Energy Sector in Russia: Trends and Prospects

1. State University – Higher School of Economics Institute for Statistical Studies and Economics of Knowledge International Foresight Centre Energy sector in Russia:trends and prospects 27 April 2007 Alexander Sokolov Second BRICS Workshop, Rio de Janeiro

2. CONTENTS • Energy sector in Russia: basic figures and trends • Future challenges • A Foresight Study: Power engineering machine building

3. Oil Russia is the largest oil producer in the non-OPEC countries, and second biggest in the world after Saudi Arabia. 12% of the global oil production 2006 - 9.7 mln barrels per day (b/d). (2000 – 6.5 mln) Export – 5 mln b/d of oil, 2 mln b/d of refined products All oil trunk pipelines are owned and operated by the state-owned monopolies

4. Major oil producing regions and pipelines

5. Crude oil output in Russia 2003-2006,mln barrel a day

6. Oil sector performance

7. Capital investment by Russian oil companies

8. Gas The world biggest natural gas reserves and producer (21.8% of total). The biggest exporter (24.0% of total). Gazprom (94% of Russia´s natural gas production, 25% of the world´s known gas reserves) has a monopoly for the natural gas pipelines and has exclusive right to export natural gas, granted by the federal law On Gas Export.

9. Major gas producing regions and pipelines

10. Coal The world’s leader by 375 billion tonnes of geologic reserves (250 - economically recoverable, including 140 billion tonnes of lignite). The seventh largest coal producer in the world (3.8% of total), and the third largest exporter (9.9% of total)

11. Major coal reserves

12. Nuclear energy Nuclear energy supply in Russia counted 137 TWh (16% of total Russian electricity output and 5% of global nuclear energy production). Total installed capacity of nuclear reactors is 21,244 MWh. There are plans to increase the number of commercial reactors from 31 to 51. All civil nuclear industry is operated by a holding company Atomprom.

13. Major nuclear power plants

14. Share of nuclear power in total electricity Source: OECD

15. Thermal and Hydro Energy The world fourth largest electricity producer after the USA, China, and Japan. In 2004, Russia produced 930 TWh and exported 20 TWh of electricity. 63% - thermal plants, 21% - hydropower, 16% -nuclear reactors. Russian energy market is dominated by the Unified Energy System. While production and sale will be opened up to competition, transmission and distribution remain under state control

16. Major Thermal and Hydro Power Plants

17. Structural reforms - UES 72 regional companies + 32 federal power plants Network companies (state owned) Generating companies (private) Distributing companies (state owned) 7 large exterritorial generating companies + 14 regional ones

18. Recent trends and future challenges Fast growth of electricity consumption (5-7% a year) Increasing domestic gas prices (now – 4 times lower) Liberalisation of electricity market (2007 – 10%, 2008 – 25%, 2009 – 50%, 2010 – 80%, 2011 – 100%)

19. Recent trends and future challenges Investment programmes Unified Energy System: 23 TW by 2010 100 TW by 2015 83 bln USD in 2007-2011

20. Challenges for domestic producers of energy-related equipment Huge investment expected, but: Currently up to 50% of production capacities are conserved Highly deteriorated production facilities (up to 50% of fixed assets, 75% of equipments and machines, 90% of testing equipment) Lack of skilled engineers and workers Age gap in researchers population

21. Challenges for domestic producers of energy-related equipment Competition at global markets More open domestic markets Diversification of fuels used and shift from gas to other fuels Demand for energy saving and other modern technologies Energy networks development Joining WTO Kyoto protocol

22. R&D and innovation priorities National socio-economic priorities National S&T priorities Critical technologies Sectoral strategies Sector specific S&T priorities

23. Identification of national S&T priorities Economic growth, technology safety ICT Nanosystems and material Livig systems Priority areas Innovation products and services Выявление и реализация потребностей Critical technologies Rational use of nature Energy Transport, aviation and space Critical technologies

24. National critical technologies: Energy Technologies of nuclear power engineering, nuclear fuel cycle, safe use of nuclear waste and used nuclear fuel Hydrogen power engineering New and renewable sources of energy Energy production from organic raw materials Energy saving systems for transportation, distribution and utilisation of heat and electricity Technologies for development of energy efficient engines for transportation systems

25. Foresight – a technology roadmap for power engineering machine building Building a model in a form of a road map leading step-by-step to a preset targets (via intermediate targets) Normative method: from the future to the present Consensus on milestones for measures and events

26. Technology roadmap: major goals To extract expert knowledge To build a consensus on future visions To involve businesses and government To promote R&D and innovation

27. Technology roadmap: major modules 1. Targeting, scaling 2. Planning of workshops, selection of experts 3. Workshops 4. Discussion, dissemination and utilisation of results

28. Market Challenges, external factors, emerging markets, products and services Products Major characteristics, impact on the market. Alternative products Technologies Alternative technologies, impact on products. Streamlining parameters for technologies and products Visualisation Integration of market-product-technology chains Technology roadmap: standard approach

29. Markets Challenges Products/services Technologies 2006 2010 2015 2020 2025 2030 Technology Roadmap :power engineering machine building Key components Resources Limitations

30. Sources of information • Analysis of trends in the energy sector • Forecast of energy consumption and production facilities (demand) • Analysis of capacities of power engineering machine building (supply) • Equipment and technologies • Human resources • Equipment for the future • Materials, technologies and R&D for the future

31. Power engineering machine building: the sector’s specific features Concentration in few big companies Separate R&D institutes Traditional orientation towards foreign markets (mostly in developing countries incl. BrICS) Strong presence of the state

32. Power engineering machine building: identification of innovation priorities Trends analysis Major challenges Future markets Innovation priorities Technological priorities Sector specific vs National critical technologies

33. Major factors Oil and gas prices National energy balance (till 2030) Lack of clear government policies Deterioration of construction capacities Human resources Lack of standards Explicit demand from business and government

34. Major trends: Domestic markets Demand for electricity – growth 20-35%by 2010; 40-80%by 2020 Increasing production facilities Replacing obsolete equipment Modernisation of fixed assets on the basis of new technologies for energy and heat production R&D and new technologies Competition at domestic markets with foreign companies “General Electric”, “ABB”, “Siemens”, “Westinghouse” et al.

35. Major trends: World markets Competition with foreign companies at traditional markets (CIS, Asia) Regaining positions at world markets of equipment for thermal and hydro power plants; increasing exports of hydro turbines Increasing exports of equipment for foreign nuclear plants Development of prospective materials, technologies and equipment Development of export oriented production facilities Integration with foreign companies New policies for foreign markets Key-turn schemes of products sales, services “construction-ownership-exploitation”

36. Most important market segment and products

37. Most important market segment and products

38. Most important market segment and products

40. National vs sectoral critical technologies Technologies of nuclear power engineering, nuclear fuel cycle, safe use of nuclear waste and used nuclear fuel Hydrogen power engineering New and renewable sources of energy Energy production from organic raw materials Energy saving systems for transportation, distribution and utilisation of heat and electricity Technologies for development of energy efficient engines for transportation systems

41. Follow up: a national Foresight programme Expert assessment of strategic prospects of innovation development, identification of potential technological breakthroughs with a maximal impact on economy and society in the mid and long term

42. Russian Foresight System of national priorities Analysis of major national socio-economic problems up to 2030 S&T&I for priorities implementation Trends of global trends of innovation development S&T and innovation capacities of Russia, competitive strengths and weaknesses • Basic research • Breakthrough technologies • Innovation products and services • New markets Measures to promote S&T and innovation development in priority areas

43. Implications for BRICS countries Comparison of national S&T and innovation priorities: indicators, strengths and weaknesses, policies An international Foresight study on priorities for co-operation Coordination of cooperation policies

44. Thank you!sokolov@hse.ru