Association For Strategic Culture and Research Foundation

Moscow is again hosting heads of the leading energy companies and corporations, authoritative experts and specialists, in order for them to jointly discuss the current state of and prospects for the global energy sector and its most important trends, and, of course, to suggest mechanisms for the long-term stabilisation of the energy market, which is of particular importance amid the current challenges.

The energy sector has felt the full impact of the crisis caused by the COVID-19 pandemic, when forced restrictions, business slowdown, production stoppages and transport disruptions all over the world dramatically reduced the demand for energy resources. The people present in this room know this quite well because these problems have affected their companies.

Last year’s results show that global primary energy consumption declined by 4.7 percent, which was the heaviest shock for the sector over the past 70 years. Prices have been adjusted to the falling demand. Last year, for example, the price of natural gas in Europe dropped by 60 percent to $113 per thousand cubic metres against $159 in 2019 and $282 in 2018.

The situation in the oil sector was altogether unique. None of you or us could even believe it. Nobody could even imagine that last spring oil would record negative prices for the first time in history. It became more expensive to store oil than to purchase it. This situation is simply unique.

The OPEC+ agreements played a key role in stabilising the oil market at that time. The OPEC and non-OPEC countries managed to develop efficient cooperation, ensure the stability of the oil sector during the pandemic and, most importantly, create conditions for investment activity. If investment in new deposits and future oil production had been suspended, the market would have quickly faced a huge, critical shortage. We are seeing some of these things today.

Now at the stage of global economic recovery and growing oil demand, our countries are also stabilising the market and its price quotes. They are promptly increasing oil production and shipping.

Russia is a responsible OPEC+ member. We assume the agreement will remain valid until the end of next year, 2022.

At the same time, the current results show that cooperation between our countries has every opportunity for further expansion. It may embrace additional areas, including the development of new eco-friendly technology for producing and processing hydrocarbons, and an exchange of the best practices for measuring and reducing the carbon footprint.

As distinct from oil, the situation in the gas market, primarily in Europe, does not yet look balanced and predictable. The main reason for this is that not everything in this market depends on producers: gas consumers are playing an equal and even bigger role.

I am going to say a few things that may sound like obvious and commonplace truths in this professional audience, but various persons in charge have lately chosen to forget about them or keep silent about them, replacing an analysis of the situation with empty political slogans.

Here is what I am talking about. Over the past 10 years, the share of renewable energy sources in the European energy balance has skyrocketed, which, on the face of it, appears to be a good thing – and they are now playing a significant and noticeable part. What can you say? It is a good thing any way you look at it.

However, this sector is notorious for erratic power generation. It requires large reserve capacities. In the event of major generation failures, primarily due to bad weather, this reserve is simply not large enough to cover the demand.

This is exactly what happened this year, when, due to a decrease in wind farm generation, there was a shortage of electricity on the European market. Prices soared, which triggered a spike in natural gas prices on the spot market.

Importantly, gas consumption is seasonal. Its reserves are traditionally replenished in the summer to meet the winter demand. However, this year, even after a cold winter in Europe, many countries chose not to do so, relying on spot gas supplies and the “invisible hand” of the market, but a spike in demand has sent prices even higher.

To reiterate, the rise in natural gas prices in Europe stemmed from shortages of electricity, not the other way around. There is no need to lay the blame on other people, which is what some of our partners are trying to do. Occasionally, you get stunned by what is being said on this account, as if these people do not know the numbers – I will say more about this later – as if they do not see the reality and are just covering up their own mistakes. Systemic flaws have been gradually introduced in European energy over the past decade, which led to a major market crisis in Europe.

As a reminder, when nuclear and natural gas-based generation were the leading energy sources, there were no such crises, and there were no grounds for them.

Thankfully, problems of this kind have no place in Russia. A long-term approach to the fuel and energy complex allows us to set Europe’s lowest residential and industrial electricity rates. To put that into perspective, the average price of electricity in Russia is about 20 euros per megawatt-hour; in Lithuania it is 256 euros, 300 euros in Germany and France, and 320 euros in the UK.

The growth of rates in our country is limited and is strictly regulated, which is not the case in European countries, where, due to an increase in the cost of power generation, utilities bills have been climbing almost every month recently. I have these numbers on my fact sheet, but I am not going to bore you with the details now.

I would like to say a few more words about the gas market situation. You often hear that high listings are good for raw materials producers allowing them to see super-profits without making any visible effort.

However, those defending this position do not understand what they are talking about; they prefer not to look ahead, and are slow to take into consideration the long-term implications. But these implications are clear, including for the industry: the dramatic, repeated surge in energy prices influences business, the economy, and the utilities sector during periods of drastically increased costs; many businesses are forced to cut energy consumption and reduce production volumes. This means that high prices can ultimately have negative consequences for everyone, including producers. Russian producers, including those in this room, are well aware of this.

Stability and predictability are important in any market. Russia fulfils its contractual obligations to our partners in full, including its partners in Europe, ensuring guaranteed, uninterrupted gas supplies in this direction. We are seeing conditions that will result in record high volumes of gas distribution to the global market by year end. Moreover, we are always willing to meet our partners halfway and are ready to discuss additional actions.

We consistently work to strengthen the energy security of the entire European continent. Major infrastructural projects – Turk Stream, Balkan Stream, Nord Stream 1 and Nord Stream 2 – are being implemented jointly with European companies, our partners and friends. Their task is to ensure, for years ahead, the stability and predictability of gas availability in the amounts needed by the European countries.

I would like to add that the implementation of these projects is leading to a considerable – by several orders of magnitude – reduction in greenhouse gas emission. Just for your information: the carbon intensity of Russian natural gas distribution along the Nord Stream 1 pipeline is 66.7 percent lower than that of US LNG. I am saying this just to compare.

At the same time, we now need to come to terms regarding the global mechanisms to balance the energy market. We should launch a meaningful, substantive dialogue between energy producers and consumers on this issue, a dialogue free of political bias and imposed clichés. We are talking about extremely important matters, which directly influence the functioning of business and organizations, as well as the wellbeing of households and millions of people both in Russia and in our partner countries, including those in Europe. I am confident that this dialogue can help find solutions that take into account market trends and the interests of all sides.

Of course, climate change is among the main factors determining the long-term development of the global energy industry. Russia fully understands the serious nature of the challenges in this area. We see and understand the threats and risks for all people, the whole world, as was just said, and for this country. In Russia, the average annual temperatures are increasing more than 2.5 times faster than overall global temperatures. In the past ten years, they have increased by almost half a degree, and Arctic temperatures are rising even more rapidly.

Russia supports international initiatives to preserve the climate and is fulfilling its obligations. In the next few decades, we are set to ensure that the accumulated volume of net greenhouse gas emissions will be even lower than in the European Union. Colleagues, these are not empty words but a guide to action.

We are already implementing a number of projects that are yielding and will yield results for many years to come. Russian oil and gas companies are flaring less associated gas. I would like to repeat once again that I have recently discussed this matter at a meeting: we are showing better indicators than anywhere else in the world. We are launching projects to trap carbon dioxide, and we are converting to higher technical standards.

Large projects are underway to modernise the power-generating industry and the housing and utilities sector. Of course, we will continue to support these initiatives in the future.

Russia’s tremendous potential for boosting energy efficiency accounts for an estimated one-third of current energy consumption. In this respect, I have asked the Government of Russia to update the state programme on energy efficiency and energy saving; we recently discussed this matter at a government meeting. We need to extend this programme until 2035, and we will do so. We have to work more actively in all sectors of the national economy, including industry, agriculture, transport, and the housing and utilities sector, to achieve our ambitious goals and reduce the GDP’s energy needs and intensity, as well as the negative environmental impact.

I would like to add that Russia will take practical action to ensure the carbon neutrality of its economy, and we have set a specific benchmark: no later than 2060.

I have said it before and I will say it again: climate conservation is a common goal for all humankind. Much work lies ahead of us. Undoubtedly, it is hard and demanding work involving a wide range of specialists, corporate executives, public associations and governments.

At the same time, the climate agenda must not be ‘weaponised’ to promote the economic or political interests of individual countries. We all need to work to put together common to all of us, clear, fair and transparent climate regulation rules to be applied globally. They must rely on a genuine concern for the climate and an understanding of each country’s role and contribution based on mutually acceptable models for accounting and monitoring greenhouse gas emissions and greenhouse gas absorption.

It is critically important to stick to technological neutrality principles, that is, to take an impartial inventory of the carbon footprint created by different types of energy generation. Few people are aware of this, but the nuclear energy’s carbon footprint is lower than that of solar energy. I think even the specialists here are, perhaps, hearing this for the first time.

Russia has unique practical expertise in the development and extended operation of nuclear technology, including fast neutron reactors, which will eventually make it possible to convert to a closed fuel cycle and to make wider use of small nuclear power plants and small reactors. By the way, a low-power floating nuclear power plant is already operating in Chukotka.

Building on the achievements in this area, we will continue to export nuclear technology and thereby contribute to de-carbonising the global energy sector.

Of course, climate projects, including the ones that use natural ecosystems, should play a key role in overcoming this global challenge in the form of accumulated greenhouse gases. Russia can offer truly unique solutions in this regard. The effectiveness of these projects in our country is significantly higher than the effectiveness of investing in the development of renewable energy in Europe.

In order to implement these initiatives and to create a better business environment, it is necessary to channel the investment flow into projects offering the highest return. Of course, when implementing climate projects, there can be no place for sanctions or other restrictive measures that are usually politically motivated.

The international situation is telling us that climate issues must be tackled in close coordination with the plans for expanding economic sectors, primarily, the energy sector.

According to expert estimates, in the next 25 years, the share of hydrocarbons in the global energy balance may decline from the current 80–85 percent to 60–65 percent. Importantly, the role of oil and coal will go down – my Russian colleagues in this hall are well aware of this and proceed from this – whereas the role of natural gas as the cleanest “transitional” fuel will go up.

This applies to developing the production of liquefied natural gas (LNG). We plan to increase its production in Russia to 140 million tonnes a year by 2035. We also hope to strengthen our positions in this dynamic market and occupy about 20 percent of it owing to low production costs and competitive logistics. I would like to note that LNG is already the main cargo in the Northern Sea Route.

In addition, by 2035, we expect to increase our share in global petrochemical supplies from the current 1 percent to 7 percent. I will add that in the next few decades, hydrogen and ammonia will strengthen their positions in the global power industry, as we also know well. They will be used as raw materials, fuel and energy sources.

Russia has scientific, resource and logistical opportunities to capture a substantial share in these promising markets. I already spoke about this at the recent economic forum in Vladivostok and urged our colleagues from the Asia-Pacific Region to cooperate in this area. I hope our partners from Europe, the United States and other countries will also respond to this proposal.

The consequences of the pandemic and the shakeup of the regional energy markets have shown once again how important it is to ensure the stable, confident performance of the fuel-and-energy sector for the modern world and to supply consumers with affordable energy with minimal impact on the environment.

All participants in the market – both producers and consumers – must take balanced and responsible action to ensure the world’s energy and environmental security. They should tailor these actions to the long-term perspective in the interests of the sustainable development of our countries and the prosperity of our people.

Russia is ready for such constructive, trustworthy and close cooperation, including a direct dialogue with all partners in Europe and with the European Commission, with a view to searching for common solutions on stabilising the energy markets and countering climate change. I am confident that we will definitely achieve results in resolving these difficult issues.

The President of the Russian Federation. He took part in the plenary session of the Russian Energy Week International Forum held on October 13-15, in Moscow. The transcript taken from official website – KremlinRu