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Expert article 901 Baltic Rim Economies, 21.12.2011 Quarterly Review 5�2011 Russia – facing new challenges on the world gas markets By Nodari Simoniya During last several years we are witnessing very dramatic developments and drastic changes on the world gas markets. Russia (in fact “Gasprom”) was not prepared to adequately respond to these challenges. The more so, that in recent years in the West it became fashionable to speak about a threat of Russian energy monopoly for Europe that in future might allegedly lead to political dependence. These statements are constantly disseminated by almost all Western mass media sources with the latter naturally not taking any trouble to present in the least bit serious analysis of real state of affairs. It’s quite enough, however, to address facts and statistical data to receive evidence that in decades following the time when historical “gas in exchange for pipes” agreements with Austria and Germany were signed, in spite of absolute physical increase of gas deliveries from the Soviet Union, its share in total volume of European gas import decreased more than twice. It happened naturally due to diversification of import sources (from Norway with Algeria as well as other North African countries, plus Qatar, Trinidad and Tobago, etc.). What monopoly are we talking about? And, nevertheless, “Gasprom” is a monopolist, but only in its own country. At its complete disposal the company has all the main export gas pipelines thanks to which it “makes miserable” the life of all the independent gas producers in Russia either imposing crushing terms of gas purchase, or forcing them to burn associated gas in flares, polluting the atmosphere. The history, however, has evidence that any monopoly sooner or later comes to an end. And such a monopoly usually breaks in its “weak link”. Until recently “Gasprom’s” life was comfortable. It was “sitting” on “Soviet inheritance” and kept to the comfortable tracks beaten in earlier times. But when it became necessary to develop new deposits “Gasprom’s” “weak link” became apparent – Arctic with its multiple challenges: severe climate, need for absolutely new innovation technology, its unknown off-shore, etc. The monopoly’s leadership was neither psychologically, nor professionally ready to meet these challenges quickly, dynamically and widely. More than this, “Gasprom’s” leadership was permanently ignoring the fact that the Government had long ago formulated the concept of state-private partnership (SPP) where the state’s role was in formulation of ideas and large national projects, in partial investment in the latter (especially in various infrastructure spheres), etc., while the role of business was that of operational initiative, realization of information technologies and the role of main investor. In the past “Gasprom” has clearly demonstrated its inability, and even reluctance to give up its comfortable existence and fit into this SPP concept, having balanced its purely corporative interests with national goals. All this could not pass by V.Putin’s attention. Just as the fact that he practically had to display initiative himself in realization of actually all the largest energy projects applying the method of “manual management” (as if Russia is Singapore). Discontent accumulated. Finally, premier Putin has decided to apply “shock therapy” for “Gasprom” in LNG projects sphere, having created for the latter an active competitor represented by “Novatek”. Perhaps, it is necessary to stress that all the steps made by the Government and V.Putin personally are in no way aimed at destruction of “Gasprom” as a large corporation. It would have been extremely unreasonable and damageable for the whole economy. But they are efficiently aimed against negative aspects of “Gasprom’s” monopolism, which in recent years have turned into the main brake on almost all the large energy projects of Russia, and turned for “Gasprom” itself into hindering factor of its own development. V.Putin as chairman of the Committee of Foreign Investments in every way possible contributed to growth and organizational strengthening of private “Novatek”. More than that, the Government’s criticism of “Gasprom” is becoming more and more open and directly threatening monopolist status of this company. In early February of 2011 V.Putin at a meeting in St.Petersburg in 2010 on the results of fuel and energy complex directly declared that the Government of Russian Federation may be ready for changes in the legislation if “Gasprom” – Russian 60 monopolist in gas transportation via main pipelines – did not allow independent gas producers access to its transportation capacities. “Either you work more efficiently, or we shall be forced to change the existing rules, to change the legislation”, - said the premier at this meeting, having stressed that “the company puts its own interests above the interests of the industry’s development”. “Novatek” in its turn not waste any minute and immediately started formation of his grand LNG production center on the Yamal peninsula. The leadership of the company intends according it’s 2015-2017 plan to more than double capitalization of their company (up to US$100 bln.) and bring natural gas extraction up to 60-80 billion cubic meters, and that of gas condensate – to 8 mln. tons. (In 2010 Novotek’s production was 37,2 bcm of gas and 26 million barrels of condensate. Their big achievement was that in the meantime practically opened through navigation along the Northern Sea Route: August 14, 2010 tanker “Baltika” with experimental consignment of gas condensate (70 000 tons) freighted by “Novatek” from Sovcomflot (state shipping company) left Murmansk in Russia’s extreme northwest and went to the Asia- Pacific region across the Arctic Ocean’s Northern Sea Route. This consignment for China National Offshore Oil Company arrived at the Chinese port of Ningbo on 6 September. Business Monitor International consultancy commented upon this event as follows: “Novatek” can reduce its normal journey to Asia of around 20,400 km around the Suez Canal to around 12,500 km, allowing for significant reduction in transit time, fuel cost, and the risk of pirate attacks. President of “Novatek” L. Mikhelson who was on board of “Rossia” tanker during the whole route told “Vedomosty” reporter that delivery of condensate via Suez Channel at that time would have cost “Novatek” US$ 50 per ton, i.e. approximately US$3.5 mln. for the whole consignment, while delivery along NSR cost half a million dollars less. Finally I would like to briefly formulate the main conclusions made from the above: 1. Russian Arctic zone is not only the key base for development of oil and gas industry, but also a “weak link” where in the last 3-4 years began and have been building up important shifts in the very model of this sector. 2. The most significant shifts are: the breakthrough of monopoly of some state oil and gas monopolies on home market and appearance of real competition. 3. It became obvious that fast and effective development of Russian fuel and energy complex is simply impossible without the closest international cooperation both with statesconsumers of Russian hydrocarbons and advanced oil and gas corporations and service world companies. Any pretension on independent development of Arctic resources leads only to lengthy procrastinations and rise in cost of large energy projects. 4. At the same time the process of renewal of Russia’s oil and gas industry will take several years, as the scale of the tasks it faces is enormous, while the obstacles necessary to overcome are too rooted in general economic structure of Russian society (the principal ones are double-dyed bureaucracy, pervasive corruption and still inevitable due to the management’s low level of professionalism method of “hand management”). Nodari Simoniya Full member of Russian Academy of Sciences Russia � Pan-European Institute � To receive a free copy please register at www.tse.fi/pei �
Expert article 902 Baltic Rim Economies, 21.12.2011 Quarterly Review 5�2011 Russia towards energy saving and renewable energy By Viesturs Ozolins Global climate change has been a much debated subject, but question remains that the global climate is changing, with possibly grave consequences for human societies. Technologies for energy efficiency and renewable energy have become recognized as an important part for reducing carbon dioxide (CO2) emissions and mitigating global climate change. Russia is one of largest contributor to total CO2 emissions in the world, together with the United States and China. With the rise of transnational environmental problems like global climate change, attention has been focused on international technology transfer as an instrument to mitigate these problems. Historically, Western technology transfer and cooperation played a significant role in some key aspects. International experience transfer leading to energy efficiency improvements and greater deployment of renewable energy could lead to substantial reductions of CO2 emissions in Russia. Despite huge existing technical-economic opportunities for energy efficiency and renewable energy, and despite advanced Russian technological capabilities, many transaction barriers limit technology transfer and investment in technologies for energy efficiency and renewable energy. Same time outdated standards created in Soviet times what are still used in energy sector quite often tight the hands for efficient project realizations. There are good reasons why energy use is inefficient relative to that in Western countries. Some of these reasons can be found also in developed and developing countries. For example, equipment’s and infrastructure were designed, developed, and produced during a period when energy was extremely cheap. Undervalued inputs led to much economic inefficiency in general. Russia’s President has stated lately that energy efficiency and energy conservation are among the 5 strategic priorities for Russia’s technological development. In line with these governmental initiatives, this topical was served as an international platform for the exchange of practical experience and know-how gathered by companies and experts in the field of energy conservation and energy efficiency. Company Gebwell Ltd. is a Finnish company specialized in energy saving and environment friendly heating and cooling system development, engineering and production who works hand in hand with Russian partners for energy efficiency projects. The vast product selection includes ground source heat pumps, energy accumulator systems and district heating substations. As an expert in district heating field and renewable ground source energy technologies I will analyze several aspects of these systems and perspectives in Russia. District Heating System District heating is one of the most used heating systems in Russia but the system efficiency is very low, supply and distribution pipes in many cases are old and poorly insulated up to now. Heating equipment’s in buildings are old and poorly maintained. District heat distribution systems are poorly controlled (if at all). And opening windows in wintertime is often still the in many cases only method to regulate heat comfort. Energy efficiency and rehabilitation in district heating systems represent very high domestic priorities for Russia lately. Even with simply automation of heating processes large amount of energy could be saved. The main goal of such automation is to optimize heat production and distribution according to real-time fluctuations in heat demand, hydraulic conditions, and outdoor temperatures. Such control should take place in the heat plants, substations, and individual buildings and apartments. Russian authorities are beginning to recognize the unsustainability of an economic model based on natural resource extraction, and to understand that improvements in energy efficiency would boost long-term economic competitiveness. Technologies for improving the heating systems within existing buildings include building level energy metering units, and automation for controlling the heat entering the building, 61 apartment-level heat meters and thermostatic radiator valves for controlling the heat to individual apartments, heat balancing valves for balancing the heat flows within the building, pipe insulation, and new substations for energy distribution. Up to now the large amount of buildings in Russia connected to district heating system are not equipped with simple heat metering equipment’s what basically should be one of the first steps towards energy saving measures. Same time building thermal envelopes also can be improved. Measures include additional roof and wall exterior or interior insulation, window replacement and mechanical ventilation systems. Improvements to district heating systems include combustion controls and analyzers at heat plants, automation systems for distribution networks, variable speed drives on motors and pumps, pipe insulation, new pipelines, and new individual substations. During last 10 years there has been many renovation projects implemented in district heating sector and building level as well, but this is just a small part large Russian energy system. Thanks to Russian government new energy efficiency law has been introduced with certain measures towards energy efficiency. Renewable Energy and Ground Source Energy Renewables, this has become one of the most often used terms in energy sector worldwide in last years. I think this is one of future perspectives also in Russia, but due to relatively cheap energy available this technology has not been so popular up to now. One of the most popular and promising renewable energy technologies for heating sector in Northern Europe is ground source heat pumps and according today’s situation it is less costly heating production system. Up to now this technology has not been very popular, but Russian energy price growth in domestic market has led to heat pump market development due to its efficiency and environment friendly technology. Many people do not know that ground source systems can be used not only for heating production but cooling applications as well. For example one such kind of ground source system is able increase cooling efficiency many times comparing with regular air conditioning systems. Due to above mentioned this technology becomes more and more popular also in Russia due to its efficiency. Learning from experience gained during many years participating in energy saving project realization in Europe, Russia and China, the key factor is hided in heads of citizens as energy efficiency project should start there. Up to now it has been significant problem in Russia, but due to rapid energy prices increasing society is forced to think about energy saving measures also on consumer level. Viesturs Ozolins Export Director Gebwell Ltd Finland � Pan-European Institute � To receive a free copy please register at www.tse.fi/pei �
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