Supplies will be adequate until well into this decade, but investments in future supplies – domestic or imported – will need to be made several years ahead of anticipated requirements. Security of supply will not be a major problem unless there is a failure to reform the price and tax regime of the late 1990s, the report says.
Russia can continue servicing its current and growing export market. This is true despite concerns expressed by Gazprom and the Russian government about the availability and viability of new gas supply, about Russia’s high dependence on natural gas (50%) and especially that of the electricity sector in European Russia (over 70%). Russia’s new Energy Strategy envisages the share of gas in Total Primary Energy Supply will decrease from about 50% in the 1990s to 42%-45% in 2020. Coal and nuclear will make up the difference, though questions have been raised about competitiveness and safety.
Oil production, on the other hand, will remain stable, following a recovery in the late 1990s. In 1998, Russia increased its oil production by almost one million barrels a day. Oil and oil product exports from the former Soviet Union – 90% of them from Russia – have increased dramatically, from 2.8 mbd in 1996 to 4.7 mbd in 2001.
Russian companies have already proven their ability to expand production and improve productivity, but it is questionable whether improvements in efficiency and effectiveness can sustain oil production growth in the long run. Since 1994, new discoveries have failed to offset oil production. And new field discoveries are getting smaller. Also, a growing portion of remaining reserves falls into the “difficult-to-recover” category. Reform is clearly essential. The publication of the IEA Survey comes shortly after the Russian Federation released its Energy Strategy to 2020. The Russian government’s efforts to elaborate and implement economic reforms are critical to be able to match energy demand in this period of strong GDP growth. Increasingly, the energy security of Russia and its export markets are dependent on the creation of a stable and competitive investment environment, energy sector regulation and price reform, corporate transparency and a dramatic improvement in energy efficiency. The energy sector’s total investment requirements from 2001 to 2020 are estimated at somewhere between US$550 billion and US$700 billion.
Foreign investment would help. But barriers to investment have hampered the energy sector’s ability to maintain capacity and replace reserves. Reforms are underway, but more are needed. This is especially important in the mineral resource sector, where up-front costs are significant and payouts are long-term. Investors need reassurance, and petroleum licensing and operations require a comprehensive, clear and stable legal framework.
Completion of the Production Sharing Agreement (PSA) regime, for instance, will help attract investment. It may also bridge the gap while the Tax Code and investment laws are being put in place.
• Russia Energy Survey 2002, IEA, 2002.
©OECD Observer No 231/232, May 2002