Presented to the Seventh Annual Meeting of the Applied Business and Entrepreneurship Association International (ABEAI) Waikoloa, Hawaii, USA November 16-20, 2010. Research examines global energy and focuses on important trends and implications: shifts in energy supply-demand and global energy security implications; shortages in proven deposits and increasing demand for oil worldwide that drive energy-related technological and political-economic changes; environmental and economic pressure pushing for renewable energy and changing the global energy equation. Research explores the dynamics of energy sector in Russia and their impacts on the European region where dependence on Russia is exacerbated by increasing competition for energy access from economic giants of China, India, and other emerging economies.

1. Presented to the
Seventh Annual Meeting of the
Applied Business and Entrepreneurship Association International (ABEAI)
Waikoloa, Hawaii, USA
November 16-20, 2010 1
Global Energy:
Trends and Implications
in the European-Russian Context
Anatoly ZHUPLEV
Loyola Marymount University
Los Angeles, USA
Dmitry SHTYKHNO
Plekhanov Russian Academy of
Economics, Moscow, Russia

2. Overview
• Key trends/issues in global energy
• The dynamics in global energy
• Global economic growth and energy
• Russia’s energy sector
• The EU-Russia energy dialog
• Conclusion
2

3. Energy security and dependency
• Energy is a foundation of economic development
and growth
• Under the global warming and other
environmental pressures energy security - top
strategic priority, subject of global rivalry
• Many EU members are 30% - 100% dependent
on Russian natural gas supply; some of them also
critically depend on Russian oil
3

4. Key issues
1. An emerging post-recession global economic growth requires
energy. Oil, a major fossil energy source, is being depleted but
and investments for development insufficient.
2. Russia, a major global energy and inefficient energy consumer is
experiencing high rate of economic growth that demands more
and more energy for its own domestic consumption.
3. High energy intensity in European economies and limited
availability of their own energy sources makes many countries in
the European region strategically vulnerable in their energy
dependence on Russia.
4. Global energy supply and demand are experiencing profound
changes driven by environmental dynamics and politics
translating into regional and national regulations along with new
energy-saving and green/renewable/ sustainable technologies.
4

5. The dynamics in global energy (1)
5
World Total Primary Energy Supply Dynamics by Fuel in 1971-2007,
(Mega ton of oil equivalent - Mtoe)

6. 6
1973 and 2007 Fuel Shares of Total Primary Energy Supply
The dynamics in global energy (2)

7. The dynamics in global energy (3)
7

8. Energy trends in 2007-2035 (IEO 2010)
• Liquids are expected to remain the dominant energy
source: projected consumption increase 28%
• Natural gas and coal consumption: projected increase
44%...56%
• Electricity generation: projected increase 87%
• Renewable energy is projected to be the fastest-
growing source of world electricity generation
• Differences among developed and developing countries,
as well as within the group of developed countries in
energy consumption
• China: dramatic shift in energy consumption (+5,5%
annually in last 25 years) 8

9. Global economic growth and energy (1)
• Energy intensity , the amount of energy it takes a
country to produce a dollar of GDP, - an important part
of energy security. Energy intensity in 2004:
– U.S. = 9 mega joules per dollar of GDP (MJ/$),
– Russia = 20.7 MJ/$
• Global energy consumption by sector:
– industrial users (agriculture, mining, manufacturing, and
construction) - 37%
– personal and commercial transportation - 20%
– residential heating, lighting, and appliances - 11%
– commercial - 5%
– lost in energy transmission - 27%
9

10. • Different energy sectors (oil, gas, coal, hydro, etc.) vary in
their internal economic dynamics and role as driving
forces in global politics and economics.
• Energy user may have some alternatives and flexibility.
• Energy supplier in the same energy linkage often does
not have alternatives/flexibility due to
– technological, logistical dependence
– significant sunk costs invested in setting up and maintaining the
infrastructure of energy production and distribution.
• That causes patterns of complex interdependency where
energy is often tied up with other issues in political –
economic agenda.
10
Global economic growth and energy (2)

11. Russia’s energy sector (world’s rankings)
• Natural gas reserves #1
• Coal reserves #2
• Oil reserves #8
• Natural gas exports #1
• Oil exports #2
• Energy consumption #3
• Electricity generation #4
• Renewable energy production #5
• Nuclear energy production #4
11

12. Russia’s energy sector
(internal and external impacts)
• Energy has been and continues to be the Russia’s
dominant economic sector while foreign investment in
the Russian energy sector has been slow in coming
• Subsidized gas prices have acted as a disincentive to use
energy efficiently among both industry and households
• Russian gas exports: ≈50% to W. Europe, ≈20% to
Central and E. Europe, ≈30% to the Baltic states & CIS.
• In 2008 oil accounted for 34.4% of Russia’s total exports
(totaling, together with gas, almost half of the overall
Russian exports).
12

13. Russia: energy production patterns
• Gas output has been stagnating for years, low
investments, output at existing gas fields declining
• Oil boom since 1999 was achieved primarily through
the rehabilitation of existing fields and the use of
more efficient production technologies but the
conditional nature of property rights and the selective
enforcement of excessive regulations along with high
marginal taxes reduce incentives to increase output
• Production, distribution and consumption of
electricity remain wasteful
13

14. Russia’s Energy Strategy 2030 (1)
• 2013-2015 - the energy sector will be recovering
from economic crisis and building a foundation for
future development
• 2015 to 2022 - the introduction of modern
innovative technologies to the energy sector
• 2022 to 2030 - focus on energy efficiency, beginning
point for Russia’s transition to the use of fuels not
based on hydrocarbons.
– Expected outcome: domestic consumption of energy is
estimated to rise by a minimum of 40%, trading of energy
resources at Russia’s exchanges as a share of the volume
of the domestic market should reach at least 30%.
14

15. Russia’s Energy Strategy 2030 (2)
• Internal needs are met and Russia remains a strong
energy partner for foreign customers.
• The current capacity of Russian power plants is 225
gigawatts (GW), and it is expected to grow to 355 -
445 GW by 2030, a staggering 58-98% increase.
• The efficiency of gas and coal electric power plants
will grow by 40% by 2030. The efficiency of nuclear
power plants will rise by 15%.
• Alternative ways for generating energy are given
special priority as well as improvements in the
refining process of hydrocarbons.
15

16. Russia and Europe in the energy context
• In the emerging geo-political and economic
environment, the development of the world energy
will depend primarily on such countries and regions as
the U.S., the Middle East, Russia, China and the EU.
• The recent natural gas supply-demand balances in
Europe and North America, and their implications for
the future, are affecting investment and future
production plans in Russia.
• Russia is investing in infrastructure, including ports to
serve the Asian market. Its proximity to Asian
importers could allow Russia to become a key Asian
supplier. 16

17. 17
Russian Natural Gas as % of Domestic Consumption, 2006

18. Russian assertive foreign energy policy
• Additional profits, “energy power”, expansion of
Russia’s energy and metals conglomerates across
Europe
• Russia has increased its market share of coal supplied
to European countries, the primary market for U.S. coal
exports.
• In the long term Europe as a region is expected to rely
less on coal to meet its energy needs, so that the U.S.
will face increasing competition from lower cost
Russian supplies to satisfy a declining European market
for coal
18
European leaders face a dilemma: to embrace dependence
on and deepen their political- economic partnership with
Russia or look for alternative sources of supply?

19. EU – Russia energy talks
• Energy Charter Treaty
• EU – Russia Energy Dialog: early discussions were
dominated by Russia’s short-term and sector-specific
goals , long-term conceptual vision includes the
separation of energy issues from the question of overall
economic relations, mutual guarantees for suppliers
and consumers, and reciprocity in access to the market.
• The EU will develop alternative energy resources but
still, it agrees that the Russian-EU energy partnership is
a long-term one, as a new resource to replace gas will
hardly be found at once (The EU Energy Commissioner
Guenther Oettinger on November 10, 2010). 19

20. CONCLUSION (1)
• Global energy supply: oil 34%, coal/peat 26.5%, gas 20.9%,
combustible renewables and waste 9.8%, nuclear 5.9%,
hydro 2.2%.
• Liquid fuels are projected to be the dominant energy source
for all major consuming economic sectors except for
transportation.
• Russia itself is a big emerging market with high rate of
growth, energy consumption. Foreign investment in the
Russian energy sector has been limited due to a challenging
investment climate, inadequate legislative framework,
rampant corruption, growing government control, poor
corporate governance, and other problems.
20

21. CONCLUSION (2)
• The Russian Energy Strategy 2030 looks ambitious, although
some industry experts remain skeptical whether it can be
fulfilled.
• The Russian Energy Strategy will have a profound impact on
both European and Global Energy business through the
planned geo-regional reconfiguration of Russia's exports of
major sources of energy.
• EU is investing US$1,38 into single energy market
development to increase energy efficiency and to cut fossil
fuel imports and fight climate change.
• Russia plans to spend its gas revenue on modernizing its
energy sector which contributes to the strategic partnership,
and provides for the stability of gas exports to Europe.
21

22. Thank you
22
Global Energy:
Trends and Implications
in the European-Russian Context