Russia and Europe: in Useless Search of Diversification


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Konstantin Simonov's speech presentation at The European Gas Conference 2009.
Vienna, Austria, January 28, 2009.

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Russia and Europe: in Useless Search of Diversification

  1. 1. Russia and Europe: in Useless Search of Diversification Konstantin Simonov National Energy Security Fund Vienna January, 28 2009
  2. 2. Energy Trap ? <ul><li>Promising areas with low production cost oil and gas have almost totally been depleted </li></ul><ul><li>Areas where such opportunities still exist have a high degree of political risk (Iran for gas and Iraq for oil) </li></ul><ul><li>The most industrially developed countries have not enough resources. In the European Union this has led to a serious decline in the production of oil and gas that has continued for several years now. In the US, gas production is growing at a fast rate but proven reserves of hydrocarbons are rather scanty </li></ul><ul><li>The sector is rapidly ageing, which prevents new fields from being commissioned too actively </li></ul>
  3. 3. Economic Crisis and Energy <ul><li>Economic crisis will scarcely reduce world energy consumption. Crisis will not stop the growth of population </li></ul><ul><li>But in short-term crisis will decrease the oil prices. And in long-term it can make the energy shortage more serious . It will be more difficult to launch new projects . G reenfield projects are becoming increasingly expensive to develop. And money will be more expansive . Projects with difficult-to-recover oil and gas will be mothballed. Decline of production on traditional fields along with shortage of investment to greenfields can result in gap between production and consumption of fossil fuel </li></ul><ul><li>Low oil prices will seriously decline the investment to alternative energy </li></ul><ul><li>Economic crisis can only postpone the acute shortage of energy resources </li></ul>
  4. 4. No Full Alternative for Fossil Fuel The list of problems of alternative energy sources:
  5. 5. “ Energy A uthoritarianism” <ul><li>Restriction of energy consumption: e.g. U.K wants to prohibit the energy-intensive plasma-panel </li></ul><ul><li>Next step - special standards of power consumption for all home appliances in U.K. </li></ul><ul><li>In U.K. the number of electronic d evices in household increased from 17 to 47 on average during last 30 years. The number of TV sets is 60 mln </li></ul><ul><li>Struggle with commodities with carbon footprint </li></ul><ul><li>Prohibition of incandescent lamps </li></ul>
  6. 6. Diversification of Gas Suppliers is the Most Difficult Task <ul><li>Main problems of alternative suppliers : </li></ul><ul><li>High political risks </li></ul><ul><li>No proved reserves (except Iran) </li></ul><ul><li>Serious problems in middlestream </li></ul><ul><li>They are in the focus of European interest – and they want to derive benefit from it </li></ul><ul><li>Competition with China </li></ul>
  7. 7. L ocalization of Gas
  8. 8. The Appetite Comes with Eating <ul><li>« Word of honour » reserves </li></ul><ul><li>After the increasing of interest of Europe to Central Asia Gazprom made concessions to Stan-states. The result is the increasing of gas prices and transit coast </li></ul><ul><li>Kazakhstan increased the price of transit – now it’s $1.7 per 1,000 cubic metres per 100 kilometres. It means that in 2010 the price will be the same as in Slovakia (Ukraine formula) </li></ul><ul><li>We don’t see serious increasing of gas production in Stan-states 2008: Uzbekistan production 3,7% . Russia bought 9,6 bcm in Uzbekistan in 2007 and will buy 16 bcm in 2009 </li></ul><ul><li>Turkmenistan: Russia bought 42 ,6 bcm in 2007 and 45 bcm in 2008 </li></ul>
  9. 9. The Increasing Role of Gas Import <ul><li>Nabucco – only 31 bcm per year in 2014-2015 </li></ul><ul><li>But the drop of gas production in Europe (with Norway) can be more than 10 bcm per year. So Nabucco can be compensating for domestic upstream problems at best </li></ul><ul><li>2015 can be the peak of gas production in Norway </li></ul><ul><li>Nabucco is not a business project – it’s a belief in gas diversification (in Nabucco we trust) </li></ul>
  10. 10. Turkey as a new Ukraine ? <ul><li>Turkey will relate the gas transit with membership in EU </li></ul><ul><li>New transit corridor will be under control of United States (Iran – new policy of Obama, Azerbaijan, Georgia, Turkey) </li></ul><ul><li>The same problem can be in Ukraine – but in Ukraine UE has more opportunities to change the situation </li></ul>
  11. 11. <ul><li>Gas production - 664,999 bcm </li></ul><ul><li>( 653,108 bcm in 2007); 1,82% </li></ul>
  12. 12. Gigantic Plans Forecast of Pipeline Export to Russia (bcm) Source : Gazprom
  13. 13. Too Much Difficult Projects Source : Gazprom
  14. 14. European Opportunities in Russia <ul><li>The gas industry in RF is facing several fundamental challenges and tasks: the need to revive old fields (primarily in Western Siberia) and increase the gas recovery factor on brownfield sites; the need to multiply investment in new projects; the need to create new gas extraction centres in Eastern Siberia; the need to launch full-scale offshore production in the northern seas and the Far East, which means production in a complex geological and natural environment </li></ul><ul><li>The lack of investment </li></ul><ul><li>Growing technological backwardness compared to Western countries </li></ul><ul><li>Problems for Russia – opportunities for Europe </li></ul>
  15. 15. Where is the Place for New Pipeline Projects? <ul><li>New Transit Agreement: Gazprom guarantees minimum transit of 110 bcm through Ukraine to Europe until 2019 </li></ul><ul><li>2009 – Export to Europe through Ukraine will be not less then 116,913 bcm </li></ul>
  16. 16. It will be Difficult for Europe to avoid “Ukrainian Problem” <ul><li>Europe is thinking that Ukraine is the problem of Russia </li></ul><ul><li>The agreement that was signed as a matter of emergency, in spite of all the relaxed atmosphere of the last few days permeating comments by officials, does not at all guarantee that the “gas war” will not be resumed at least in the near term </li></ul><ul><li>Russia has actually no effective mechanisms of pressure on Ukraine </li></ul><ul><li>The future of gas transport system in Ukraine is still a question </li></ul>
  17. 17. Programmer of Peace <ul><li>Integration of Nabucco and South Stream </li></ul><ul><li>Realization of idea of Gas transport consortium in Ukraine </li></ul><ul><li>Concerted candidate on President elections in Ukraine </li></ul><ul><li>Refuse from pipelines to China </li></ul><ul><li>Refuse from mutual blackmail with diversification </li></ul><ul><li>Refuse from “pipeline wars”. Diversification by means of LNG </li></ul>
  18. 18. Thank you!