Russian Energy Strategy

up to Period 2030:

Questions, Troubles, RisksDr. Alexey Gromov

Deputy General Director Institute for Energy Strategy

Moscow, Russia

10th Annual Aleksanteri Conference

Helsinki27 October, 2010

Conception of the state energy policy in new economic conditions

(Ratified by the Government: №26 of 10.09.92)

Decree of the President №472of 07.08.95 «About the basic directions of

the state energy policy»

Fundamentals of the ES - 2010(Ratified by the Government: №1006 of 13.10.95)

ES – 2020(approved be decree № 1234-r of the Government

of the Russian Federation of 28.08.03)

ES – 2030 approved by decree N° 1715-r of the Government

of the Russian Federation of 13.11.2009

1992

1995

2003

ENERGY STRATEGY 2030 and its PREDECESSORS

2

2009

Energy Strategy 2030 in the System of Documents of the Strategic Development

Program of long-term

development of the fuel and energy complex of the Russian

Far East

Conception of the long-term development of the Russian Federation for

the year 2020

Strategy of development of

the power generation in the Russian Far

East

Long-term forecast of the development of

Russian economy for the years

2009-2030

Eastern Gas

Program

General scheme of allocation of power

generating facilities for the

year 2020

General scheme of development of the oil industry for the year

2030

General scheme of development of the gas industry for the year 2030

Conception of the state program for exploration and exploitation of the continental shelf of the Russian Federation

ES-2030

State program of energy saving

Investment programs of energy companies

3

ES-2030: from FORECAST to TARGET MODELING

165,9172,6 175,2

188,1

203,7213,2

245,2

167174,1

166,8

183,3 182,4194,8 199,5 204

222,6

101,5 105,3 106,2 104,4 108,8

90,9 95,286,6

93,2101,7 103,5 107,9 108,6 104

233,9227,5

117,3125 130,2 130,8

0

50

100

150

200

250

2000 г. 2001 г. 2002 г. 2003 г. 2004 г. 2005 г. 2006 г. 2007 г. 2008 г.

млн т

производственнаямощностьразрезов

добыча угля наразрезах

производственнаямощность шахт

добыча угля нашахтах

213 25

8 299

316

301

226 30

5 369

394

402

132

171 20

3 212

206

148

201

242 25

5

258

345

429

502528 507

374

506

611649 660

0

100

200

300

400

500

600

700

2010 г. 2015 г. 2020 г. 2025 г. 2030 г. 2010 г. 2015 г. 2020 г. 2025 г. 2030 г.

млн т

Разрезы Шахты Всего

Минимальный вариант Максимальный вариант

ES-2020

ES-2030

Forecasts and Scenarios

Target Modeling

4

ENERGY STRATEGY 2030approved by decree N° 1715-r of the Government of the Russian Federation of 13.11.2009

5

1ST STAGE 2ND STAGE 3RD STAGE

Growth of national economy and quality of life of the population

Overcoming the crisis in the Economy and Energy sector

Modernization of Energy sector

Increase of power efficiency and energy saving in the Economy and Energy sector

Innovative development of Energy sector

New oil and gas fields development (Arctic shelf, Eastern Siberia and the Far East)

Highly effective use of traditional power resources

Switch to the Energy of the Future

2020 202220152013 20302009

State Energy Policy in Russia

Rational market environment

Advanced standards and regulations

Subsoil resources

management

Development of home energy

markets

Formation of rational energy balance

Social policy in the energy

sector

Regional energy policy

External energy policy

Scientific, technical and innovative policy

Strategic initiatives

Energ

y se

curit

y

Energ

y ef

ficie

ncy

of e

cono

my

Econo

mic

effi

cien

cy o

f FEC

Ecolo

gica

l sec

urity

of F

EC

Management of state property

6

Aim and Goals of the ES-2030

Efficiency of reproduction, extraction and processing of energy resources

Modernization and construction of new energy infrastructure

Energy and ecological efficiency of the national economy and energy sector

Stable institutional environment in the energy sector

Further integration of the Russian energy sector into the global energy system

Aim

Goals

Innovative and efficient energy development

Aim of the ES-2030 remains stable despite consequences of the global economic crisis

7

Forecasted Change of the Fuel and Energy Complex’s Role in the Russian economy

30% 18%

2005 2030

Energy sector in GDP

Energy sector’s export in GDP

Energy resources in export

19% 5%

64%34%

Investment in energy sector in total investment27% 11%

8

Expected Dynamics of Specific Energy Intensity of GDP and Domestic Demand for Primary Energy Resources

9

Foreign energy policy and ES-2030 targets:Eastern and Western vectors

10

Western Vector (European

Market)

Eastern Vector (Asian-Pacific

Market)

- EU market is essential for Russian gas export (75%)- Western Vector accounts for 96% of Russian gas export (EU + other Europe)- Russia seeks for export diversification - Russia promotes eastern vector of energy export

Russian Gas Export, 2009

Russian Gas Export, 2030 (projected)

Eastern Vector for Russian Energy Policy

11

EASTERN VECTOR IN ES-2030: NEW SIDES OF “OLD” TASK

12

Road Map of implementation of ES-2030 : Eastern vector

task №19 «Increase in the share of the Asia-Pacific countries in the structure of the Russian energy export to 16–17%»

task №10 «Implementation of a complex of program measures for petrochemistry and gas-chemistry development in the Eastern Siberia and Far East»

task № 17 «Extended reproduction and attraction of human resources for development of new areas of the

Eastern Siberia and Far East»

Key initiatives in the Russian energy sector: Eastern vector

Energy infrastructure: development and diversification

Development of oil and gas complexes in Eastern regions of Russia

Exploitation of the oil and gas potential of the Northern regions of Russia and Arctic shelf

Non-fuel energy

Energy saving

ESPO pipeline, Eastern Gas Program, petro- and gas-chemistry development

Sakalin, Yakutia, Magadan, Irkutsk and Krasnoyarsk regions

Shelf of the East Arctic, reanimation of the Northern Sea Way

Large-scale development of hydro energy and renewables

Modernization of electric power and heat supply systems in the Region

Eastern vector

13

THE EAST IS A KEY DIRECTION OF DIVERSIFICATION OF THE RUSSIAN EXPORT

95,8

159,8

88-90 78-92

87-92

201189-194158-

168

70-7555

24-36

353-390336-359

310-311

256,0

0,0

50,0

100,0

150,0

200,0

250,0

300,0

350,0

400,0

2005 1st Stage 2nd Stage 3rd Stageb

ln.

cub

. m

CIS Europe Asia-Pacific

Forecast of gas export

43,8

264,1 265 249

200

20,2

264-265

248-249

194-207

30-33 47-55

70-80

306-329

332-349339-341328,1

0

50

100

150

200

250

300

350

400

2005 1st Stage 2nd Stage 3rd Stage

CIS Europe Asia-Pacific

mln. t

Forecast of oil and oil products export

Oil export in Asia-Pacific region, % of total export

622-25

0

20

40

60

80

100

2005 2030

Gas export in Asia-Pacific region, % of total export

019-20

0

20

40

60

80

100

2005 2030

Coal export in Asia-Pacific region, % of total export

15

70-75

0

20

40

60

80

100

2005 2030

Electricity export in Asia-Pacific region, % of total

export

3

75-80

0

20

40

60

80

100

2005 2030

14

KEY PROJECTS IN THE EASTERN SIBERIA AND THE FAR EAST

Eastern Gas Program

Sakhalin development

LNG Projects in Sakhalin

Natural gas Export to China

15

FIRST RESULTS OF ES-2030: CAREFUL OPTIMISM

2008 2009

Strategic Indicator for

the first stage of ES-2030 (2013-2015)

Share of Eastern Siberia and the Far East in gas production

2% 3,7% 7-8%

LNG share in gas export 0% 3,5% 4-5%

Share of the countries of the Asia-Pacific Region in the structure of gas export

0% 3,5% 11-12%

Western Vector for Russian Energy Policy

16

17

WESTERN VECTOR IN ES-2030: KEY PROJECTS & GOALS

Nord Stream (started in April 2010)

South Stream (projected) Shtokman (projected)

task №19 Increase the Russian gas export to European market160 bcm in 2008 120 bcm in 20092030 target - 200 bcm

task №21 Promote the gas pricing system in Europe, including both long-term and spot contracts

task № 22-23 Bilateral investment in gas projects

DISTURBING RESULTS OF 2009 ON EUROPEAN GAS MARKET

583,9 583,6

664,9

400

425

450

475

500

525

550

575

600

625

650

675

700

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

годы

мл

рд

куб

. м

Добыча газа в РФ, всего В т.ч. Группа Газпром

18

Gas production has fallen to level of 2000

12%

120,3

158,4

168,3

195,4

100

125

150

175

200

225

250

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009м

лрд.

куб

. м

Экспорт в дальнее зарубежье Экспорт, всего

24%

Gas export to Europe was reduced to a quarter

Gas production (Russia) Gas production (GAZPROM)

Export to Europe Export (total)

Price situation in 2009 Price,USD/bcm

Russian gas(long-term contracts, Europe)

288

LNG (US, Henry Hub) 147

LNG (Great Britain, NBP) 142

LNG (Japan, Korea) 260

LNG (Chine) 160

Source: EEGA

Factors of decrease in export expectations

Europe:

Competition growth (LNG, new pipelines)

Pricing change (spot market vs. long-term contracts)

Renewables & energy efficiency

Geopolitics (Nabucco, anti-Gazprom rules in 3rd Gas Directive etc.)

LONG-TERM EXPORT DYNAMICS & REASONS

19

Composition of EU gas import

Conclusions

20

EXPORT EXPECTATIONS VS. REALITY

368

349

234

203

300

150

175

200

225

250

275

300

325

350

375

400

2008 (факт) 2009 (факт) 2010 2015 2020 2030

bc

m

Прогноз экспорта российского газа (верхний уровень по ЭС-2030)

Прогноз экспорта российского газа (нижний уровень по ЭС-2030)

Прогноз экспорта российского газа (ожидания ГУ ИЭС)

21

Risk of decrease in export on 15-20 %

15-20%

Russian Gas Export forecast up to period 2030

Russian gas export forecast (high level from ES-2030)Russian gas export forecast (low level from ES-2030)Russian gas export forecast (IES expectations)

Factors of decrease in export expectations

Europe: Competition growth

US: refuse of future Russian LNG (the boom of shale gas production)

Asia-Pacific: competition growth (Central Asia)

BALANCING EASTERN AND WESTERN VECTORS:TASKS FOR RUSSIAN ENERGY POLICY

• From export orientation to the domestic market

• Cost reduction in Russian natural gas industry

• Revision of investment projects

- Selection of priority projects among declared in ES-2030

- Refusal of a number of ineffective projects-giants (the Southern stream, etc.)

• Flexibility of gas export policy

- Revision of pricing system in long-term contracts of Gazprom

- Flexibility increase in mutual relations with Ukraine and Central Asia

22

ISSUES FOR RUSSIA – EU RELATIONSHIPS

- EU gas market forecast

- EU secure demand for Russian natural gas

- The real need for new pipeline project in relation to future

demand

- The transit problem & politics toward Ukraine & Belarus

- 3rg Gas Directive & Regulative issues

- Bilateral investment in gas fields, pipelines, and marketing

23

Thank you

for your attention!

24