One of the focal points of the meeting of the Public Council of the Ministry of Energy was the statement of the rector of St. Petersburg Mining University about the need to strengthen centralized regulation of the fuel and energy complex by the Government of the Russian Federation. A number of media outlets even interpreted his words as a proposal to “create a mega-regulator” in the fuel and energy complex. Forpost reached out to Vladimir Litvinenko for comment.
Hydrocarbons are our future
Vladimir Litvinenko: The situation on foreign markets due to the coronavirus pandemic is far from favorable these days. The global economy is stagnating. But this will not always be the case, and no matter who tries to impose a different opinion on us, the national governments of all the world’s leading countries are well aware that their further development is only possible with a clear and well-established energy supply system.
Its basis for several decades (at least) will be hydrocarbons. There is no doubt about this, because modern technology does not allow renewable energy sources or hydrogen, about which there is so much talk now, to guarantee the stability of energy systems. And scientific breakthroughs in this sphere are not expected in the foreseeable future.
At the same time, most of the post-industrial or large developing countries cannot independently provide themselves with the necessary raw materials, including energy resources. This means that Russia must develop mechanisms that will allow us to maintain the role of one of the leading exporters in the world market of hydrocarbons, as well as ensure the sustainability of the domestic fuel and energy complex.
The challenge is that today the government’s regulation of the mineral complex leaves much to be desired. There is no single center in the government that would work out the rules of the game that are clear to all market participants and monitor their fulfillment. Various ministries and departments are vested with control over different sectors forming the basis of the energy industry. Coordination among them often leaves much to be desired, since they report to four different deputy prime ministers. This deprives us of mobility in decision-making, which has a negative impact on reserves growth, oil recovery rates, the low efficiency of thermal power plants, and so on.
The success of core companies and the industry as a whole is measured solely by trading results. The more sold, the better. Yes, of course, financial performance is quite important, but equally important are the prospects, the presence of adequate development strategies that will allow the country to earn in the future. After all, raw materials are not just commodities, but a geopolitical tool. For Russia, it is a real pillar, which allows us to observe both the interests of the state and of the population.
Here, by the way, I would like to clarify, not to be misunderstood. The object of market regulation by the government should not be business, but the mechanisms of strategic development. Their optimization is designed to help create transparent rules of the game, increase healthy competition and ensure a balance between supply and demand.
The problems of the FEC require reasonable centralization
Vladimir Litvinenko: We should have long ago developed new competencies for state regulation of our entire raw materials sector. And we should have delegated the relevant powers to a single deputy prime minister. If we do not do this soon, it will be incredibly difficult to meet the challenges of the modern world. And the numerous problems that hang over our fuel and energy industry, like a sword of Damocles, will remain.
There are lots of those, and I will try to highlight the main ones. For example, inventory growth. During the Soviet times, there was a strict rule: for every ton of minerals extracted from the subsurface, you had to add one and a half more. That is, to find new deposits, which would allow to provide in the future the necessary volume of production for the country. Now the reproduction of the mineral-raw-material base takes place mainly at the expense of additional exploration of the flanks of the existing fields. This is because companies are not motivated to invest in prospecting.
This creates a situation that could well result in a decline in oil, gas and other natural resources production and, as a consequence, a significant reduction in federal budget revenues. To prevent this from happening, we simply need a vertical chain of government regulation. And to have in this system a person responsible for creating mechanisms that incentivize business to invest in new fields and bring them into production. Otherwise, we will continue to play along with the Western ideology aimed at creating a myth about the end of the hydrocarbon era.
Another huge problem is the low efficiency of our thermal power plants, which is 2-3 times lower than in many European countries. Every year we lose about 100 million tons of fuel equivalent due to our negligence and backwardness of our technology alone. They are based on feeding steam, produced by burning coal, gas, or fuel oil in boilers, into the turbine. In Germany, for example, the raw materials are burned in specialized burners that act on the turbine blades. This not only saves significant money, but also reduces the negative impact on the environment. After all, in order to generate a certain amount of electricity or heat, fewer resources need to be burned, which means lower emissions into the atmosphere.
When you ask our industrialists why this technology cannot be implemented in Russia, they say that we cannot make large diameter turbines. But this is no excuse. Besides, we don’t need them in the transition to local generation systems.
It is obvious that we need to implement the idea of further gasification of the country, to motivate local authorities and business for closer integration in order for the population to have access to a clean resource from the environmental point of view. On the other hand, if Kemerovo or Vorkuta have huge coal reserves, it is probably ridiculous to seriously consider any other raw material as an energy resource for local thermal power plants.
Another thing is that the government should create such conditions so that power engineers are interested in introducing modern technologies that contribute to the environmental well-being of these regions. Let’s say, the use of water-coal slurry. But how can we make them develop? The answer to this question has long been found in many Western countries. There, the regulator comes up with a legislative initiative to set stricter standards for permissible emissions and impose additional taxes on companies that violate them. This is a very effective tool, but we have no such mechanisms.
We need digital control over the system of hydrocarbon production and sales, the depth of their processing at refineries. It is high time we started making domestically produced catalysts in such quantities to move away from import dependence in this area. After all, this is a strategic issue that has not been solved for many years. And only now it has more or less moved from the dead point.
In short, there is a lot of problems. And in order to cope with them, we need reasonable centralization. The emergence of a market regulator, which will have all the powers needed to improve the efficiency of the Russian mineral complex.
Expert suggestions
Vladimir Litvinenko: Experts in the field of FEC and ISC have developed a number of proposals that could contribute to improving the efficiency of the industry, provided there is a single regulator. Most of them concern the development of Western Siberia’s potential, because the fields in this region are capable of ensuring Russia’s leadership in the global hydrocarbon market for many years to come.
In particular, it is recommended to remove depth restrictions for all licenses on a royalty-free basis. Prepare a program of reference drilling to study the lower part of the section in the allocated subsoil fund, providing for public-private funding. Conduct a comprehensive assessment of initial hydrocarbon resources as of January 1, 2023, making maximum use of all the accumulated geological and production material.
This work should be done jointly with the major companies - Gazprom, Rosneft, NOVATEK, LUKOIL, Surgutneftegaz, and Gazprom Neft. It is also necessary to prepare plans for the development of oil and gas provinces, defining the role of each of them in the social and economic development of Russia. And give Western Siberia a special status, understanding its importance for the country throughout the 21st century.
We need digital control over the system of hydrocarbon production and sales, the depth of their processing at refineries. It is high time we started making domestically produced catalysts in such quantities to move away from import dependence in this area. After all, this is a strategic issue that has not been solved for many years. And only now it has more or less moved from the dead point.
In short, there is a lot of problems. And in order to cope with them, we need reasonable centralization. The emergence of a market regulator, which will have all the powers needed to improve the efficiency of the Russian mineral complex.
Expert suggestions
Vladimir Litvinenko: Experts in the field of FEC and ISC have developed a number of proposals that could contribute to improving the efficiency of the industry, provided there is a single regulator. Most of them concern the development of Western Siberia’s potential, because the fields in this region are capable of ensuring Russia’s leadership in the global hydrocarbon market for many years to come.
In particular, it is recommended to remove depth restrictions for all licenses on a royalty-free basis. Prepare a program of reference drilling to study the lower part of the section in the allocated subsoil fund, providing for public-private funding. Conduct a comprehensive assessment of initial hydrocarbon resources as of January 1, 2023, making maximum use of all the accumulated geological and production material.
This work should be done jointly with the major companies - Gazprom, Rosneft, NOVATEK, LUKOIL, Surgutneftegaz, and Gazprom Neft. It is also necessary to prepare plans for the development of oil and gas provinces, defining the role of each of them in the social and economic development of Russia. And give Western Siberia a special status, understanding its importance for the country throughout the 21st century.
