IEEJ：June 2021 © IEEJ2021

22

2021
June

Dr. Tatiana Mitrova, Research Director
Energy Centre, Moscow School of Management SKOLKOVO

Russian Energy Sector

IEEJ：June 2021 © IEEJ2021• General overview• Oil&gas• Nuclear• Energy transition in Russia (RES&hydrogen)• Q&A
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IEEJ：June 2021 © IEEJ2021

In 1990-ies Russian economy and energy sector
went through an incredible decline
Dynamics of GDP, industry and energy sector in Russia, %%120

Oil production110
Gas production

100

Coal production

90
80

Electricity

70

Primary energy production

60

GDP

50

Source: Global and Russian Energy Outlook up to 2040. ERI RAS-AC. 2014.

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

40

Industrial output

3

3

IEEJ：June 2021 © IEEJ2021

Russia`s energy sector on the global map
Russia`s share in 2018
Oil and gas
condensate
Production

Mln tonnes

In theworld

Gas
Production

BCM

In the
world

USA
USA
RussiaRussia
Iran
Iran
Qatar
CanadaQatar
CanadaIn the
world

China
India
USA
Australia
Indonesia
RussiaCoal
Production

Mln tonnes

Electricity generation

bln Kw-h

USA
RussiaKSA
CanadaIraq

In the
world

China
USA
India
RussiaJapan

44

IEEJ：June 2021 © IEEJ2021

The role of oil&gas revenues for the Russian economy
is still extremely highShares of energy sector in Russian GDP, exports and budget

Source: Global and Russian Energy Outlook up to 2040

5

IEEJ：June 2021 © IEEJ2021

Energy transition globally and challenges for theRussian oil&gas exports
Russia’s energy resource export outlook

growth for fossil fuels, thus resulting in lower
than expected export volumes forhydrocarbons.

 CBAM introduction as a part of the carbon
taxation mechanism might become a longterm source of instability for economies
relying on fossil fuels.

Mln toe Growing share of RES limits the demand Banks and financial institutions are assessing
climate risks and becoming more reluctant toprovide financing for fossil fuel projects.

Source: Russian Academy of Science ERI, Moscow School of Management SKOLKOVO, HSE

6

IEEJ：June 2021 © IEEJ2021

After high growth rates in 2010-ies, now Russia`s GDP
expectations are revised downwards to nearly flat
Russian GDP annual growth rates, % (1995-2020)

7

IEEJ：June 2021 © IEEJ2021+20-86%

Energy Strategy-2035:

coal export growth (planned)

focus on energy exports increase(especially to Asian Pacific markets) by 15-46% by 2035 from the level of
2018+47-98%natural gas + LNG export growth(planned)+80-110%

Hydrogen export goals:

0,2 MT
2 MT

by 2024
by 2035(=0,7% of total Russian energy exports)(H2 ‘origin’ is not mentioned, as well as domestic H2
market KPIs)

gasoline + diesel export growth(planned)+85%

growth in Asia-Pacific market share of
total Russian energy exports (planned)

Source: Energy Strategy of Russia (adopted in J une 2020)
8

IEEJ：June 2021 © IEEJ2021

Primary energy consumption and energy mix unlikely tochange significantly before 2040
PRIMARY ENERGY CONSUMPTION BY SECTORPRIMARY ENERGY CONSUMPTION BY SOURCE

Natural gas remains themain energy source – andthe most affordable one
Wind & solar electricity
will stand for 2-2,5% inelectricity mix by 2035 –no incentives for storage

Source: ERIRAS-SKOLKOVO Energy Outlook (2019)9

IEEJ：June 2021 © IEEJ2021

Russian climate policy:
focus on maintaining of achieved
GHG emission reduction level-30%

by 2030-50%

National Determined Contributionof Russia (including LULUCF
compared to 1990)

Anthropogenic GHG emissions targets in
Russia are planned at the same level by
2050 as in 2017 (best case)
Anthropogenic GHG emissions (including and excluding LULUCF) in Russia from 1990
until 2017 (current data) and from 2017 until 2050 (outlook according to the Low
Carbon Development Strategy draft).

GHG emissions level alreadyachieved in 2017 (including LULUCF
compared to 1990)

M ost likely, long-term emission goals (by 2030 & 50)
could be achieved without active efforts
Energy efficiency improvement is considered as the main
tool of GHG emissions management
Carbon pricing is not considered in strategy so far
Significant changes in energy mix are not in the agenda

Source: SKOLKOVO Energy Centre analysis

10

IEEJ：June 2021 © IEEJ2021

GHG emission regulation elements
Element

Document

Document status

Long-term goal of
Russian Federation
GHG emissions

Decree of the President
666 dated Nov. 4, 2020

Approved. The national target for emissions offrom the level of 1990 by 2030 has been set.

The strategy of social Long-term development
and economic
strategy of the RussianFederation with low GHG
development
emissions by 2050

Introduction of thenational regulation
GHG emissions

Federal Law “On Limiting
Emissions”

In progress. The draft Strategy was submitted by
Ministry of Economic Development to thein March 2020. Expected to be approved in 2021.

In progress. The draft law includes vocabulary,obligation to monitor GHG emissions andfor voluntary climate projects. Expected to be
in 2021.

Source: SKOLKOVO Energy Centre analysis
1111

IEEJ：June 2021 © IEEJ2021

Sakhalin carbon regulation
experiment Is considered in addition to new federal law “On

Limiting GHG Emissions” – in the form of separate
federal law draft.

 Status: discussions. Adoption is expected in 2021.
 Goals: achieving carbon neutrality by 2025-2026 in

Sakhalin Region and development of regulatory
mechanisms for GHG emissions and sinks.

 All companies which emit >50,000 tCO2e per year

(2022-2023) and >20,000 tCO2e per year (20232026) will participate in the experiment.

 Carbon pricing is discussed (about US$2/tCO2).
 GHG emissions reduction potential is 33,2% by 2026
(from the level of 2019).

Source: SKOLKOVO Energy Centre analysis

12

IEEJ：June 2021 © IEEJ2021• General overview• Oil&gas• Nuclear• Energy transition in Russia (RES&hydrogen)• Q&A

IEEJ：June 2021 © IEEJ2021

Oil production structure in Russia
600
500

mt

400
300
200
100
0

2015

2016

Unconventional

2017
EOR

Source: CDU TEC, Energy Centre estimation

NGL

2018

2019

Offshore

Conventional

2020

OPEC + deal becamea significant
limitation for theRussian oil
production growth
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IEEJ：June 2021 © IEEJ2021

Russian oil production is expected to stagnate due to the OPEC+
deal and natural depletion
The Ministry ofEnergy target for
Russian oil
production

Russian oil production outlook
12
10

OPEC+
committments

Mb/d

8
6
4
2
0

2018

2019

2020

Brownfields

Source: Energy Center SKOLKOVO

2021

2022

2023

Condensate

2024

2025

2026

2027

Approved greenfields

2028

2029

2030

Target15

IEEJ：June 2021 © IEEJ2021

In the long-term importance of unconventional oil will
increase
OIL PRODUCTION BY TYPEPROVED OIL RESERVES IN RUSSIA

Other unconv.
oil
24 mt
35%
Conventional oil
514 mtUnconv.
33 mt

Shale oil
9 mt

Source: The Ministry of Energy of the Russian Federation, company data, SKOLKOVO Energy
Centre!

Unconv.
65%

Source: The Ministry of Energy of the Russian Federation, State Reserves Committee

Development of unconventional reserves associated with stimulating the creation of technologies and equipment(in particular for hydraulic fracturing)16

Maintaining oil production in
Russia will require newtechnologies and tax incentives
IEEJ：June 2021 © IEEJ2021

Oil production in Russia by type, thousand tonnes
600,000

By 2030:
 500 MT – oil production
 250 MT – brownfields
 50% of production due to new technologies

500,000
400,000

250 mt300,000
Exploration
EOR

200,000

Greenfields
Other unconventional oil

100,000

Shale oil
0
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030

Offshore
Brownfields

Source: The Ministry of Energy of the Russian Federation, company data, SKOLKOVO Energy Centre Unconventional oil and EOR unprofitablewithout tax breaks!

To maintain the volume of oil
production it is necessary toreallocate the rent between thestate and oil companies

IEEJ：June 2021 © IEEJ2021

Recent trends in the Russian oil sector
Oil production by company
100%

INK

90%

Russneft

80%

Tatneft70%

Surgutneftegas

60%

Lukoil50%

Others40%

Bashneft

30%

Rosneft (excl
Slavneft)
Slavneft

20%
10%
0%

2014

2015

2016

2017

Source: Energy Center SKOLKOVO

2018

Gasprom Neft (excl
Slavneft) Consolidation under the state control(informal since 2020)

 Deterioration of the resource base(recent analyses of the Accounts
Chamber of the Russian Federation)

 High interest to the Arctic projects
 Sanctions and import replacement
 Digitalization speeded up by COVID-19
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Russian oil companies went
planning for 20-30% CAPEX
reductions
 Rosneft 25% CAPEX reduction in 2020 (compared tothe initial plan), mainly in the upstream.

 Gazprom Neft not more than 20% CAPEX reduction.
 LUKOIL ~20% Capex cut.
 Tatneft redirects investments in 2020 from upstream
to refineries and petrochemicals.

 SIBUR 30% CAPEX reduction (mainly due to thepostponement of smaller projects).

IEEJ：June 2021 © IEEJ2021

However, Rosneft has launched Vostok oil project The growth potential of Vostok Oilproduction:

 in 2024 - 25 MT
 in 2027 - 50 MT
 by 2030 - 115 MT
Breakeven prices: $35-$40 per bbl
Total investment in the project:
10 trillion rubles
20

IEEJ：June 2021 © IEEJ2021

Russian natural gas and LNG export trends
Russian pipeline and LNG exports

 Predominantly a pipeline gas supplier150

with only one operating large-scale LNG
plant on Sakhalin Island until 2017,
Russia started paying more attention to
LNG after the successful launch of Yamal
LNG plant in Dec 2017.

100

 The share of LNG in Russia’s total gas

250
200

exports reached more than 15% in 2019.

50
0 It is forecast to be even higher in 2020,
2011

2012

2013

2014
LNG

2015

2016

2017

2018

2019

Pipeline gas

Source: Russia’s Energy M inistry, Customs, author’s estimates for 2020

2020

since pipeline gas exports to Europe
have been hit by COVID-19 pandemic
and consequent demand drop…

21

IEEJ：June 2021 © IEEJ2021

Russia’s export pipelines to Europe almost built, plansfor new pipelines to China
 Nord-Stream 2 saga almost finished. First string
completed, less than 100 km left for the second line.

 TurkStream was utilized by 73% in Q1 2021, utilization

Power of Siberia deliveries growth
40.0

38.0

First 5 bcm
from Kovykta
in 202335.0

25 bcm from
Chayanda + 25
bcm from
Kovykta

30.0
25.0

25.0

20.0

Plateau of 25
bcm onChayanda

15.0
10.0

10.0

0.0

0.3
2019

2020

planned for 2021.

 Amur GPP 77% ready; once launched will allow for Power of Siberia 2 discussion is ongoing. The plannedroute will go through Krasnoyarsk, Ulaanbaatar to finish
in Central China. If built gas from Western Siberia will be
exported not only westwards but also eastwards.

 Power of Siberia 2 will have a capacity of up to 50 bcma.

4.6

5.0

 Power of Siberia increases export volumes; 8.5 bcm‘cleaner’ composition of gas exported to China.

21.0

16.0

will grow once European section is fully completed.

2021

2022
Volumes (bcm)

2023

2024

2025

 Power of Siberia 2 feasibility study is ongoing.

Gazoprovod Soyuz Vostok company registered in
Mongolia.
22

IEEJ：June 2021 © IEEJ2021

Russian gas production will be driven by LNG plans
Russian LNG nameplate capacity (announced projects)
100
90
80
70
60
50
40
30
20
10
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Sakhalin 2 (+3rd train in 2024)
Yamal LNG
Vysotsk LNG
CS Portovaya
Arctic LNG 2
Obskiy LNG
Ust Luga LNG
Far Eastern LNG (Rosneft/ExxonMobil)
Arctic LNG 1

Source: SKOLKOVO Energy Center By early 2030s, Russia can increase its
LNG export capacity up to 100 MTPA atprojects that have already beenannounced.

 Novatek is expected to be the dominant

supplier with 70 MT production
foreseen in the 2030 corporate strategy.
Arctic LNG 2 39% ready as of Q1 2021.

 At the same time, the Russian state

Energy Strategy 2035 envisages 80-140
MT LNG production by 2035…

 COVID-19 pandemic and the market

downfall will delay the process of new
FIDs but long-term commitments may
well remain in place.
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IEEJ：June 2021 © IEEJ2021

Gas exports transformation. Discussion has started.
 First carbon-neutral LNG cargoes already exported from Russia (carbon
offsets were used).

 Novatek is studying the possibilities to produce ammonia and hydrogen,with carbon capture and storage (CCS) technology. The company plans touse hydrogen as a fuel mix with natural gas. Works with Baker Hughes andSiemens to achieve this goal.

 Two fields supporting the proposed Obskiy LNG plant are already atadvanced stages, Novatek looks presently at different opportunities tomonetize this resource base, particularly a gas chemistry project at Sabetta
to produce “blue” ammonia. Novatek may internally decide to move
forward with this project in 2021 with a potential FID decision in 2022.

 Gazprom has proposed a hydrogen production facility in Germany.
Company plans to accumulate own technological competencies (methane
pyrolysis) in the field of hydrogen production.

 Russia’s gas export strategy envisages 2 MT of H2 exports in 2035.

24

IEEJ：June 2021 © IEEJ2021

Russian oil and gas companies’ long-term targets
for GHG emissions reduction
TargetYear

Company

TargetGazprom
Gazprom Neft
Zarubezhneft
Irkutsk Oil Company
LUKOILSpecific GHG emissions from natural gas transportation, total СО2e per billion m3 per km
2024
No published GHG emissions reduction targets
No published GHG emissions reduction targets
No published GHG emissions reduction targets
Official long-term targets are being expanded. The company is reportedly targeting carbon neutrality by 2050.
GHG emissions per unit of production in the Upstream segment
2030
Methane emissions per unit of production in the Production, Processing and LNG segments
2030
GHG emissions per ton of LNG produced
2030
Carbon intensity in upstream sector
2035
Methane emissions intensity2035
No published GHG emissions reduction targets
No published GHG emissions reduction targets
Specific GHG emissions from gas processing
2025
Specific GHG emissions from petrochemistry2025
No published GHG emissions reduction targets
2025
Carbon intensity
2030*strategic target: carbon neutrality by 2050

NOVATEK
Rosneft
Russneft
Sakhalin Energy
Sibur
Surgutneftegaz
Tatneft

Source: Energy Center, Moscow School of Management SKOLKOVO.

Base
Year

Reduction, %

2018

3.8%

2019
2019
2019
2019

6%
4%
5%
30%
0.25%

2018
2018

5%
15%

2019
2019

10%
20%
25

IEEJ：June 2021 © IEEJ2021• General overview• Oil&gas• Nuclear• Energy transition in Russia (RES&hydrogen)• Q&A

IEEJ：June 2021 © IEEJ2021

Russia remains committed to nuclear energy
Russian operable nuclear capacity

27

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Nuclear plants in Russia

28

IEEJ：June 2021 © IEEJ2021• General overview• Oil&gas• Nuclear• Energy transition in Russia (RES&hydrogen)• Q&A

IEEJ：June 2021 © IEEJ2021

Decarbonization is not high on the national agenda
 Carbon content is lessthan in USA, China,
Australia, India, Japan,
Germany…

 Carbon regulation is
only beginning
evolve.

to Skepticism

prevails
among stakeholders.

Source: Staffell et all, (2018). Energy Revolution: Global Outlook

30

IEEJ：June 2021 © IEEJ2021

Current status of the main elements of the GHG
emission regulation system
Element of the of GHG emission
regulation
Long-term goal of the RussianFederation for GHG emissions.

The strategy of social and economic
development

Introduction of the national
regulation on GHG emissions.

Document

Document status

Approved.
Decree of the President of the Russian
The national target for emissions of 70% from the level of 1990 by 2030 has
Federation No. 666 dated November 4,
been set.
2020
Therewith, in 2017, emissions amounted to 50.7% of the level of 1990.
In progress.
Long-term development strategy of the The draft Strategy was submitted by the Ministry of Economic Development
Russianto the Government in March 2020. Obviously, this Strategy will be adjusted
Federations with low GHG emissions by before approval, taking into account the Presidential Decree No. 666 dated
November 4, 2020.
2050
Expected to be approved in 2021.
In progress.
The draft law has been submitted to the State Duma.
It conceptually corresponds to Presidential Decree No. 666 dated November
Federal Law “On Limiting GHG
4, 2020. It includes vocabulary, obligation to monitor GHG emissions andEmissions”
mechanism for voluntary climate projects. No regulation is introduced assuch, since it is not required to achieve the national goal by 2030.
Expected to be approved in 2021.

Source: Energy Center, Moscow School of Management SKOLKOVO.

31

IEEJ：June 2021 © IEEJ2021

What could be Russia`s stakes in the energy transition?

Energy efficiency
Renewables (solar, wind, tidal, biomass – biomethane, pellets, small hydro),including potential export projects (Arctic wind, Yakutia solar + DC transmission)Nuclear (next generation reactors on fast neutrons)Natural gas replacing oil in transportation (maritime, road), LNG leadershipHydrogen (blue, green, yellow, turquoise)CCUS (including CO2-EOR)
Offsets (including reforestation/ natural sinks investment projects)
32

IEEJ：June 2021 © IEEJ2021

Energy intensity is still high with no sustainable decline
GDP energy intensity in Russia (2007=100%)

 Initial energy efficiency target set
in 2008 was to reach 40% decline
in GDP energy intensity by 2020.

 Substantial

federalbudgetsubsidies were allocated but very
limited change occurred.

 Initial target was significantly
Energy intensity level of developed countries
Potential energy intensity level of Russia taking into account climate
and economy structure
Energy intensity in Russia in 2007
Actual energy intensity in Russia
Planned energy intensity in Russia

Source: Igor Bashmakov, 2018

scaled down to 9.41% and federal
funding discontinued.

 GDP energy intensity in Russia in2017 is only 10% lower 2007
level.
33

IEEJ：June 2021 © IEEJ2021

Mtoe

Russia has huge energy efficiency potential:
energy consumption could be decreased by 30%
700

Primary energy savings potential in Russia basedon comparable OECD efficiencies

600

30%

500

Gas
Other fuels400

Main obstacles for energy
efficiency in Russia:

 Administrative barriers and lack ofregulation, granting guaranties of
the investment return Lack of cheap long-term loans for300

energy-efficient projects that areaccessible to smaller market
participants

200
100
0
Russian primaryenergy demand
Source: WEO 2011. IEA.

 Low prices of energy
BUT THE PRIZE IS HUGE!
34

IEEJ：June 2021 © IEEJ2021

First wave of renewable support was successful but
continuation is not clear
 Initial target for REN’s share in generation was

set in 2009 - 4.5% by 2020 (later shifted to2024).

 Support mechanism launched in May of 2013
(similar to Capacity supply agreements usedearlier for thermal plants).

 5.5 GW of renewable capacity will besupported under this program up to 2024 (61%wind, 32% solar and 7% small hydro).

 96% of this quota has been already auctioned

with Rosatom, Fortum and Enel taking majority
of contracts.

 Average capex dropped 2-2.5 times while
Source: System Operator of UES of Russia

minimum bids in 2018 were below $1K per kW.

35

IEEJ：June 2021 © IEEJ2021

Distributed generation is an important part of theRussian power system …
Capacity and number of distributed generation plants in Russia

Capacity of distributed generation in Russia can be estimated at about 23-24 GW (~9% of total capacity)
Source: Rosstat, McKinsey & Company

36

IEEJ：June 2021 © IEEJ2021… with significant potential for development
DER potential in UPS for the period 2020-2035, GW

Source: SKOLKOVO Energy Center

37

IEEJ：June 2021 © IEEJ2021

Russian long-term energy plan – still “Business as
Usual”
Electricity generationin centrally supplied zone

Installed capacity dynamics
in centrally supplied zone (WM)

Decommission

Capacity additions

Thermal power plants

Nuclear power plants

Thermal power plants

Nuclear power plants

Hydro power plants

Renewable power plants

Hydro power plants

Renewable power plants

Source: Power Facility Arrangement Master Plan of Russia up to 2035

38

IEEJ：June 2021 © IEEJ2021

Commonincentives forhydrogendevelopmenton the policy
level

Climate &decarbonisation

Energyaffordability/
diversificationof supply

H2
Economicdevelopment,
export oftechnologies andH2Wind & solar
energy storage

Air pollution
control

39

IEEJ：June 2021 © IEEJ2021

Future hydrogen & ammonia production sites in Russia:
past & ongoing studies

Ust-Kutsky District(Irkutsk)

Source: SKOLKOVO Energy Centre

40

IEEJ：June 2021 © IEEJ2021

Russian academia and industry stakeholders could bring
added value to H2 strategy towards economy growth

41

IEEJ：June 2021 © IEEJ2021

Commonincentives forhydrogendevelopment on
the policy level

Climate &decarbonisation

Energyaffordability/
diversificationof supply

H2
Economicdevelopment,
export oftechnologies andH2Wind & solar
energy storage

Air pollution
control

42

IEEJ：June 2021 © IEEJ2021

Potential domestic market: remote areas energy supply

Source: SKOLKOVO Energy Centre analysis based on the Ministry of Energy
data for 2018. Figures show annual electricity generation in remote areas.
43

IEEJ：June 2021 © IEEJ2021

Only threeincentives forhydrogen are inplace in Russia

Hydrogen Development in Russia

Climate &decarbonisation

Energyaffordability/
diversificationof supply

H2
Economicdevelopment,
export oftechnologies andH2Wind & solar
energy storage

Air pollution
control

44

IEEJ：June 2021 © IEEJ2021

H2 action plan: milestones
To be published• Hydrogen energy development master-plan• Interdepartmental working group led by the
Deputy Prime M inister• M ethodology for assessing the • M ethodology for thelife cycle of hydrogenclassification of hydrogen by
production methods
GHG emissions level

Source: SKOLKOVO Energy
Centre analysis based on
Hydrogen Energy Action
Plan (adopted in October
2020)• Registry of Russian hydrogen technologies

2021

Q1

Q2

Q3

Q4

2022

• measures of state support • technical regulation
for pilots• measures to support
domestic H2 demand• hydrogen certification• proposals for clusters,
landfills, engineering
centers• hydrogen export support
measures• international
cooperation

Intergovernmental closed discussions

2023

2024

• low carbon hydrogen• tests of gas turbine on
production (particularly inmethane-hydrogenthe gas industry)fuel• pilot electrolyzer on
nuclear power plant site

• hydrogen train
prototype

M ajor target pilots
45

IEEJ：June 2021 © IEEJ2021

Questions forforthcoming RussianH2 strategy• Hydrogen export goals: how to make exportoriented projects feasible, if domestic H2
demand is limited up to zero?
• National CO2 pricing – is this necessary to boost
domestic hydrogen demand?
• Air pollution standards - will tightening them
help the FCEV deployment and how will it
affect outdated car owners?
• ‘Local content’ requirements for imported
technologies: reaching hydrogen export goals VS
boosting Russian-based vendors• Japan, Korea Rep., China declared carbon
neutrality targets - does Russia's energy export
strategy take this into account? Can hydrogen
export serve as response to this threat and how
to ensure its global competitiveness?
46

IEEJ：June 2021 © IEEJ2021

Key stakeholders in hydrogen

47

IEEJ：June 2021 © IEEJ2021

Q&A: ready to answer your questions!

Contact: report@tky.ieej.or.jp