Russia to retain dominance on the gas market

Over the coming decades, Russia will remain “the cornerstone of the world’s energy system”. This conclusion is contained in the International Energy Agency’s (IEA) annual report. Experts predict oil prices to rise to $150 a barrel in the near future, while the US will lose the title of the largest oil importer first to the European Union, and then China.   

The European Union will surpass US oil consumption by 2015, eventually yielding its leadership to China in 2020. This information is contained in the World Energy Outlook 2011, prepared by the IEA – and autonomous international body within the Organization for Economic Cooperation and Development (OECD). Over the coming years, oil imports to the US are expected to decline substantially due to the new energy efficiency standards for cars and trucks, as well as a rise of domestic oil and natural gas production.    

 “The growing demand in the transport sector and rising spending on exploration of oil and gas deposits and extraction of raw materials confirm the end of the era of cheap oil,” argue authors of the report. They predict a barrel of crude oil will cost $120 in 2035. Moreover, investments for exploration of oil and gas deposits and extraction of raw materials in the Middle East and North Africa will decline by a third, driving the price of oil to $150 a barrel by 2015.   

Analysts explain the temporary decrease in market tensions by the slowdown in economic growth and the expected return of Libyan oil. At the same time, long-term trends are determined by the high demand for energy resources in China and India, as well as Indonesia, Brazil, and countries of the Middle East. In 2035, China’s energy consumption will surpass that of the United States by nearly 70%. Meanwhile, “the rise in oil demand is taking place in the transport sector of countries with rapidly developing economies”. 

In the report, it is noted that the highest rise in oil production will take place in Iraq, Saudi Arabia, Brazil, Kazakhstan, and Canada. The Middle East and North Africa will account for more than 90% of the global rise in oil production.   

Turning to the situation with natural gas, the IEA indicates that “Russia will remain a major gas producer in 2035 and become the largest contributor to the total gas supply growth; it will be followed by China, Qatar, the US, and Australia”. While predicting a “golden gas era”, the document provides a fairly optimistic assessment of “coal prospects” in the global energy demand as well. Today, almost half of the global coal production is consumed by China, which will be replaced as the largest coal importer by India in the 2020s, making the US the world’s second largest coal consumer.   

Russia’s place in the IEA’s World Outlook is far from last: experts are calling it “the cornerstone of the world’s energy system”. At the same time, the aforementioned factors such as high demand and favorable energy resource prices, according to analysts, do not guarantee cloudless prospects for Russia, as the main oil and gas reserves in western Siberia are depleting and the future only has more-expensive reserves in store.         

International experts are not only talking about the inevitability of the changing geography of production and development of eastern Siberia and the Arctic, they are also suggesting Moscow increases the energy efficiency in each of its economic sectors within the framework of economic modernization. They say that if this indicator is matched to the level of the OECD countries, then Russia could decrease its annual primary energy consumption by almost a third – or equivalent to the energy volume, annually consumed by the United Kingdom. 

The IEA suggests that, in 2035, Russia will produce 9.7 million barrels of oil per day, with gas production rising by 35%. Meanwhile, the bulk of Russia’s energy exports will continue to head to the European markets, though the share of the Asian markets will rise. In 2035, China’s share in Russia’s total revenues from fossil fuel exports will rise from its 2010 level of 2% to 20%, while the European share will drop from 61% to 48%.    

According to the head of the Center of Energy Security Problems at the Institute for the USA and Canadian Studies, Andrey Korneyev, assertion that the share of the European states in Russia’s energy exports will be reduced is questionable. “Russia’s energy strategy does not foresee any sudden changes in the export structure. It assumes a fairly equal distribution of export supplies,” said Nezavisimaya Gazeta’s (NG) interlocutor.  

“With the rise and development of infrastructure, Russia’s supplies to China and other Asian states will rise,” added the expert. “But not on such high scale and not at the expense of exports to Europe. All of Russia’s long term infrastructure investments such as Nord Stream and South Stream, which are aimed at Europe, are expected to ensure a balance. Otherwise, these enormous funds would not have been allocated for the construction of pipelines.”   

Korneyev added that the Organization of the Petroleum Exporting Countries (OPEC) had also published its report on Tuesday. According to the organization, by 2015, daily oil demand is expected to rise from 86.8 to 92.9 million barrels. Moreover, for 2035, OPEC forecasts $133 per barrel (compared to the IEA’s $120). According to the IEA, daily oil demand will increase from 87 million to 99 million barrels of oil in 2035, and based on the OPEC data – to 110 million barrels. According to the expert, these discrepancies are quite significant.    

“All foreign projections are taken into account by our analysts and are reviewed by the Energy Ministry in detail,” he concluded. “In any event, Russia reserves the right to determine its sovereign energy policy based on its own long-term interests. This is the way our relations are being built with OPEC, for example, where Russia serves as an observer, considering the forecasts and recommendations that are issued by the Organization’s experts.”

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