2021 June Dr. Tatiana Mitrova, Research Director Energy Centre, Moscow School of Management SKOLKOVO Russian  Energy  Sector • General overview • Oil&gas • Nuclear • Energy transition in Russia (RES&hydrogen) • Q&A Source: Global and Russian Energy Outlook up to 2040. ERI RAS-AC. 2014.
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Shares of energy sector in Russian GDP, exports and budget
◾ Growing share of RES limits the demand growth for fossil fuels, thus resulting in lower for expected export   volumes than hydrocarbons. ■ CBAM introduction as a part of the carbon taxation mechanism might become a long- term source of instability for economies relying on fossil fuels. ◾ Banks and financial institutions are assessing climate risks and becoming more reluctant to provide financing for fossil fuel projects.
Russian GDP annual growth rates, % (1995-2020) 7 Energy Strategy-2035: focus on energy exports increase (especially to Asian Pacific markets) - by 15-46% by 2035 from the level of 2018 +20-86% +47-98% natural gas + LNG export growth (planned) Hydrogen export goals: 0,2 MT    by 2024 2 MT by 2035 (=0,7% of total Russian energy exports) (H2 ‘origin’ is not mentioned, as well as domestic H2 market KPIs) +80-110% gasoline + diesel export growth (planned) growth in Asia-Pacific market share of total Russian energy exports (planned) Source: Energy Strategy of Russia (adopted in June 2020) 8
primary energy consumption by sector ■ Gas fuel ■ Oil and other liquid fuel ■ Coal and other solid fuel ary energy consumption by source ■ Renewables ■ Hydro power ■ Nuclear Natural gas remains the main energy source - and the most affordable one Wind & solar electricity will stand for 2-2,5% in electricity mix by 2035 - no incentives for storage Russian climate policy: focus on maintaining of achieved GHG emission reduction level -30% by 2030 National Determined Contribution of Russia (including LULUCF compared to 1990) -50% GHG emissions level already achieved 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 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). Source: SKOLKOVO Energy Centre analysis

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 (2023- 2026) 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 • General overview • Oil&gas • Nuclear • Energy transition in Russia (RES&hydrogen) • Q&A
OPEC + deal became a significant limitation for the Russian oil production_growth
Russian oil production outlook The Ministry of Energy target for Brownfields Condensate Approved greenfields — — Target
Source: The Ministry of Energy of the Russian Federation,  company data, SKOLKOVO Energy Centre Source: The Ministry of Energy of the Russian Federation, State Reserves Committee a Development of unconventional reserves associated with stimulating the creation of technologies and equipment (in particular for hydraulic fracturing) IEEJ  June 2021  © IEEJ 2021 Maintaining oil production in
Oil production in Russia by type, thousand tonnes Source: The Ministry of Energy of the Russian Federation,  company data, SKOLKOVO Energy Centre By 2030: 500 MT – oil production ✓ 250 MT – brownfields 50% of production due to new technologies ✓ Unconventional oil and EOR  unprofitable without tax breaks To maintain the volume of oil production it is necessary to reallocate the rent between the state and oil companies
■ Consolidation under the state control (informal since 2020)
Source: Energy Center SKOLKOVO
■ Rosneft 25% CAPEX reduction in 2020 (compared to the 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 the postponement of smaller projects).
◾ The   growth   potential   of Vostok Oil production: ◾  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
Russian pipeline and LNG exports ■ LNG   ■ Pipeline gas ◾ Predominantly a pipeline gas supplier 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. ◾ The share of LNG in Russia's total gas exports reached more than 15% in 2019. ◾ It is forecast to be even higher in 2020, since pipeline gas exports to Europe have been hit by COVID-19 pandemic and consequent demand drop… Source: Russia's Energy M inistry, Customs, author's estimates for 2020
■ 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 will grow once European section is fully completed. Power of Siberia increases export volumes; 8.5 bcm planned for 2021. Amur GPP 77% ready; once launched will allow for ‘cleaner’ composition of gas exported to China. Power of Siberia 2 discussion is ongoing. The planned route 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. Siberia 2 feasibility study is ongoing. of Power Vostok company registered Gazoprovod in Soyuz Mongolia. 22
Russian LNG nameplate capacity (announced projects) ◾ By early 2030s, Russia can increase its LNG export capacity up to 100 MTPA at projects that have already been announced. ◾ 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.
◾ 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 to use hydrogen as a fuel mix with natural gas. Works with Baker Hughes and Siemens to achieve this goal. ◾ Two fields supporting the proposed Obskiy LNG plant are already at advanced stages, Novatek looks presently at different opportunities to monetize 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.
Source: Energy Center, Moscow School of Management SKOLKOVO. • General overview • Oil&gas • Nuclear • Energy transition in Russia (RES&hydrogen) • Q&A
Russian operable nuclear capacity
• General overview • Oil&gas • Nuclear • Energy transition in Russia (RES&hydrogen) • Q&A
Carbon content is less than in USA, China, Australia, India, Japan, Germany… ◾ Carbon regulation is beginning only to evolve. Skepticism prevails among stakeholders. S Source: Staffell et all, (2018). Energy Revolution: Global Outlook
✓ 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)
Potential energy intensity level of Russia taking into account climate and economy structure Energy intensity in Russia in 2007 tual energy intensity in Russ Planned energy intensity in Russia Source: Igor Bashmakov, 2018 ◾ Initial energy efficiency target set in 2008 was to reach 40% decline in GDP energy intensity by 2020. budget ◾ Substantial    federal subsidies were allocated but very limited change occurred. ◾ Initial  target  was  significantly scaled down to 9.41% and federal funding discontinued. ◾ GDP energy intensity in Russia in 2017 is only 10% lower 2007 level.
Russian primary energy demand Main obstacles for energy efficiency in Russia: ◾ Administrative barriers and lack of regulation, granting guaranties of the investment return ◾ Lack of cheap long-term loans for energy-efficient projects that are accessible to smaller market participants ◾ Low prices of energy BUT THE PRIZE IS HUGE!
◾ Initial target for REN's share in generation was set in 2009 - 4.5% by 2020 (later shifted to 2024). ◾ Support mechanism launched in May of 2013 (similar to Capacity supply agreements used earlier for thermal plants). ■ 5.5 GW of renewable capacity will be supported 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 minimum bids in 2018 were below $1K per kW.
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Capacity and number of distributed generation plants in Russia Quantity (up to 25 MW), pcs. (right axis) Capacity of distributed generation in Russia can be estimated at about 23-24 GW (-9% of total capacity) Source: Rosstat, McKinsey & Company
DER potential in UPS for the period 2020-2035, GW
Electricity generation in centrally supplied zone Installed capacity dynamics in centrally supplied zone (WM)
Source: Power Facility Arrangement Master Plan of Russia up to 2035
Common incentives for hydrogen development on the policy level Future hydrogen & ammonia production sites in Russia: past & ongoing studies Lensky District (Sakha) - blue ammonia (2021) green hydrogen (2015) ellow and green hydrogen (202052021) blue ammonia (2021) bakhalin - blue hydrogen (2020-2021) Source: SKOLKOVO Energy Centre ammonia (2024 40
ROSATOM 1975年1975 Common incentives for hydrogen development on the policy level
o More than 350,000 people in Russia-live in remote areas, their lives depend on expensive diesel fuel cost of electricity reaches $460 per Wh (about 10 times more expensive than average Russian level), in some cases $27,000 per MWh Source: SKOLKOYO Energy Centre analysis based on the Ministry of Energy data for 2018. Figures show annual electricity generation in remote an Republic Sakha (Yakutia) 281  GWh agadan Oblast 21日5Wh Kamchatka Krai 4182 GWh Sakhalin Oblast 114 GWh Only three incentives for hydrogen are in place in Russia

To be published

• Interdepartmental working group led by the Deputy Prime M inister • Registry of Russian hydrogen technologies 2021 03 04 2022 Methodology for assessing the ・ Methodology for the . life cycle of hydrogen classification of hydrogen by production methods GHG emissions level Source: SKOLKOVO Energy Centre analysis based on Hydrogen Energy Action Plan (adopted in October 2020) 2023 2024 • measures of state support • technical regulation for pilots
measures • measures to support
low carbon hydrogen production (particularly in the gas industry) pilot electrolyzer on nuclear power plant site tests of gas turbine on methane-hydrogen fuel .
Major target pilots Intergovernmental closed discussions
. Hydrogen export goals: how to make export- oriented 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?
Main potential hydrogen stakeholders in Russia-2020 ROSATOM IEEJ  June 2021 © IEEJ 2021