IEA's World Energy Outlook 2011 focuses on world's largest oil and gas producer, finds huge potential for improving energy efficiency
Russia requires USD 2.5 trillion (in today's money) over the next two and a half decades â€“ around USD 100 billion a year â€“ to invest in new infrastructure and technologies that will help meet the projected growing demand at home and abroad for oil, gas, coal and power, according to the International Energy Agency's World Energy Outlook 2011.
In the oil and gas sectors alone, there is a pressing need to invest an average of 70 billion a year in order to develop the next generation of Russian oil and gas supply, often in new, remote and challenging frontiers such as the Arctic or deep offshore.
Maria van der Hoeven, Executive Director of the IEA, warns that it will be difficult to mobilise investment on such a scale.
'Much will depend on Russia's investment climate and tax regime, and whether this investment will be expected to come from a limited number of state-owned or state-directed companies or, alternatively, from multiple market players, both state and private, operating in a broadly non-discriminatory and competitive environment,' she said at the launch of the WEO-2011 at the Skolkovo School of Management in Moscow on 11 November.
In the electricity sector (which requires over USD600 billion investment between now and 2035), different companies, including foreign investors, are already active thanks to a far-reaching, but incomplete market liberalisation that was launched in 2003.
'Here, the essential challenges facing Russia are to ensure a genuinely competitive environment for generation, cost-reflective pricing, and independent supervision of the markets,' Ms Van der Hoeven added.
Launch in Moscow
The WEO-2011 looks at how the energy system will evolve in the next 25 years, taking account of the broad policy commitments that have already been announced by countries around the world to address climate change and growing energy insecurity.
This year, the IEA's flagship publication contains a special in-depth study on Russia, which is the largest producer of oil, the largest producer and exporter of gas, and the fourth largest consumer of energy in the world.
The launch in Moscow was attended by Russia's Deputy Minister of Energy Anatoly Yanovskiy and over 140 officials, senior industry representatives, academia and media. While in Moscow, Ms Van der Hoeven also held a separate bilateral meeting with Russia's Minister of Energy, Sergei Shmatko, during which they discussed the perspectives for closer cooperation between Russia and the IEA.
As well as focusing on required future investments, the WEO-2011 analysis also examines Russia's significant energy efficiency potential, which â€“ if realised â€“ would have major positive implications for the Russian and global energy balance.
If Russia improved its energy efficiency to the levels of comparable OECD countries, it could reduce its primary energy use by almost one-third, an amount similar to the total energy consumption of the United Kingdom in a year. More specifically, the savings from more efficient use of natural gas are equal to its total gas exports in 2010. This means greater efficiency could ultimately enable Russia to double its gas exports.
The analysis, however, shows that Russia is currently not on track to meet its ambitious target of a 40% reduction in energy intensity (a measure of total primary energy use per unit of gross domestic product) by 2020. The IEA's projections indicate that, even with Russia's new energy efficiency policies, the target is likely to be met closer to 2030.
This year's WEO-2011 also highlights the importance of well-functioning markets within Russia in order to provide the incentives for the required investments in production and in more efficient energy use. For this to be achieved, continued efforts need to be made on pricing, reforms to the markets for electricity and heat supply, and on making sure gas companies other than Gazprom â€“ one of the largest energy companies in the world â€“ have reliable access to the transportation network and the domestic market.
Looking beyond its domestic market, the WEO-2011 also shows that while Russia remains an important supplier to its traditional markets in Europe, a shift in its fossil fuel exports towards China and the Asia-Pacific is gathering momentum.
While this presents a major opportunity for Russia, there are also some competitive challenges which need to be overcome. In China, for instance, Russian gas will need to find a place alongside increased domestic gas production, imports from Central Asia and from suppliers of Liquefied Natural Gas, as well as domestic coal. In Europe, the gas market is set to become more integrated, providing importers with a greater range of potential options for their gas supply. Ultimately, Russian strategy will need to be responsive to the changes underway in the global markets.