Promising Sector: Investments in the Russian Oil and Gas Segment Doubled over Six Years
Despite the decrease in oil prices, which has been the longest over the last 50 years, the recovery of oil, gas and coil in Russia not only has not dropped, but increased since 2012, contrary to the estimates of many experts. The inventive development of the energy industry created prerequisites for the growth in related industries. After the six years’ work of the current Cabinet of Ministers, a comprehensive analysis of the situation in the industry was presented at the final meeting of the extended panel of the Ministry of Energy of the Russian Federation. This year’s traditional April meeting was attended by representatives of the legislative and executive authorities, the scientific community and companies of the fuel and energy complex, as well as Arkady Dvorkovich, Deputy Prime Minister of Russia. The results of the domestic energy sector over the last six years evidently satisfied the nation’s leadership: Alexander Novak retained his position in the newly formed Cabinet of Ministers.
Growth in Spite of Circumstances
Speaking at the panel meeting, Alexander Novak noted that over the last 50 years there had been the longest decline in oil prices, while the competition in energy markets and the tax burden upon oil and gas companies had increased. But even in such circumstances the key players of the Russian fuel and energy complex had managed to successfully attract investments and develop technologies.
“The Russian fuel and energy complex not only has managed to cope with this most challenging situation, but also demonstrated impressive results both in terms of production factors and the improvement of workmanship. Over the last six years the recovery of oil not only has not dropped, as many predicted, but increased by 35 million tons per year. There were new national records set in the gas industry last year – in terms of recovery – 691.1 billion cubic meters and in terms of export – 224 billion cubic meters. Over the last six years the coal industry has seen an increase in recovery by more than 21% and is also record high – 409 million tones”, highlighted the Head of the Ministry of Energy.
According to Alexander Novak, all of that became possible because of the efficient work performed by the industry’s companies and the government actions. The timely adopted tax measures aimed at stimulating recovery allowed developing new remote regions and the offshore area, as well as drastically increasing the recovery of difficult carbohydrate reserves, i.e. the resource category whose recovery used to be beyond economic profitability.
“During this period we have made a giant leap towards the fulfillment of our potential in the area of liquefied natural gas (LNG), and fundamentally renewed and expanded our infrastructure capabilities, noted the Head of the Ministry of Energy. The volume of annual investments in the oil and gas sector has increased by more than two times over the last six years. The gasification of the country has been under way; the natural gas fuel vehicle market is being developed.
Alexander Novak also said that over the recent years we had reached certain agreements with OPEC and non-OPEC countries in terms of stabilizing the global oil market, and the dependence of the Russian fuel and energy complex upon the import of equipment and technologies had substantively decreased. Independent observers agree with this estimation of the situation. Experts of the sector say that the principal achievements of the Ministry of Energy under the leadership of Alexander Novak have been the reaching and implementation of agreements with OPEC countries, first of alll, with Saudi Arabia, on decreasing oil recovery. As a result of the OPEC+ deal, the oil prices have increased from $30 per barrel in January 2016 to the current $77 per barrel which has significantly eased the creation of the Russian budget. Furthermore, Alexander Novak had successively negotiated with the Ukrainian authorities regarding the power supply to Crimea, and with representatives of the European Commission regarding the payment for Russian gas delivered to Ukraine.
Active Transformation and Prospects
Alexander Novak says that one of the main goals of the oil industry for the upcoming years is the establishment of conditions for the growth of the oil recovery factor (ORF), for providing stimuli to the replenishment of the resource base and the commissioning of minor fields, for the completion of the facilities modernization at petroleum refineries. According to the opinion of the Head of the relevant Ministry, it is necessary to create in the gas industry prerequisites for the equalization of the economic environment for all market participants and to complete the construction of large investment projects, to continue the development of LNG production and to implement programs aimed at creating a common gas market in the Eurasian Economic Union.
As for the coal industry, the Ministry of Energy expects that the figures will continue to grow and the presence of the Russian coal miners in the global market will be expanding. Nowadays our country occupies the third place in the world in terms of the export of this type of solid fuel.
“In 2014 we developed the Russian Coal Industry Development Program for the period until 2030. It is being successfully implemented and the key indicators surpass the estimates. New capacities are being developed in the eastern regions of the country – in Yakutia, Khabarovsky Krai and Primorsky Krai, Transbaikal and on Sakhalin”, noted Alexander Noval.
Interfuel competition will have a major impact upon the coal industry as well, but, despite the drop of coal’s share in the energy balance, the global consumption of this type of resource in raw numbers will likely remain stable, added the Head of the Ministry of Energy.
The electric power industry has been demonstrating outstanding reliability during these six years: the rate of accidents has considerably dropped both in generation and in the power grid, the capacity market continued to grow, a large-scale program of attracting investments into the industry through capacity supply agreements (CSA) has been put into practice. In the space of a few years a large set of documents on enhancing the payment discipline in the electric power industry has been adopted, which allows stabilizing the situation in this segment on a staggered basis.
“Energy workers showed that they have capacities necessary for the successful solution of the most challenging tasks within the shortest possible period of time. A set of measures in the power grid area allowed improving the situation with the connection to power grids – Russia has jumped from 188 to 10 in the rating of Doing Business”, – proudly acknowledged the minister. “The Russian fuel and energy complex is not only undergoing an active transformation, but also has a colossal potential both in terms of the growth of the major quantitative indicators, but also in terms of investments.
Dmitry Mezentsev, Chairman of the Federation Council Committee on Economic Policy of the Russian Federation said that new infrastructure projects created additional opportunities for the development of the industry, and tax initiatives would allow solving problems of recovery declines in Western Siberia. The Ministry of Energy demonstrates a professional skill of maintaining a dialogue with all stakeholders”, added the senator. Experts of the energy industry also pinpoint the ability of the current team of the Ministry of Energy to reach an agreement with stakeholders: Alexander Novak managed to avoid any serious conflicts both with the heads of large state companies and with the heads of other ministries.
Alexander Voloshin, a member of the Public Council under the Ministry of Energy of Russia, noted that the development of the fuel and energy complex was carried out in complicated economic and political conditions, but the power industries managed to demonstrate positive dynamics.
”Over the last six years the Ministry of Energy has solved the key tasks of the sectors of the fuel and energy complex, achieved success in the development of the regulatory framework, approved a number of strategic planning documents. 24 meetings have been held over the four years of the Public Council. We witness the fact that the Ministry of Energy is interested in feedback from experts”, accentuated Alexander Voloshin.