Hydrocarbons start the game, but do not win

The authors of "Outlook for Energy Development in the World and in Russia until 2040" come to the following conclusion: "Russia can no longer live at the expense of the income from hydrocarbon exports. The main task for the next 25 years is radical increase in efficiency of public and corporate governance, including improving energy efficiency of the economy."

This document was prepared by the Energy Research Institute jointly with the Analytical Center of the Government of the Russian Federation. The document assesses the trends of world energy markets (with emphasis on hydrocarbons), their changes under anticipated technological breakthroughs and implications for energy and economy of Russia. Unlike the previous forecast, which was prepared in 2012, estimates are less optimistic.

The analysts took development indicators until 2030 as baseline scenario for Russia in the forecast. These indicators correspond to the innovative scenario of the long-term forecast of the Ministry of Economic Development prepared in early 2013. According to this variant, some population growth is projected in the country, up to 144 million people in 2020, with the accelerating decline to 138 million people in 2040. The Russia's gross domestic product is expected to increase by 2040 by 3.2 times, or by 3.4 % annually on the average, and to grow by 3.3 times per capita. Russia will keep the 6th place in terms of GDP among countries of the world, and will reach the 5th place by 2040, passing ahead of Japan, consolidating its geopolitical position. Such dynamics of the population and the economy corresponds to the growth of domestic demand for energy by 39 % by 2040, with 40 % of it produced by electric power plants. Natural gas will cover half of this demand.

The scenario assumes that the energy intensity of Russia's GDP will decline by 57 % by 2040, this being faster than the world average dynamics of the indicator. But despite the high rate of decline in the energy intensity of the Russian economy, it will still remain above the world average by 75 % (in 2010 the excess was 90 %).

Further calculations showed a significant decrease in amounts of Russian hydrocarbon supplies as compared to the baseline scenario. The results of simulation for the world market put our country in the end of the list of providers with underutilization of potential extraction.

However, estimating the complex of "external factors," the researchers revealed serious threats to Russia's economy and energy sector as a result of the expected deep transformations of global energy markets. The decrease in revenues from gas exports, and even more - from oil sales, will reduce by one third the contribution of hydrocarbon exports in GDP of this country. Accounting for complex external markets and growing competition from other gas suppliers led to the conclusion that, in comparison to the original version in the baseline scenario, Russian gas exports will decrease by 15-20 % after 2015.

Thus, instead a small advance of Russian GDP dynamics described in the baseline scenario, it will show the backlog. Slowdown in GDP growth will lead to deterioration of all the basic parameters of the Russian energy sector - the volume of investments (including investments in energy efficiency), energy consumption and production.

According to the authors of the forecast, a truly effective means to counter external challenges should be radical increase in the investment efficiency of the Russian fuel and energy sector and energy efficiency of the economy as a whole.

Experts estimate that the accelerated growth in energy prices that occurred in recent years did not give a noticeable intensification of energy saving for two main reasons. The first one is high cost of capital and actual inaccessibility of large investments needed for serious energy efficiency measures. The second reason is excessive technological and legal overregulation of the process of titling for implementation of energy efficiency projects, and especially for receiving incomes from their implementation. Removing these barriers will give much more for improving energy efficiency of the economy than further rise in fuel prices.

The Russian analysts are sure: “In the situation of anticipated "global turbulence,” fast and effective solutions are needed." According to the authors of the report, it is necessary to rank investment projects, including those aimed at diversification of routes, products and markets with abandonment of inefficient ones. This is confirmed by results of the analysis of foreign and Russian experts for costs of domestic energy projects, which regularly show their excessive costs as compared to global peers, with underloaded capacities. For example, the less than 50 % of capacity of the Blue Stream gas pipeline intended for supply of natural gas under the Black Sea directly to Turkey has been used for 10 years.

A prerequisite for improving efficiency and reducing investment risks is a broad study of prospects for external and internal energy markets.

The researchers state that the Energy Strategy of Russia until 2030 adopted in 2009-2011 and General schemes for development of energy industries already have blatant discrepancies with today's realities of global markets and the latest forecast for social and economic development of Russia. The report reads: "All this points to the absolute necessity of revision of the country's energy policy and plans of large (especially public) companies. Russia has never before faced such severe restrictions on foreign energy markets, and adaptation will require a major effort and transformation ... Russian energy sector encounters with such severe restrictions in external demand for energy for the first time, and this results in additional risks to the economy and energy sector of Russia."

"The proposed Forecast 2013 can and shall be the subject of discussion for all stakeholders, and shall ultimately help to find ways to adapt energy sector and economy of Russia to changing external conditions in the general context of global energy development."

"Outlook for Energy Development in the World and in Russia until 2040 (rus)"