Russian Energy Scenarios Beyond 2030

1. Russian scenarios of energy production, demand and export beyond 2030 – extending the Energy Strategy horizon. Alexey Makarov, Fedor Veselov, Tatiana Mitrova Russia-EU Energy Dialog Moscow, February 2011

2. Energy Strategy to 2030. The range of the national economy development trends • Baseline (innovative) scenario. Wide-scale modernization of the economy, change of its structure on the basis of innovations in all sectors • Favorable scenario – higher prices for natural resources (incl. depletable fuels) stimulate their more intensive exploration and processing • Energy efficient (environmental) scenario – more intensive energy efficiency and ecological improvements, intensive GHG abatement. • Energy Strategy has a firm macroeconomic background • Post-crisis GDP growth trends are tend to be parallel with the pre-crisis RF Government projections (back to the same growth rates not absolute volumes) 2 • 1 – baseline scenario • 2 - favorable scenario • 3 – energy efficient scenario • 4 – pre-crisis forecast 1 3 4 2 Energy Research Institute RAS

3. Stages of the ES-2030 implementation and adaptation. The FIELD of possible actions. Domestic energy consumption, Mtoe 2 1 3 • 1 – baseline scenario • 2 - favorable scenario • 3 – energy efficient scenario 3 Energy Research Institute RAS

4. Stages of the ES-2030 implementation and adaptation. The FIELD of possible actions. Domestic energy production, Mtoe Domestic gas production, Mtoe Energy export, Mtoe Energy-related GHG emissions, % to 1990 4 Energy Research Institute RAS

5. Modeling and Information System for Energy Complex developmentprovides the forecasts of rational national and regional energy demand, development of fuel industries, electric power and heat supply sectors ensuring the long-term compromise between Russian energy producers and consumers under the maximization of GDP Set of mathematical models forms a formal procedure with the high degree of its internal consistency of the forecasts: at the macroeconomic level – consistency between the energy sector and national/regional economy development in terms of domestic demand and energy export, prices, taxes, investments through the joint investigation of intersectoral and input-output balances – goods, services and finances at the energy sector level– consistency between the forecasts of fuel industries development and electric power sector (incl. heat supply sector) in terms of national and regional energy balances at the energy industry level – consistency between the production and investment program goals in each energy industry with the financial stability of energy companies – through the introduction of financial balances of energy industries as well as major energy companies Energy Strategy and beyond. Methodology and tools of energy forecasting Energy Research Institute RAS

6. General structure of the Modeling and Information System for Energy Complex development Energy Research Institute RAS

7. Integrated economy-energy development forecast simulation model Regional final energy demand simulation model Economy and energy sector interrelations forecasting system (MENEK) • wholesale fuel and energy prices • taxes and duties • investments • fixed assets dynamics • external financing requirements • budget subsidies and investments • GHG emission in energy industries • solvent energy demand • fuel and energy wholesale prices growth rates • world energy prices tends • limits for the investment burden of energy sector • GHG penalties of carbon prices Initial scenario of the economy development Adjustments of initial scenario of the economy development Fuel and energy prices growth rates Fuel and energy prices forecast Energy industries’ development forecasting systems (production and financial models of industries and energy companies) Macroeconomic harmonization of the energy industries development forecasts Macroeconomic harmonization of the rational variants of energy industries’ development reveals possible and necessary adjustments of the initial scenario of the national economy development. Energy Research Institute RAS

8. Global energy consumption and gas demand forecast – ERI RAS methodology Capabilities of the modelling complex: Detailed analysis of the countries’ energy policies, existing and planned power capacities by country and region; Analysis of demand and the possibility for meeting demand by sector; Analysis of the competitive ability of different types of fuel (economy, taking into account policy and regulation); Takes into account interdependencies between the economy, demographic factors, energy prices and energy policy. Specific features of the gas unit: Modelling of gas flows; Analysis of the inter-fuel competition for gas; The model takes into account various contract types (long term gas contracts, spot contracts); Calculation of prices for different contract types; Possibility for modelling various geopolitical events, supply limitations, etc. Russia needs an objective and impartial evaluation of the development of its export markets and primarily the European gas market. The need for quantitative evaluation of the world’s energy markets resulted to the development of special modelling tools at the ERI RAS. They combine a detailed analysis of global-scale demand for the imported energy resources from Russia, an estimation of the domestic market development in foreign countries and the capabilities of national energy industries to meet external and domestic demand: balance unit for the forecasting primary energy demand by resources global gas market optimisation unit by years for the period up to 2030. by 71 nodes(countries and regions) Energy Research Institute RAS

9. Global energy consumption and gas demand forecast – ERI RAS methodology Retrospective indicators: energy demand by type of fuel and consumption structure for each unit of the model, GDP and energy prices Scenario premises: macro economics (GDP growth rates, population size etc.), oil prices, energy policy, pricing structure Input data unit Ecology Demand by sector Technologies Renewable energy sources unit Oil unit Gas unit Coal unit Nuclear power unit Electric power unit Motor fuels unit Calculation unit Energy demand in the world, by region and country Gas supplies on certain routes Gas production volumes by country Wholesale gas prices by country and region Energy demand by consumption sector Ecological indicators Energy prices Technological indicators Results unit Energy Research Institute RAS

10. Scenario premises ERI RAS Reference Scenario Energy Research Institute RAS

11. Energy consumption in Europe Primary energy consumption in Europe, Mtoe According to ERI RAS estimates, primary energy consumption in Europe will reach 2,100 mtoe by 2030, within Reference scenario. 2030 2010 Energy Research Institute RAS

12. Gas consumption in Europe, by country According to ERI RAS estimates, in Reference scenario gas consumption in Europe (excluding Turkey) will reach approximately 610 bcm by 2030 Energy Research Institute RAS

13. European gas demand by sector • According to ERI RAS Reference Scenario, in the medium term residential and commercial demand is expected to increase alongside the increase in housing and market penetration, but at very slow rates. After 2020, gas consumption by households and the public utilities sector will see an insubstantial decrease. Competition with electric appliances will increase. • Industrial demand has been greatly affected by the crisis (in 2009 it fell to 1994 levels) and will take several years to recover to pre-crisis consumption levels. In the long-term it will be driven largely by the Central and Eastern European countries, as industry from the “old Europe” moves to the developing countries. • Power sector demand benefits from increased capacity additions – however, the shortfall in electricity demand has undermined its medium term growth potential. At the same time as investment decisions for new capacities are delayed, eventually gas is going to be the only option in many cases. Renewable technologies restrain CCGT growth, but gas is necessary for back-up capacities. Post-Kyoto and ETS phase III is expected to provide support for gas. Energy Research Institute RAS

14. Conclusions on the European gas demand forecast • European gas demand is set to increase – although at a much lower pace than previously forecasted. We envision that in the medium term EU gas demand will recover: by 2015 it should reach 2008 levels. • Gas is no longer a “fuel of choice” but a “fuel of consequence” being called upon after some other options have not materialized. • After 2025, there are huge uncertainties depending on how virtuous a climate change policy the EU will implement. • The features of gas demand are changing: if gas is to act as a “back-up” or an “enabler” for RES => gas load curve will be more flexible and less predictable => need for more flexibility (storage, interconnections, LNG, etc.). • In the long term additional supply will be required as demand will keep growing and domestic production inevitably declines. • There are several new windows of opportunity for gas in Europe. Many decisions will depend on the political willingness and gas prices comparatively to the prices of alternative fuels. Energy Research Institute RAS

15. Extending the ES-2030 horizon. Long-term economy growth projections Recently discussed range of macroeconomic scenarios to 2030 are not considered Favorable scenario as realistic and focused on the less ambiguous but more efficient scenarios: Innovative (ES-2030 Baseline) and Environmental (ES-2030 Energy efficient). At this scenarios GDP growth in 3-3.4 times by 2030 and 6.1-7.3 times by 2050 will be accompanied by the multi-fold decrease of energy intensity. 15 Energy Research Institute RAS

16. Primary energy consumption, mln toe Domestic energy consumption within the environmental scenario will increase twice lower rather than within the innovation one (+ 48-100% in 2050). The share of natural gas in overall energy consumption will fall from 52% to 47-49% in 2030; liquid fuel – from 16.3 to 14.5-16%. The share of solid fuel will remain at 15-16% and the share of non-fuel resources will grow from 13.8 to 18-21%. 16 Energy Research Institute RAS

17. Directions of primary energy use, mln toe Electricity and heat supply will remain the most consumption area for the primary energy resources. After the slight decrease until 2030, the share of power plants and boiler houses will increase from 54% in 2005 to57%in 2050 within the environmental scenario and remain nearly the same within the innovation scenario. 17 Energy Research Institute RAS

18. Power sector development To ensure growing electricity demand, generating capacities will increase 1.5-1.8 times by 2030 and 2-2.5 times by 2050. The total share of non-carbon (hydro, nuclear and renewable) power plants will grow from 32.4% to 38-42% in 2030 and 46-52% in 2050. It will lead to the reduction of gas share in the sector primary energy consumption from 49.8% to 42-43% in 2030 and 31-33% in 2050. Energy Research Institute RAS

19. Primary energy production, mln toe By 2050 energy production will grow by 30-50% compared to 2005. The share of gas will remain stable (43-44%) throughout the period, while the oil share will permanently decrease from 38% to 25-29%. Share of nuclear will be tripled (from 3% to 9%) as well as the share of hydro and other renewables (from 4 to 10%). 19 Energy Research Institute RAS

20. Gas production, bcm Two scenarios shows different profiles of the gas production (conventional resources). Innovative scenario assumes a peak of production in 2045-2050 at 950 bcm (+47% to 2005) followed by the rapid increase of non-conventional gas resources. Environmental scenario ensures a “plateau” in production since 2030 at nearly 800 bcm (+27% to 2005) 20 Energy Research Institute RAS

21. Gas supply-demand balance, bcm Gas output in the developed regions will decrease 3 times in 2050. Most of gas production will be ensured from new Yamal-Gydan fields, East Siberia, Far East and the Shtokman field. Domestic gas consumption at power plants and boilers will remain comparable with its export volumes 21 Energy Research Institute RAS

22. Export of energy resources, mln. toe Total energy export will reach a peak in 2025-2030 (+15-19% to 2005) and will permanently decline in the following two decades. Export of gas will grow at 36-41% by 2030 and remain stable in the next periods. Europe will remain the largest consumer of Russian energy resources and its share will not decline less than 75%. 22 Energy Research Institute RAS

23. Global gas market is formed by development of LNG trade and of the Single Eurasian market of pipeline gas 2/3 of the global gas market 23 Energy Research Institute RAS

24. Capital investments in the energy sector development Capital investment in the development of the energy sector will be 4.8-5.5 trillion US Dollars. They will fall from the current 4-5% to 3.5-4% of GDP by 2026-2030 and will further decrease to 2% by 2050. However, the investment burden of the Russian energy sector on the economy will remain higher than worldwide average (1.5% of GDP). 24 Energy Research Institute RAS

25. Energy-related greenhouse gas emissions, Mt CO2 GHG emissions trends: an important consequence but not a main target Annual energy-related GHG emission in the Innovation scenario will nearly reach 1990 level by 2030 and by 2050 will stabilize at 170 Mt (+6%) higher. Emissions in the Environmental scenario by 2030 will remain at 540 Mt lower (-20%) 1990 level and 660 Mt lower (-25%) by 2050.After 2030 volumes of emissions will start to decrease Implementation of the Environmental; scenario will require strong GHG emission regulation policy. GHG regulation measures must be incorporated into the economy modernization toolbox 25 Energy Research Institute RAS

26. Conclusions • The Energy Strategy 2030 forms a field of opportunities for transition of the Russian economy and energy sector towards sustainable development in the next two decades (until 2030) by the following means: • Cutting energy intensity 2.5-fold and electricity intensity 1.9-fold; • Stabilising greenhouse gas emissions at 20% lower 1990 level; • a 1.5 fold reduction in the share of the energy sector expenditure within Russia’s GDP. • It will form a basis for the more fundamental changes in another next two decades (until 2050): • Cutting energy intensity 4.2-fold and electricity intensity 2.7-fold; • Reducing absolute GHG emissions to 25% of 1990 level; • put the investment burden of the Russian energy sector on the economy will much closer to the worldwide average (2% comp. 1.5%) New time horizons opens new and wider opportunities for the Russia and EU collaboration to 2050 in almost all energy sector areas. Energy Research Institute of the Russian Academy of Sciences (ERIRAS) Energy Research Institute RAS

27. Thanks for attention