The task of Russia’s fuel and energy sector – supplying consumers at home and abroad
Novak 3
From the beginning of last year against the background of the COVID-19 pandemic and the current rebound of economic activity, Russia’s fuel and energy sector has continuously demonstrated a high degree of reliability and stability.

By Russian Deputy Prime Minister Alexander Novak

And no less important, it demonstrated social responsibility to the citizens of our country.

    Despite all the difficulties linked to fluctuations in energy prices, the reduced attraction for investment and the restrictions imposed on the work of different parts of industry owing to efforts to stop the spread of the pandemic, Russia’s fuel and energy sector produced the best possible results and a high level of cooperation.
    Today, all sectors of energy are facing up to new, substantial goals – the well-being of Russians depends on achieving these goals, as does the energy security of not only our country but, to a great extent, the entire world. These tasks will have to be resolved in prompt fashion in order to make it through this volatile period and enter a new cycle of sustainable development.
     
    Strategic planning

    Last year, two key documents were adopted for the sector – The Doctrine of Energy Security and The Russian Federation’s Energy Strategy up to 2035. These will facilitate Russia’s breakthrough development and the achievement of national goals, as set down in 2020 by presidential order no. 474.
     Among the global priorities is the country’s progressive socio-economic development – to be facilitated by reliable supplies to the domestic market of top-quality petroleum products, coal, gas and power. That will ensure Russians can enjoy good living standards – a key element of the country’s energy security. Another important task is the boosting of our export potential and ensuring Russia’s leadership role on world energy markets.
    In order to achieve the maximum results in these two areas in the shortest possible time, we have set out key goals in each of the sectors for the current year and beyond.

    Oil and gas

    The prime task to be taken on by the oil and gas sector on the domestic market is to give consumers reasonable access to petroleum products and gas.

    For several years now, we have seen a stable situation in terms of providing the country with fuel. 

    The mechanism of the “reverse excise tax” (or a rebate on excise) for oil produced with a damper – created to ease the effects of world prices on oil, will allow for the cost of petrol and diesel to be maintained within the rate of inflation. The situation on the fuel market and part of reserves as well as in terms of price levels is under the constant control of the government and related agencies. Monitoring from all parties enables urgent stabilising measures to be taken if deemed necessary.

    At the same time, the depth of oil refining has increased and that means better-quality fuel. The share of Class 5 petrol now amounts to more than 96 % and more than 91 % for diesel. To allow for further improvements in fuel quality, new categories have been introduced from 2021 for oil refineries, an investment coefficient to apply to excise duties, a measure that will further stimulate investment in the installation of deep oil refining. 

    According to preliminary data from companies, over the next seven to 10 years this measure could generate about 1 trillion roubles  ($13.5 billion) in additional investment in the construction of 30 facilities for deep oil refining.

    In terms of supplying gas to customers, the “gasification” of the population has increased to 70 % from 53 % since 2005. The Energy Ministry last year produced a road map setting out measures intended to remove obstacles to faster “gasification”. 

    Proposals included the creation of a single body responsible for the entire process of providing gas for the end-customer and simpler procedures for connection to the gas network.

    And a further important issue to be resolved is identifying sources of financing for the gasification programme. That should raise the level of gasification in Russia’s regions to 82.9 % by 2030.

   As an alternative to the process of improving access to gas, a program is being prepared to develop small-scale sources of liquefied natural gas – this would make investment in the construction of LNG plants more attractive to ensure supplies for remote and thinly-populated areas. We believe that this measure would give a new impetus to the process of “gasification” – in a new form.

    Providing gas to the regions will also serve to develop a market of gas motor fuel – very topical in view of the available extensive resource base and the environmental nature of this form of energy. On the back of a programme to provide subsidies for construction of methane fuelling stations, a total of 84 such sites have begun operations in 22 Russian regions, according to 2020 figures.

    The scale of the market for gas motor fuel rose by 15 % last year to reach 1.15 billion cu.m. The number of refuelling sites totalled 615 in 2020, an increase of 21 %,. And plans call for use of gas as motor fuel to rise to 2.7 billion cu.m. with the number of refuelling sites to climb to 1,270.

    If gas is to be considered a strategic type of fuel in the decades to come, we also have to examine 

Russia’s enormous export potential. Along with the traditional effective means of transporting natural gas, we continue to work on diversifying markets and routes for delivery.

    One route, “Turkish stream” started supplying gas this year to Serbia and Bosnia and Herzegovina. You will recall that the first countries to join the pipeline were Bulgaria, Greece, Macedonia and Romania. And in the course of 2021, plans call for the completion of a gas pipeline in Hungary and the launch of a full-capacity pipeline in Bulgaria to provide Russian gas to consumers in Europe.

    A large part of our country’s export ambitions is focused on the LNG market, with Russia already in fourth place in terms of world producers. By 2035, it is our intention to raise production from the current 29 million tonnes to 120-140 million tonnes per year and hold from 15 to 20 % of the market.

    As for the resource potential of oil and gas, it is also important to look at supporting both traditional areas of production and new regions, like Taimyr, eastern Siberia and the Arctic. A separate issue is production for deposits that are difficult of access, including the Bazhenov Formation (in western Siberia). 

     And in 2020, changes in tax legislation had an effect on oil and gas production. Tax breaks were eliminated in the mineral extraction tax concerning oil from developed sub-surface deposits and ultra-viscous oil. Also eliminated were tax breaks on export duty for oil with special physical and chemical properties. And the procedure for applying the mineral extraction tax was altered.

     A number of methods to support the industry are now being examined. These include expanding the perimeters for applying the tax on mineral extraction in order to stimulate oil production at deposits nearing depletion or containing reserves of viscous and highly viscous oil. Government measures of support and tax stimulants will help establish stability for the country’s resource potentials so that, if necessary, growing demand for oil can be met in the shortest time-frame.

    At this time, we are continuing our interaction within the framework of the agreement with OPEC and non-OPEC members which has proven effective. Working within the framework of the agreement has balanced world oil markets and ensured stability in the oil sector — a key sector for the Russian economy and the federal budget.

    The OPEC+ agreement is a “living mechanism” which allows us to objectively assess the situation and, if needed, adopt urgent decisions. Participants made clear the accord’s broad range of possibilities at a ministerial meeting last December and at a meeting of the Monitoring Committee in January. On the basis of the prevailing situation and the interests of each of the countries concerned, parties to the agreement made compromise decisions on individual reductions in production volumes.

    The deal’s parameters can be adjusted, if necessary, practically in “manual” fashion – extremely important in the current conditions of volatility. Of equal importance is that in the course of our cooperation, we have reached a new level of mutual understanding with parties to OPEC+ in bilateral discussions and we will further develop this interaction. This includes plans this year for an intergovernmental commission with our strategic partners – Saudi Arabia and Iran.

    Let me stress that the oil and gas sector can make a significant contribution in expanding the share of exports apart from primary goods. And a priority for us here is developing oil and gas chemistry. A law drafted by Russia’s Energy Ministry was passed on the introduction of a reverse excise tax on ethane, liquefied petroleum gases and the investment coefficient. As a result, the rate of return on oil and gas chemistry projects has now reached 11-14 % – a factor in attracting investment.

    We believe that measures to stimulate a multi-tonne petrochemical industry in Russia will produce from $9-18 billion in additional non-primary exports a year and $40-70 billion (2.6-4.6 trillion roubles) in additional investment over the course of 10-15 years – as well as vast numbers of orders for Russian industry and a reduction in the import of polymers and 9,000 hi-tech jobs. Use and production of ethane will rise more than tenfold to 8.5 million tonnes.

    The coal industry

    The main guidelines for the coal industry are contained in the Programme of Development for Russian Coal up to 2035.  It is vital that, whatever the situation on the markets, our coal companies operate with certainty and stability in providing for the domestic consumers and that they strengthen their position internationally.

    We must continue our work in developing new centres of coal production. The Energy Ministry is working together with Rosnedra (the agency for mineral resources) to provide licences rapidly to enable production to proceed in deposits in the safest mining and geological conditions and to reduce the issuing of licences in deposits with particularly dangerous conditions. And the notion of dual licensing is now being is now being examined — that is, where the company eliminates previous coal worksites while opening new sites at the same time.

    In social terms, we will work to improve safety at worksites and reduce the number of accidents and injuries. Particular action will be undertaken to resolve the problems of towns where mining is the sole industry. And there, our priority must be the interests of the people concerned.

   Among current tasks is the joint work by the Energy Ministry and the Transport Ministry to optimise transport logistics and means to determine long-term rates for coal transport, the elimination of “narrow spots” and the expansion of rail to speed up the development of coal terminals at ports for promising export markets.

    We will also work on improving the operations of coal exchanges as part of production. The possibility of organising a coal exchange permanently at the St Petersburg International Commodity Exchange is under examination to ensure the price of coal is established in an objective fashion.

    We will continue to develop deep coal production to boost the modernisation of the industry and help bring new high-quality products to the market.

    The environmental aspect deserves separate attention – here it is vital to carry out a series of measures to preserve the environment, including the processing of waste and resulting damage to land.

   Power generation

    The rapid introduction of mobile technology in daily life, the rising stream of information from consumers and the transition to large-scale modern technology is leading up gradually to a breakthrough in the sector of power generation.

     In view of this, we have to create the economic conditions and find the means to ensure that consumers, both today and in the future, find it to their advantage to remain within the centralised power supply and in a position to help develop energy as a whole.

    Among the tasks here are ensuring transparency and proper grounds for adopting decisions on the construction of new and promising sites for developing electricity generation. And we must ensure that consumers themselves have an interest in the optimal conditions and parameters of connecting to the power grid.

    The further development of the sector is impossible without optimising the impact of tariffs on consumers. 

     In order to do this, we must create the economic stimuli for the gradual phasing out of cross-over subsidies to consumers while taking account of the fact that stability, predictability and fairness of tariffs for citizens – particularly disadvantaged groups – is one of the foundations of government social policy.

     Optimising the tariff structures will also be a factor in ensuring all participants in the sector have an interest in it and in boosting its internal efficiency. This can be achieved through a transition to the main instrument of tariff regulation – the standardisation of all regulated expenditure. At the same time, we have to ensure that natural monopolies have a heightened interest – particularly those linked to the grid – to ensure that there is increased access to technological connections to the grid and other services and that connection times and costs are reduced.

    In 2019, a programme was launched to modernise energy generation facilities, the first step to attracting investment and modernising outdated equipment. More than 1.86 trillion roubles ($ 25.1 billion) in new investment will result in the modernisation of 41 GW of generating capacity of thermal power stations over the next 15 years.

    Boosting competition will be the next important stimulus for new investment — not only on wholesale markets but, more importantly, the creation of real competition in retail power sales. We must provide the opportunity for producers and suppliers of power to compete for every consumer and offer the consumer more advantageous and commercially attractive conditions for supplying power.

    The focus remains on passing through the autumn-winter period. 

    The main task of those in the energy sector is to carry out repairs promptly, conduct checks and ensure the configuration of the system and safeguard against accidents and ensure levels of staffing, fuel reserves and material resources. It is of critical importance in periods of cold weather – given the specifics of our climate – to ensure right up until the end of spring in particular regions that all citizens have power and heat in their homes.

    The key here is ensuring the reliability of power supply. Improving the means of managing risks in power generation must produce positive results. Ideally, the end-user should not even feel technological disruptions, including in instances of resorting to urgent use of reserve power sources. This practice is now in use in major cities.

    In environmental terms, we must reduce the consumption of fuel in the release of power by thermal stations. This indicator must be reduced from 306.2 grams of fuel equivalent per kW h in 2019 to 285.4 grams per kW h in 2024 and 255.6 grams per kW h in 2035. We must also continue to develop renewable energy sources, including the export of technology (our technology for producing heterostructured solar modules with an efficiency coefficient exceeding 23 % is among world leaders) and reduce the carbon footprint in energy production in Russia.

    And increasing attention is being focused on the development of new, modern energy markets – the expanding network of express chargers for vehicles on electric traction systems. This means that more and more possibilities are to be made available to consumers on the type of power they are seeking – solar, wind, water, nuclear or fossil fuels.

    Let me stress that to improve the choices available to customers in the power sector, work will have to be completed on eliminating administrative barriers in dealing with those customers and with those who buy from small and medium-sized businesses. A transition to the most modern forms of interaction will play a major role, including the use of mobile communications to do away with the need for customers to visit an office or service centre.

   Nuclear power and the nuclear industry

    The Russian Federation has long been a leader in the world nuclear power sector. 

    The document “The development of equipment, technology and scientific research in the use of nuclear power in Russia up to 2024” will help enhance and strengthen our country’s technological advantage in this sector.

    According to 2020 data, generation at nuclear power stations hit record levels – 215.7 billion kW h. That beat the previous record of 215.6 billion kW h set in Soviet times in 1988 when stations in Armenia, Ukraine and Lithuania were included. This volume increased the share of nuclear power generated in Russia’s energy balance to 20.3 % (in 2019, this figure stood at 19 %).

    Last year, the world’s first floating nuclear thermal power station was brought into service in Chukotka (in Russia’s far northeast). The sixth reactor at the Leningrad power station underwent launch operations and in March 2021 it will be brought on stream.

    In May 202, Rosatom’s first 150 MW wind power station in Adygea (southern Russia in the north Caucasus region) was brought into service. And last year, construction of Russia’s first large-scale separate wind farm was completed – the Kochubey wind farm with a capacity of 210 MW — and from January 2021, the plant began providing power to the country’s unified power grid. Four more wind power stations will be brought on stream in 2021. Rosatom’s wind power projects now total 1.2 GW (35 % of the Russian market), with plans to increase that figure to 3 GW.

    The state corporation’s 2020 construction plan included 240 sites with financing of 656.4 billion roubles ($8.9 billion). By 2023, total financing will nearly double to about 1.2 trillion roubles.

    Rosatom recorded notable success in carrying out the “Polar sea route” federal project within the framework of the “Development of Infrastructure of Main Arteries” project. Construction was completed in 2020 of the “Arktika” (Arctic), the world’s most powerful nuclear-powered icebreaker. Construction is nearing completion of the “Sibir” (Siberia) and “Ural” icebreakers to be brought into service in 2021 and 2022. Two more icebreakers in the series “Yakutia” and “Chukotka” have been started and construction has also begun at the Zvezda (Star) shipyard in Russia’s far east of an even more powerful nuclear-powered vessel, the “Leader”.

     All this will facilitate year-round navigation on the Polar Sea Route intended for eastward shipments to the Asia-Pacific region, meaning growth in the flow of cargoes of Russian goods, including energy resources.

    We see today that countries are resuming their use of peaceful nuclear energy. Nuclear is one of the cleanest forms of energy and is particularly important against the background of the Paris agreement aimed at boosting the environmental nature of the world’s energy balance. Rosatom today stands in first place in the extent of its projects abroad – agreements have been signed for the construction of 36 reactors in 12 countries. Construction 24 reactors is underway in nine countries. 

    Let me stress that despite the limitations imposed by the COVID pandemic, not a single construction site has been halted. All projects are proceeding strictly in accordance with timetables. Pilot runs have taken place at the first reactor at the Belarus nuclear power station – the first “Generation three+” reactor to be built in Europe outside Russia.      

    Work is proceeding on the construction of reactors in India, Bangladesh, Turkey and China. In Finland, all technical information has been turned over to the party seeking a licence for the construction of a nuclear power station. In Bolivia, plans call for the completion and handing over of the first and second sections of a centre for nuclear research.

    International Cooperation

        In terms of international relations, we plan to expand our contacts for both bilateral and multilateral projects and enhance the effectiveness of our participation in the global energy agenda and work on the diversification of supplies and the competitiveness of Russia’s energy production on world markets. At issue here is not just energy itself but also technology.

    We are counting on active cooperation with the world community within the framework of the U.N. goals on providing universal access to reasonable, reliable and sustainable energy sources for all. We are preparing for top-level dialogue on energy at the U.N. General Assembly to take place in September, an event which has not take place since 1981. And it is with great pride that Russia has taken up the baton in holding the 25th World Energy Conference in 2022 in Saint Petersburg. Preparations for this event are already underway,

    We have taken note of closer cooperation with OPEC member states and exporting countries that are not members, the Gas Exporting Countries Forum and other multilateral international organisations in the sphere of energy  (The International Energy Forum, G-20, BRICS (Brazil, Russia, India, China, South Africa), ASEAN (the Association of South-East Asian Nations), IRENA (International Renewable Energy Agency), CEM and others, participation in talks on climate issues, strengthening of the legal framework of energy cooperation (in 2020, Russia’s Energy Ministry signed four international treaties and one memorandum). It is vital to strengthen the principle of balancing the interests of exporters, importers and transit countries in international action.

    A further expansion of cooperation is important in energy cooperation with Asian countries, particularly China, India and Vietnam, and the countries of Latin America, including Cuba and Venezuela.

    Work is continuing in forming common energy markets in the Eurasian Economic Union. And attention will be focused on supporting exports of Russian technology and equipment as part of bilateral cooperation with countries in the Middle East and Africa.

    Tasks between sectors

    Work is to be continued in a number of areas covering nearly all sectors of energy. The fuel and energy sector continues to undergo digitalisation. Russia’s Energy Ministry has prepared a proposed three-year programme (2021-2023) for digital transformation of institutions. This covers digitalisation of services and function, the creation of an information-telecommunications infrastructure and technological services. At the same time, a model of data for the State Information System of the Fuel and Energy Complex and digital instruments are being developed to enable companies to present their data according to an automated system.

    A National Technological Initiative is to be continued for “Energynet”. This includes creating by 2023 a pilot project on creating active energy systems – microgrids with a specific legal status.

    Work is proceeding on import substitution. 

    The share of Russian-made catalysts in oil refining is estimated at 69.5 % of total demand (2014 figure – 31.8 %), the share of catalysts for petrochemicals is 73.4% (34.2 % in 2014) and the share of Russian large-capacity plyers is 92.9 % (83.2 % in 2014). 

    There is, however, a lag in other areas like drilling equipment, development of difficult of access reserves and deposits on the Arctic shelf, software support, and the introduction of Industry 4.0 technology. One of the ways proposed to resolve this problem – faster technical development of the sector by bringing in skilled plants from the military-industry sector. The military-industry sector faces the task of diversifying 50 % of production by 2025 and this could be achieved by consolidated orders from the fuel and energy sector.

    On environmental issues, work is going forward on lowering the level of pollutants in the environment within the framework of the Paris agreement, The Russian fuel and energy sector will have to make a significant contribution to meet the obligations assumed in reducing greenhouse gas emissions by 2030 at 70 % of 1990 levels. Even now, the country’s leading oil and gas companies are on a par with foreign corporations in confirming the aims of reducing CO2 emissions in the atmosphere.

     A separate issue is the development of hydrogen energy.

    The prime task set at the beginning of the year is working out concepts of developing hydrogen energy on the basis of the “road map” to be applied up to 2024. This document must be detailed and contain an assessment of the current state of production and use of hydrogen, of Russia’s resource and technological potential and also priorities for the future.

    Given the government’s current priorities, today we must concentrate our efforts as much as possible on developing the fuel and energy sector, in both traditional and innovative spheres. Both government bodies and companies in the sector must work in joint and co-ordinated fashion. It is only in this way that we can strengthen the foundation of our country’s energy sector, open new prospects both at home and on international markets.

    A great responsibility lies with Russia’s fuel and energy sector. It has always been – and remains — a pillar of the Russian economy, a driver of development and the guarantor of well-being for the citizens of our country.

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