OPEC projected that global oil consumption would fall by around 10% to 90 million b/d in 2020. The reason: the coronavirus pandemic, which led to quarantine restrictions, and consequently reduced road traffic as well as air traffic. But that does not mean we have passed the peak of demand. Experts believe that in 2021 it will increase to 96 million barrels, and a new historical high will be recorded as early as 2022.
The gas market in Asia is already experiencing a supply shortage due to the cold winter. As a result, the price of liquefied natural gas (LNG) has risen more than fivefold since May, to USD 370 per thousand cubic meters. The current market situation is another proof that hydrocarbons will remain in demand for decades to come, however much the adherents of energy transition intensification would like the opposite.
In this respect, Russia needs to develop mechanisms that will enable us to retain our role as one of the world's leading exporters of hydrocarbons, as well as to ensure the sustainability of the domestic fuel and energy complex. Otherwise, the amount of unsolved problems that currently exist in the industry will reach a critical mass and become a serious brake on its sustainable development.
There are many bottlenecks. For example, the core companies are not motivated to increase reserves. At the moment the mineral resource base is replenished primarily through additional exploration of the flanks of the existing fields. This is the rule of the game - it is not profitable for business to look for new deposits, which in the future will provide the required volume of production for the country.
Other serious problems include an extremely low oil recovery factor (it is 28-30%, much lower than with advanced technology), poor power generation efficiency, and a resource-hungry economy. Russian TPPs are 2-3 times less productive than many European countries; and that's because our technologies are based on feeding the steam produced by burning coal, gas, or fuel oil in the boilers to the turbine. And in Germany, for example, the raw materials are burned in specialised burners that act on the turbine blades.
This not only reduces energy efficiency, it also leads to higher emissions. After all, in order to generate a certain amount of electricity or heat, more resources must be burnt. But who should create the conditions for our corporations to be interested in increasing reserves or introducing modern technologies that contribute to the ecological well-being of the regions (particularly those where generation comes from burning coal)? Of course, the state.
Today the regulation of the mineral sector leaves much to be desired. There is no single centre in the government, which would produce laws that are clear to all market participants and monitor their implementation. Various ministries and agencies oversee the various sectors that make up the energy sector. Coordination between them is often lagging, as they report to four different deputy prime ministers. This deprives us of mobility in decision-making, which has a negative impact on the sector's prospects. And raw materials, let me remind you, are not just commodities, but real support, which allows us to serve the interests of the state and the people.
In order for Russia to have effective mechanisms for strategic development, we need reasonable centralisation of the regulation of the fuel and energy complex. The entirety of authority in this matter should be legally vested in a single deputy prime minister. Only this step will allow us to ensure the sustainability of the fuel and energy complex and give it the impetus to keep moving forward.
What decisions could contribute to this? Let us say those that relate to the development of Western Siberia's potential. I am sure that the fields in this region are capable of ensuring Russia's leadership in the global hydrocarbon market for many years to come. But this will only happen if the regulator creates the right conditions. In particular, it will remove depth restrictions for all licences on a no-cost basis. Develop a program of reference drilling to study the lower part of the section in the allocated subsoil fund. Will prepare plans for the development of oil and gas provinces, defining the role of each province in Russia's socio-economic development. And will give Western Siberia a special status, understanding its importance to the country throughout the 21st century.
The Arctic shelf and deposits of the Arctic Polar region should be perceived as serious groundwork for the future. According to our experts, a number of gas fields located in close proximity to the Northern Sea Route should be legislated for the development of the LNG segment. This sector will progress by leaps and bounds and will continue to grow at 6-8% per annum after the pandemic is over.
We also need to revise the regulations governing the MNCs and the FEC, which impede their progressive development. We need to change the regulation of the State Reserves Commission, giving it an inter-ministerial status and giving it the power of state control over the use of subsurface resources. It should report directly to the government and prepare an annual report to the president. The Central Mining Commission should become the government's instrument to regulate the quantity and quality of the deposits.
Put simply, we are confronted with many tasks, all of which require a major administrative effort. But in order to cope with them amid sanctions and attempts by some Western politicians to discredit hydrocarbons, including natural gas - an optimal resource in terms of economic and environmental benefits - we do need a single regulator. If one does not appear soon, we will find it incredibly difficult to meet the challenges of the modern world.
Vladimir Litvinenko, Rector of St. Petersburg Mining University
Source: Rossiyskaya Gazeta