Conditions under Which Russia to Remain Major Energy Power
Gazprom has approved a feasibility analysis regarding the construction project for the Soyuz Vostok gas trunkline. It will deliver Russian gas across Mongolia to China and become an extension of the Power of Siberia 2 gas pipeline. Soyuz Vostok's capacity will reach about 50 billion cubic metres per year. Does this mean the global demand for natural gas will continue growing? When will oil consumption peak? What does Russia need to do to retain its status as one of the world's largest energy exporters? The participants in the panel discussion 'The Future of the Mineral Resources Sector: Trends, Forecasts and Opportunities' pursued answers to these and other questions. The debate was held as part of the all-Russian forum contest of young researchers Topical Issues of Rational use of Natural Resources.
According to BP, notwithstanding some successes in implementing green technologies, the fossil-fuel share in the global energy mix is still very high. It currently stands at 84%, with oil accounting for a third of consumption, coal for 27%, and gas for 24%.
There are different scenarios on how this situation is going to change, often being completely opposite. For instance, Adnan Amin, Director-General at the International Renewable Energy Agency, claims that "the world is ready to shift to the new energy paradigm based on renewables throughout the 21st century". He says that it is "technically possible".
Experts from McKinsey, a worldwide management consulting firm, estimate that oil demand will rise to its peak in 2029 and gas demand in 2037. Bloomberg's analysts are more conservative in their forecast. They say petroleum consumption will keep growing for the next fifteen years. As for natural gas, it will last at least twice longer. Shell insists that the world demand for LNG will nearly double by 2040, rising over that period from 359 to 700 mln tonnes.
What about domestic experts, then? Igor Sechin, CEO of Rosneft, thinks that regardless of the situation, demand for hydrocarbons will be on the rise till 2040. In other words, oil & gas will remain the backbone of the global power industry and economy in the years ahead. Rector of St. Petersburg Mining University Vladimir Litvinenko believes that "disadvantages of wind turbines and solar panels, particularly lack of cost-effective technologies for accumulating energy, won't allow them to displace fossil fuels any time soon". He also says that hydrogen, which is being talked a lot about now, will have a niche but will not turn into a global energy source. After all, one hundred years have passed, yet humanity still does not know how to store and transport it safely. No significant scientific breakthroughs in this field are expected either.
Furthermore, switching to green energy requires enormous investments. Thus even if the EU, at the cost of substantial money injections, will go through the energy transition by mid-century, the vast majority of developing countries in Asia, Africa and South America are unlikely to do so.
Vladimir Litvinenko made this statement during the discussion entitled 'The Future of the Mineral Resources Sector: Trends, Forecasts and Opportunities', at which he acted as a moderator. It was held as part of the XIX all-Russian forum contest of young researchers Topical Issues of Rational use of Natural Resources. Its organisers are the International Competence Centre for Mining-Engineering Education under the auspices of UNESCO and Mining University. The event's participants are leading experts in fuel & energy, undergraduate and postgraduate students of Russian engineering universities.
"Resources are not just a competitive advantage but also a geopolitical tool. It allows us to be secure and confident in our future. It provides opportunities for self-actualisation and ensures our state sovereignty is preserved. This is a vast potential indeed, but it takes time and effort. We need to learn how to exploit deposits properly; we need to invest in science and build up the raw materials base. Put it another way, we should be more active in exploring and prospecting for minerals. To make it happen, we need a clear regulatory framework set by the government. The directives must be suitable for both the business and society, and the state must monitor how well they are implemented," asserts Mining University's rector.
He emphasises that the governmental regulation of the mineral resources sector leaves room for improvement. A single decision-making centre does not exist, whilst various energy sectors are supervised by separate ministries and institutions. Coordination between them is far from great since they report to four different deputy prime ministers. Therefore it negatively impacts reserves increment, oil recovery, and the efficiency factor of thermal power stations. Of course, it negatively affects the development of the industry as a whole.
Vladimir Litvinenko was supported by other panellists as well. For example, Vladimir Tolkachev, CEO of GEOTECH Seismic Exploration, noted that the company's employees "do not search for new, large deposits of hydrocarbons but explore locations provided by oil & gas enterprises". Hence, what they do is the additional exploration of deposits that have been already discovered.
The problem is that no mechanism which would guarantee a return on investment exists in Russia. The subsoil licence giving the right to explore and operate a mine can be obtained not by the company that discovered a deposit but by a larger and more powerful corporate. As a result, all the money spent on prospecting activities, which could be hundreds of billions of roubles, will end up thrown away.
"We have too many people in charge, too many ministries, each trying to get more for themselves. Under such conditions, private initiative is virtually ruled out. Junior companies, which are typically seeking to develop natural resource deposits in such countries as Canada, have no chance here. Instead of updating the legislative framework, the state is involved in geological exploration without engaging the business sector in this work. It is basically trying to take over the business's mission, and the state itself suffers from this approach, whilst it could be earning on issuing licences," says Vladimir Tolkachev.
He also mentions another issue of concern - the lack of a unified centre that stores generalised geophysical data. Roman Samsonov, Vice-President of the Russian Gas Society, agrees. He said that "replenishing the domestic mineral resources base is undoubtedly a matter of national security". He also reminded the event's participants that "any other country of the world provides plenty of data to those doing exploration works", thereby ensuring their efficiency.
"Even in Africa, when issuing a licence, you can be sure you will have that data because the state makes money on it. Or, let's have the US as an example. Once Trump permitted to resume exploration activities in Alaska, there was soon a line of companies willing to start. Then, however, Biden took over and vetoed Trump's decision. What is this example about, though? It is about prospecting being also part of politics. It doesn't work like that in Russia. It would seem as if nobody cares," reports Roman Samsonov.
He points out that Rusgeology, a government agency providing geological surveying services, was established in Russia. Last year, 43 bln roubles were allocated to keep it functioning. Yet "one parametric well in Gydan costs at the very minimum 5 bln, and there should be at least ten drilled in one year".
Vladimir Litvinenko referred to the principle adhered to in the Soviet Union: for every extracted tonne of raw material, "a tonne and a half were to be added in". This strategy enabled the oil & gas industry to survive through the 90s and 00s relatively unscathed, as then virtually no company was searching for new fields.
Such a reserve would not have been accumulated without Gosplan, "an effective instrument of state regulation". Its resolutions were obligatory - all ministries, institutions, any kinds of organisations had to stick to them. The accuracy of forecasts and solutions was ensured by inviting specialists from the USSR Academy of Sciences and other notable scientists as consultants.
"If someone thinks this is an outdated mechanism, they should recall that it is actively used in China. And through using it, this country ensured a smooth transition to democratisation. It didn't happen in a moment as it went with us in the nineties", states the event's moderator.
Andrey Kutepov, Chair of the Federation Council Committee on Economic Policy, has a similar opinion. He believes we should more actively capitalise on previous generations' experience and "cherish what we already have".
"It is time to reanalyse and re-evaluate it once again; perhaps, we should get back to Gosplan. We definitely need a unified body to make decisions on the development of the extractive industry. The same is true for other economic sectors. The body in question should be made up of professionals who make their decisions based on science and take full responsibility for them," says the senator.
Mr Litvinenko also underlined that "lack of rational state regulation affects both the mineral resources sector itself and training of industry specialists".
"This sector is the foundation of Russia's economy. But our mining-engineering universities are fighting hard to have specialist's programmes back, which comprise a better system of higher technical education than the one in use now. The market calls for engineers - not bachelors or masters. If we want to change the situation, we need a regulatory authority - a minister. This person must initiate the adoption and repeal of laws, the presence or absence of which will improve the quality of higher education", stresses out Vladimir Litvinenko.
Andrei Komyagin is the Director of the Standalone Division of Y. Samoilov Research Institute of Fertilizers and Insectofungicides in St. Petersburg and Kirovsk, which is part of PhosAgro Group. He agrees that Russia's mining and oil & gas enterprises face a massive shortage of qualified workers. He also added that any decisions are taken by people. The higher is their competence, the better the chances are that the companies they work at will manage to improve their profitability whilst reduce the ecological burden.
"People are our primary resource. The company pays a great deal of attention to staff training and adaptation procedures. Mining University is our flagship university, and many of its students undergo internships at our enterprise. Moreover, they are usually highly skilled, explaining why our company's engineers and top management are predominantly Mining University's graduates. Nonetheless, many fields are experiencing the problem of a shortage of specialists. And I fully support the idea that our higher education system requires improvements. Amongst other things, it is crucial for ensuring national food security. Without highly educated professionals, there will be no bread on our tables," notes Andrei Komyagin.
Summing up, Vladimir Litvinenko brought up the topic of the mission of a public entity. For Western companies, this would be only making profits. Given Russia's circumstances, this approach would not work. Large businesses of our country also have a social function to exercise; they are responsible for the country's economic stability. They ensure that state sovereignty is preserved. Not having a single regulator means it will be a lot more challenging to achieve these goals.