Alexander NOVAK
Minister of Energy of the Russian Federation
Humanity faced the beginning of the globalization processes several centuries ago, but over the past century the pace of integration has accelerated significantly, and since the beginning of the 21st century has become truly galloping. First of all, this is facilitated by the development of telecommunication technologies, communications and transport, as well as the presence of an increasing number of common problems, tasks and challenges for the world community, including the fight against the epidemic of coronavirus infection in the recent months, as well as the fight against the economic consequences of the pandemic. This experience has once again demonstrated the necessity and even inevitability of the international cooperation in various sectors of the economy to achieve the stability.
Energy is one of the most important areas for the international community, which is one of the main guarantors of global security in the modern world. The fuel and energy sectors provide the comfortable existence for the world’s population and the opportunities for development of the world economy. Therefore, in the conditions of global challenges and the constantly changing world, it is extremely important to combine the efforts of countries to keep the balance in this industry. In this regard, the Russian energy policy over the past few years has been invariably aimed at developing and deepening the international cooperation which every year reaches ever higher levels of communication.
OPEC+
A prerequisite for cooperation in the OPEC+ format was the protracted crisis in the ‘black gold’ market that began in 2014. Within two years, oil prices had fallen on average by half. There were several reasons for this. First, the significant increase in production in almost all oil-producing countries due to the previous period of ultra-high prices and significant investments in the sector. Secondly, against the backdrop of a favorable market environment, there was a sharp jump in shale oil production in the United States. And thirdly, Iran has returned into the list of the key suppliers. Russia, which is not a member of OPEC, nevertheless appeared to be one of the first countries in the world which came to the conclusion about the need for cooperation between the oil-producing countries and took the initiative to start negotiations with the countries — key oil producers. This path wasn’t easy. Finding a compromise was preceded by a series of difficult negotiations. It was necessary to take into account the interests of each country. And at the end of 2016 it has been successful. As a result, on December 1 — even before the the effectiveness of the Agreement (January 1, 2017) — for the first time since June 2016, the cost of barrel of Brent crude exceeded the level of $ 50 per barrel.
The agreement for reduction of oil production by OPEC and non-OPEC countries has become the most significant example of the international multilateral cooperation in the energy sector in the recent years. Saudi Arabia, along with Russia, played a key role in the successful conclusion and subsequent implementation of the deal, demonstrating its commitment to the agreement and active participation in the negotiations with other countries. During 2017–2020, thanks to the OPEC+ agreement, the oil market was significantly stabilized. In 2017, the average price of Brent in the market reached $ 54.1, in 2018 — $ 71.2, in 2019 — $ 64.7.
Despite the beginning of the second wave of the epidemic in a number of countries, my colleagues and I continue to look at the situation with optimism and expect that we will be able to gradually increase production in the framework of the deal
By the beginning of this year, the expected effect had been achieved, and the parties of the agreement were preparing for further easing of the restrictions, however, the sharp reduction in energy demand in connection with the coronavirus pandemic required the adoption of unplanned, more stringent measures. If in 2019 the oil demand reached about 100 million barrels per day, in April 2020 it has dropped sharply to about 72–75 million barrels per day. To stabilize the situation, the new agreement was signed in April of this year, from May 1, 2020 to May 1, 2022.
In addition, the list of participants has significantly expanded. In addition to the 24 OPEC+ countries, the deal was supported by a number of G20 states, including the United States, which, due to the peculiarities of the legislation, although did not formally enter into cooperation, but expressed their readiness to help stabilize the situation on a voluntary basis. This was an unprecedented signal for the market.
With effectiveness of the agreement on May 1, the market started balancing and around July-August, according to the estimates of the analytical agencies, the demand exceeded the supply.
Source: RF Ministry of Energy
In July, the commercial oil reserves showed a decline for the first time, whereas the oil demand recovered to 90 % of the pre-pandemic level, and the oil quotes stabilized above $ 40 per barrel. At the moment, despite the beginning of the second wave of the epidemic in a number of countries, my colleagues and I continue to look at the situation with optimism and expect that we will be able to gradually increase the production, according to the terms of the deal, without harm for the market.
In addition to the agreement, interaction with the OPEC countries is developing under the auspices of the Charter for Cooperation of Oil-Producing Countries which was unanimously approved and signed in July 2019. It is a strategic document with no validity time limits. The Charter is aimed at developing the dialogue, the technological cooperation, and mutual support of the energy policy of the oil-producing countries. And this is a very important, milestone agreement, since oil will remain the leading source of energy for more than one decade.
GECF
Our country was one of the initiators of founding the Gas Exporting Countries Forum (GECF) in 2008. Today, the GECF is an international government organization whose mission is to protect the interests and sovereignty of the energy policy of the member countries and coordinate the efforts to promote natural gas on the global stage. During its existence, the gas coalition has united 20 countries — the leading natural gas producers which control 72 % of proven reserves, 46 % of production, 55 % of pipeline gas export and 61 % of LNG supplies.
The most important today’s event of the association was signing in 2019 of the unanimously approved Malaba Declaration of the GECF, which confirmed the importance of the role of natural gas in achieving the UN sustainable development goals, as well as the irreplaceable contribution of the ‘blue fuel’ to environmental protection, in particular to mitigating the effects of climate change. A milestone event for the world gas community was the introduction of the wording on inadmissibility of the use of unilateral economic and political sanctions, into the document.
The drop in global gas demand may amount to 2.8–6 % in 2020.
Economic recovery in 2021 will not compensate for the losses of the industry , and gas demand will reach the 2019 level only in 2022.
One of the key activities of the GECF is also monitoring the current state and forecasting the development of the situation in the gas markets, which is necessary for planning the energy policy of all the players and is especially important for assessing the economic consequences of the coronavirus pandemic. According to the GECF forecasts, the drop in global gas demand may range from 2.8 % to 6 % in 2020. The global economic recovery in 2021 will not be able to compensate for the losses incurred by the gas industry, and gas demand will only reach the 2019 level in 2022. At the same time, in the future, natural gas will remain an integral part of the energy transformation, and the share of gas in the global energy balance by 2050 will exceed 27 %.
In 2020, the growth rate of LNG trading will be slower and will amount to 3–3.5 %, with a decrease in the rate of commissioning of new capacities for production of liquefied gas and a decrease in its supply on the market. In 2021, LNG trade volumes may grow by 7–7.5 % due to a possible revival of demand and the launch of new projects. In the future, the pace of its annual growth is expected to accelerate to 3.5–5.5 %, caused by the emerging of new crude importers, capable increase the world consumption to 2025. In this regard, in the future, the situation may arise again with oversupply of LNG, which re-raises the question of effective mechanisms to stabilize markets.
Against this background, the GECF acquires special significance. This is a very important institution for the market in the context of a steady excess of the global gas supply over the demand due to the slowdown in economic growth and the launch of new liquefied natural gas capacities.
The GECF must anticipate the future trends, set the pace for innovation and be an example of effective cooperation in the gas industry. The leading experts today compare the gas alliance with OPEC in terms of influence and authority. And this is quite fair.
Today, on the basis of the GECF, there are opportunities similar to OPEC to create coalitions and agreements to balance the industry market. And these levers can be used when needed.
EAEU
The Eurasian Economic Union is a strategic cooperation of the participating countries, which is aimed at increasing the competitiveness of national economies and the standard of living of the population. The energy cooperation with the CIS countries within the EAEU is one of the priority areas of activity for Russia. Since 2014, the work has been underway to create the common energy markets for the EAEU countries, i.e., Russia, Belarus, Kazakhstan, Kyrgyzstan and Armenia.
The integration of energy systems will increase the energy security of our countries and will contribute to a more rational use of energy resources of the Union states. In July 2019, the formation of a common electricity market had been completed, which allows to use the existing advantages of parallel operation of the energy systems of the EAEU member states at a qualitatively new level. The document provides for adoption of uniform rules for access to services for the interstate transmission of electrical energy and mutual trading in electrical energy in the common EAEU market by 2022. By 2025, the EAEU member states will conclude international agreements for formation of common markets for gas, oil and oil products. To ensure uninterrupted interstate transportation of oil, oil products and gas, with participation of the Russian Ministry of Energy, the exchange of technological information was organized between the pipeline companies of the EAEU member states, as well as the gas transportation systems of the EAEU member states and exchange trading operators.
Source: sabetta-yanao.ru
BRICS
Another international organization — the BRICS — unites the five countries from different parts of the world — Russia, Brazil, India, China, South Africa, each of which has unique resources for the planet. Initially, the community was supposed to be an advisory authority, but almost immediately the organization began to transform into an economic and even geopolitical club of international importance. The BRICS member countries account for more than a quarter of the Earth’s territory, 42 % of the world’s population and about 40 % of global energy consumption. Therefore, energy has become one of the key elements of cooperation, the main goal of which is to solve the problems of ensuring access to affordable, reliable, sustainable and modern energy. Here, a special role is played by our country, which is one of the leaders in terms of hydrocarbon reserves, the level of technologies, including those in nuclear energy.
The BRICS Energy Research Platform, created by the initiative of the Russian side, has been operating since 2019. Russia is chairing the BRICS association this year, and we see that the request for an assessment of global energy development comes not only from the BRICS countries, but also from other major economies. The energy platform is exactly the tool that allows to assess the structure of energy consumption, the trends of production, cost, investments, infrastructure development not only in the countries of the community, but also in the global scale. The forecasts are based on a medium-term perspective and help the BRICS countries to formulate a competent energy policy based on the data obtained.
It is important that the study covers not only traditional coal, oil, gas (including LNG), electric power industries, but also renewable energy sources and the use of environmentally friendly fuels in the transport sector, in particular, natural gas. The sustainable energy system will be an excellent foundation for the BRICS, which, according to experts, has every chance of becoming a political competitor to the G7 countries in the future.
“The Group of Twenty”
During the pandemic, the G20 countries showed a new level of cooperation. In April, the G20 energy ministers met amid an unprecedented slowdown in the economic activity, which seriously affected the energy sector and reduced oil demand. A short-term energy focus group was created, within the framework of which an effective mechanism for monitoring and developing the necessary response measures to balance the energy market was established.
During the G20 Sustainable Energy Working Group, we took a closer look at the circular carbon economy, universal access to energy with a focus on environment-friendly cooking techniques, security and stability of energy markets. As a result, based on the results of the September ministerial meeting, its participants expressed their intentions of further cooperation to develop the principles of security and stability of energy markets, to continue collective efforts to eradicate the energy poverty, promoting access to reliable and sustainable energy. There was also presented the mechanism of operation of the circular carbon economy (CCE) platform with the so-called base
As planned in the roadmap, by 2050 we will reach the formation of
pan-European energy space with an integrated network infrastructure, with transparent markets
“4R”, which implies reducing carbon emissions, using the produced CO2, its capturing and processing. The increased use of a closed carbon economy could provide up to 40 % reductions in industrial emissions. In general, we support the approach proposed by our colleagues, while it is advisable to consider the mechanism in a broad aspect.
Since the “circular carbon economy” principle is based on the circular economy model of four measures “4R” (reduction, reuse, recycling, removal), each component is important and each country is free to choose the most optimal solution based on national conditions, priorities, needs and energy balance. I would like to note that fossil energy sources, in particular natural gas, can be environmentally neutral, taking into account the development and application of modern technologies for the capture and disposal of harmful emissions.
Russia — European Union
Russia has been the largest supplier of energy resources to the European market for the past 50 years. The document on the approval of the Russia-EU energy dialogue in 2000 became the first for the European Union energy dialogue with an external partner. It was a unique agreement among other sectoral dialogues in bilateral relations, which brought communication on energy issues with European partners to a new level. The establishment of energy dialogue made it possible to promptly consider the topical issues of energy cooperation, including the rationalization of industrial and transport infrastructures, the opportunities for European investments, the relations between the producer and consumer countries, and the development of cooperation in the field of energy saving. In subsequent years, a number of joint documents were signed regulating the actions of the parties for prevention and prompt response in the event of emergency situations in supplies of gas, oil and electricity from Russia to the EU. This has undoubtedly significantly increased the energy security of the continent. In March 2013, we approved the Roadmap for Russia-EU Energy Cooperation until 2050, which is aimed at mutually beneficial development of EU-Russia energy relations and covers all sectors of the fuel and energy sector. Despite the fact that in 2014 the energy dialogue was formally frozen at the initiative of the EU, the Gas Advisory Council continues its work, in which framework the volume of production and demand for Russian gas in the European market is assessed, and recommendations for long-term cooperation between Russia and the European Union in the gas sector are formed. As we see today, the European countries are interested in the supply of Russian ‘blue fuel’. We have made sure of this once again, in particular, by the unprecedented support of our European partners for our joint project of the Nord Stream — 2 gas pipeline. It is already obvious to everyone that this is a commercial project that does not in any way affect the gas supply route through Ukraine.
The latter, according to the agreements reached at the end of 2019, will operate at least till 2024. We are sure that over time, and in a fairly short term, the energy dialogue with the EU will resume in other sectors of the fuel and energy sector. As planned in the current roadmap, by 2050 we will reach “the formation of a pan-European energy space with a functioning integrated network infrastructure, with open, transparent efficient and competitive markets, which will contribute to ensuring energy security and achieving the goals of sustainable development of the EU and Russia”. This is important, first of all, for consumers.
WEC
Since 2000, we have been actively cooperating at the WEC platform. The World Energy Council established in 1923 on the initiative of business and energy circles of a number of countries in Europe and North America, is the largest energy international non-governmental organization, which includes 92 countries. One of the main activities in the framework of the WEC was the International Energy Congress (IEC) which is held once every three years and is a platform for world energy leaders and experts to discuss all the aspects of functioning of the energy sector, the search for the most optimal ways to develop the energy system, prevent the risks and formation of responses to existing challenges.
In 2018, based on voting by the representatives of the national committees of the WEC countries, Russia obtained the right to host the 25th IEC in 2022 in St. Petersburg. WEC today plays an exceptional role in the global energy balance, therefore the IEC-2022 theme was chosen with a focus on the needs of the world’s population — “Energy to Humanity”. In our opinion, today it is most important to ensure the availability of energy sources for every inhabitant of the Earth, the availability of scientific research for wide practical application, and to meet the interests of all market participants. All this is necessary to achieve the goals of socio-economic prosperity and the maximum possible balance of interests.
From East to West
In addition to the international structures mentioned above, Russia is also a member of the Organization of the Black Sea Economic Cooperation (BSEC) which unites 12 states of the Black Sea and the Southern Balkans, whose priority is to promote multilateral cooperation in the field of industry and trade, energy, transport, agriculture, science and in other areas. The International Energy Forum (IEF), established in 1991, is another independent institution of world energy policy, designed to provide a global dialogue between consumers and producers of energy resources. At the IEF platform, where our country regularly takes part as well, for about 20 years an effective dialogue has been established between consumers, producers and transit countries of energy resources, the critical issues are discussed, such as increasing market transparency, overcoming “bottlenecks” in development of infrastructure and the legal framework of the energy sector, formation of common approaches to development of the world energy sector. Since 2015, Russia has become a full member of the International Renewable Energy Agency (IRENA) which was formed by the initiative of Germany in 2009 and unites 145 states. For more than 10 years now, IRENA has been promoting the distribution and sustainable use of all types of renewable energy, which are actively developing in Russia today.
The cooperation on the energy track has also been established on the basis of the CIS Electric Power Council, the Association of Southeast Asian Nations (ASEAN), the UN Economic Commission for Europe, the UN Economic and Social Commission for Asia and the Pacific (ESCAP) and other organizations. The work is ongoing on the projects of energy bridges “Russia — Armenia — Georgia — Iran” and “Russia — Azerbaijan — Iran”. In addition to cooperation with countries in multilateral formats, we pay considerable attention to development of mutually beneficial bilateral business contacts that link our country with numerous energy partner countries on all the continents of the planet. Today, the cooperation in the fuel and energy sector has been established with more than 100 countries. The management of the Russian Ministry of Energy heads the eight intergovernmental commissions — with Spain, Iran, Pakistan, Qatar, Turkey, Saudi Arabia, Congo, Bolivia and Afghanistan. In addition, in 2019 alone, representatives of the Ministry of Energy took part in 51 meetings of the IGC on trade and economic cooperation with foreign countries, 15 international treaties and 3 memorandums were signed, a number of large-scale international projects were implemented.
We are actively working on the European market, traditional for Russia developing the projects with the countries of the continent in the field of supply of hydrocarbons, their storage and deep processing, as well as participate in the renovation of power generating facilities. In January 2020, gas supplies had been started via the Turkish Stream gas pipeline, the capacity of the first and second lines of which is 15.75 billion cubic meters each. Gazprom and the German company VNG are implementing on pari passu basis the joint project of the UGS
The leadership of the Russian Ministry of Energy heads the eight intergovernmental
commissions — with Spain, Iran, Pakistan, Qatar, Turkey, Saudi Arabia, Congo, Bolivia and Afghanistan
“Katarina” in Germany, LUKOIL owns the Isab refinery in Sicily, which is the third largest refinery in Europe, and “Power Machines” is participating in the modernization of the Serbian HPP Djerdap-1, having fulfilled its obligations to supply equipment ahead of schedule.
At the same time, diversification of energy exports is the basis of Russia’s new energy policy, therefore we are expanding the bilateral energy cooperation with the countries of the Asia-Pacific region, the Middle East, Africa and America. In particular, the volumes of coal supplies to the APR countries have significantly increased, the export of oil and oil products to the region is maintained at a consistently high level.
Oil supplies to China in 2019 amounted to 40 million tons, in the first half of 2020 — 19.48 million tons. In the end of 2019, Transneft brought the Eastern Siberia–Pacific Ocean pipeline to a maximum capacity of 80 million tons per year. Coal exports to China increased by 19 %, reaching 32.8 million tons in 2019. The Power of Siberia gas pipeline was put into operation, which supplies gas to China in the amount of 38 billion cubic meters of gas per year.
As regards the supply of coal to India, there has been an almost two times increase, in 2019 — up to 8.41 million tons. Coal supplies from Russia to Japan had increased by 10 % compared to 2018, exceeding 20 million tons. We are implementing joint projects with Asian companies in the field of hydrocarbon production both abroad and in the Russian Federation. In particular, this is about the projects of Zarubezhneft and PetroVietnam — Vietsovpetro and Rusvietpetro, as well as the joint projects with the Chinese, Indian and Japanese partners in the field of LNG production (Yamal LNG, Arctic LNG-2).
I would like to note that the favorable climate for interaction of Russian companies with the region of the Middle East and North Africa was formed, among other things, by cooperation within the framework of OPEC+. I am confident that we need to maintain the reached pace and extend the experience gained to other possible areas of our cooperation. In the bilateral energy cooperation with the countries of the region, there are many opportunities for expanding the cooperation. In particular, to promote the interests of Russian business in the Middle East and North Africa region, the mechanism of intergovernmental commissions on trade and economic cooperation (IGC) is actively used, as well as bilateral working groups functioning within the framework of the IGC for development of cooperation in the energy sector. As the examples of successful interaction, I will cite the recent entry of NOVATEK into the Lebanese exploration and production project on the shelf blocks of the eastern Mediterranean, the joint work of Gazpromneft and Saudi Aramco in the framework of the project on the use of artificial intelligence in geological and hydrodynamic modeling, as well as participation Rosneft in the project for development of the Egyptian gas field “Zohr” and joining of LUKOIL to the concession for the development of the Gasha field in the UAE.
In Latin America, special attention is paid to the cooperation with the Republic of Cuba. The main efforts in this area are focused on modernizing the country’s energy system, producing superviscous oil using innovative methods developed by the Russian companies.
As we can see, to date, significant successes have already been achieved in Russia’s foreign energy policy. At the same time, the immediate plans include expanding Russian participation in the work of the specialized international organizations and structures, as well as in specialized subgroups on energy cooperation as part of bilateral intergovernmental commissions. In addition, further work is to be done in terms of the development and transfer of innovative energy technologies, including that in the field of hydrogen energy.
I emphasize once again: our country is always ready to discuss the possibilities of establishing and expanding cooperation with partners in the fuel and energy sector, and exclusively on mutually beneficial terms. We are sure that only such an approach will help reduce the risks in the energy sector, increase the efficiency of foreign economic activity of fuel and energy organizations and, ultimately, will significantly increase the level of energy security of the planet for the benefit of all the countries and peoples.
