciency would also be a pillar of an effort to reduce and even stop the growth in green-house gas emissions.
While a number of policies and measures aimed at modernising the energy sector and increasing its efficiency and sustainability are being developed or implemented, further reforms are needed. Russia's energy policies remain at a turning point, on both the supply and demand sides, and with regard to their role in the economy. The current eco-nomic slowdown in Russia offers a reminder of the need to implement economic and en-ergy policy reforms, and for energy policies to promote the competitiveness and modernisation of the Russian economy. Russia now has an opportunity to accelerate cur-rent efforts and turn the entire energy sector, in addition to the oil and gas pillars, in-to a driver of robust and sustained economic growth. Yet addressing all 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. Installing a political, regulatory, fiscal and legal environment that is conducive to investments will be essential if Russia is to rapidly modernise its energy sector.
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