RUSSIA’S ENERGY STRATEGY - 2030
Professor Tatiana Romanova is an associate Professor, European Studies, St Petersburg State University; Jean Monnet Chair; Director Jean Monnet Centre of Excellence. Her research interests include EU-Russian relations, energy markets and liberalization, energy security, Russian foreign policy and EU institutions.
Russian energy strategy is often a mystery to Europe. With about 30% of Europe's gas being supplied by Russia it is of great interest and I hope you can help us understand it better. What are the key priorities over the next 15-20 years?
Central to Russia's priorities is maintaining stable energy supplies both internally and to its external markets and customers. This goes hand-in-hand with energy security, availability and affordability and of course to ensure stability of demand. The 2030 target is to maintain a 10% share of global oil trade and 20% of natural gas.
Another external energy policy priority is to leverage energy to improve Russian position in global relations. And I mean this in a positive, liberal sense.
Other priorities include an ambitious modernization programme to ensure economic efficiency and sustainability of our energy sector, creating stable institutional structures in the Russian energy sector, bringing innovation to the energy sector and training. Energy efficiency and the minimizing of environmental impacts are also receiving considerable attention.
An ambitious set of priorities. So what energy sector reforms are you implementing in order to achieve these?
Russia has already restructured and liberalized fully its electricity, coal and oil sectors. Only gas remains to be completed, but the process is on the way. Gazprom still dominates the scene, but Russia has numerous independent producers who now control 38% of gas resources, but at this stage account for only 16% of production.
A key element of Russia's future strategy is to reduce economic dependence on energy from 30% now to 18% of GDP by 2030.
That's internally. What key reforms are you implementing in Russian external energy policy?
Externally Russia aims at achieving:
- Stable relations with traditional and new consumers of Russian energy resources;
- A steady share of global energy markets;
- Product diversification and increased share of processed energy goods in the global export market;
- Faster access to the Asian energy markets, with the target of up to 30% penetration by 2035 while maintaining our gas exports to Europe;
- Integration of Russian energy companies in the international energy market;
- Increase of LNG exports to 80-90bn m³/year by 2030.
The global energy market is facing a major downturn and challenges, with Russia bearing the brunt of it. How are you facing up to these threats and challenges?
Clearly the current situation is a challenge. The 2014 sanctions, affecting external finance and access to oil technologies, are a problem but not as serious as the low oil price and the slowdown in the global and Russian economies. As a result of this cluster of problems many projects are being postponed by about five years, as is happening with other international oil companies, which inevitably will lead to falling production during the next few years. These problems also affect replacement of ageing infrastructure and implementation of new technologies.
On the positive side, though, is a drive to manufacture oilfield equipment and supplies, which were previously sourced from the west, internally. This is termed import substitution, although its effectiveness is yet to be assessed.
Liberalization and changes to the global gas pricing structure pose a short-term challenge to Russian gas exports, especially to the EU but also potentially to Asia, and, in the longer-term, gas markets will adjust to this.
The politicization of, and threats to, Russia's relationship with the EU are of major concern. And then there is the question of the Ukrainian gas transit. Even though China and Asia are seen as providing a counter-balance to this, Russia still considers the EU as an important trading partner and it is gradually taking measures to adjust to new realities.
So what about the Russia-EU relationship?
Europe has been a key energy export market for Russia since the 1970s. This has led to an increasing infrastructural inter-dependence, such as the Ukrainian gas transportation system, Yamal, Nord Stream 1, and now possibly Nord Stream 2 and possibly a new version of South Stream, but this is still to be seen.
But changes in the EU's internal energy market as a result of the third energy package, anti-competition investigations against Gazprom, the introduction of energy security measures seemingly aimed at Russian gas and the increasing trend of politicizing new projects are serious challenges that Russia is facing regarding its gas exports to Europe.
Russia's aim is to face up to new EU realities and stabilize relations. But Russia appears uninterested in increasing its presence in the EU's downstream. Rather the aim is to supply natural gas to the border of the EU and let EU member states sort out the issues of further transportation, including creating hubs if they wish so on their territory.
Finally, Ukraine remains a controversial partner. The transit agreements expire in a few years and Russia has not yet chosen a strategy there. On one hand, it seems cheaper to make use of this way to continue supplying to the EU. The infrastructure is there, although in dire need of upgrade. It is cheaper to upgrade something on the ground than build a pipeline under the sea. It could also be a project of mutual reconciliation and provide Ukraine with stable revenue. However, Gazprom will only go for that option if it has some control of the Ukrainian gas transportation system or if it is a part of a wider political deal to pacify Ukraine.
You mentioned China and Asia potentially providing a counter-balance to the EU challenges. How is Russia facing up to this?
The development of eastern Siberia and the Far East are linked to the reorientation to Asia; they are also meant to provide a counterbalance to Europe and to western sanctions. In 2015 Russia became the second largest oil supplier to China and a number of gas pipeline projects are under consideration or implementation.
But this is not without challenges. Problems include:
- A tighter financial situation, due to price dynamics; sanctions; and the difficulties of financing new projects.
- Gas prices in China and the risk of monopoly buyer;
- Asian demand depends, inter alia, on future use of nuclear energy in Japan and Korea and China is undergoing an economic slow-down.
- Ultimate strategy of cooperation with China. Is Russia going to be just a resource provider; or will it develop into a closer partnership and industrial cooperation?
- Pipelines still to be constructed to link Russia and China.
These are questions Russia is grappling with and they will define future Russian energy strategy.
You have not said anything yet about a troubling part of the world where Russia's involvement is growing. What are your views regarding the eastern Mediterranean?
Let's start with Turkey. Despite growing problems and challenges Turkey is still an important energy customer. Existing gas supply projects are mostly unaffected by Russian economic sanctions, but the climate for new projects is not there. Turkey was considered a geopolitical partner in supplying natural gas to Europe, but this is questionable now and Turk Stream is at present de facto cancelled. Russia has redirected its efforts and attention to Nord Stream 2 and is considering a possible return to a new version of South Stream. This effectively buries Turkey's hope of becoming an energy hub.
Military operations in Syria are aimed at radical Islam, which is considered a threat to Russia, and not for oil and gas price support as some experts claim. Stability in the region and maintaining strategic presence are central to Russian policy in the region.
New players in the eastern Mediterranean, potentially exporting natural gas to the European and Turkish markets where Russia operates, are seen as potential competitors. However, today's low gas prices reduce the probability of these coming into the market soon, especially because the required infrastructure does not exist and new infrastructure is costly.
We also need to put eastern Mediterranean gas in context. In global terms it is a relatively insignificant resource: about 1% of global gas resources, compared with Russia's 17%. Nevertheless Russia is paying attention to potential new players, such as Israel and Cyprus and more recently Egypt's Zohr field provoked a lot of discussions.
A gas pipeline from Qatar via Syria to Turkey and then Europe could have provided competition but this is highly unlikely now. Iranian gas is not considered to be a problem either, for a number of years to come.
Under the right circumstances, and if opportunities arise, Russian companies may consider active participation in developing eastern Mediterranean hydrocarbon resources.
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