Dr Tatiana Mitrova leads the development of global energy markets and Russia’s energy export and import policy at The Energy Research Institute of the Russian Academy of Sciences (ERI RAS). Dr Mitrova has significant experience in dealing with the development of energy markets, including production, transportation, demand, energy policy, pricing, taxation and market restructuring. She also has broad experience in working with Russian ministries, as well as major Russian and international energy companies.
Dr Mitrova is a graduate of Moscow State University’s Economics Department, and an Assistant Professor at the Higher School of Economics and Gubkin Oil and Gas University.
1. The ERI RAS’ Global and Russian Energy Outlook up to 2040 predicts that the use of fossil fuels will remain dominant, against slower growth in the share of renewables up till 2040. As the world’s third-largest energy-consuming country, how do you think these developments will impact Russia and its energy outlook?
Dr Tatiana Mitrova: First of all a small correction: yes, indeed, we are saying that fossil fuels will remain dominant, but "the highest consumption growth rates in the forecast period will be for renewable energy (including biofuels but excluding hydropower): by 2040 its share in global energy consumption will reach 13.8 per cent, while electric power generation will use 12.5 per cent of renewables (compared with figures of 10.9 per cent and 3.7 per cent for 2010)". Anyway alternative energy sources started their growth from very low numbers, so even with the high growth rates, they will still represent lower share in the global fuel mix. Obviously these are good news for all traditional hydrocarbon suppliers (including Russia): it means that call on our oil and gas will increase (though, as we are showing in our study, at lower volumes, then it was expected a couple of years ago: economic crises, energy efficiency and shale revolution will limit this potential exports growth. For the domestic consumption Russia also prefers fossil fuels; according to the Russian Energy Strategy until 230, the share of renewables is set to increase up to 4,5% by 2030, and it is a very ambitious target for Russia, having huge resources of cheap domestic gas, oil and coal.
2. A number of independent and global oil and gas players are increasingly looking to supply to Asia. With some of the largest proven energy reserves, how do you foresee Asia’s role in Russia’s long-term plans?
Dr Tatiana Mitrova: Asian market is regarded by Russia as the most promising – it is fixed in all strategic documents. As European market is becoming more and more mature (with stagnant or even decreasing liquids and gas demand), Asia is becoming the only center of fuel demand growth. According to the Energy Strategy Russian oil exports to Europe are supposed to fall, while Asian markets will see significant growth of the Russian supplies – it should reach at least 15% of the total energy export, according to the Strategy.
3. Russia's vast resources have placed the country at the core of a future global transition towards low-carbon development. What are some of the measures Russia could implement, to unlock its potential in this area and leapfrog towards more sustainable growth?
Dr Tatiana Mitrova: We suppose that taking into account this incredible availability and affordability of the fossil fuels in Russia, the main Russian input in the decarbonisation should be related to the energy saving. Russia has huge potential to use energy more efficiently. Estimations of the IEA show, that raising Russia’s energy efficiency to the levels of comparable OECD countries would save the amount of primary energy used in a year by the UK. And this process for many reasons seems to be much more easy, cost-efficient and environmentally friendly that development of the new frontier areas (like Arctic offshore, etc.).
4. Russia has invested in a number of greenfield projects in its arctic regions, which present significant opportunities for oil and gas exploration. In your view, how could Russia overcome the challenges and risks involved in tapping the regions' resources?
Dr Tatiana Mitrova: The most important measure to deal with these huge greenfield projects should be a radical reduction in the cost of investment projects, together with a thorough evaluation of their cost-effectiveness and potential risks. This is confirmed by the results of work done by foreign and Russian experts, who analysed the cost of domestic energy projects, showing that they were typically several times more expensive compared to existing analogous projects found elsewhere, while those projects that were completed were underutilized for years.
Another extremely important measure to deal with these risks and to increase the competitiveness of the Russian “new” oil and gas is a radical improvement in the quality of public, and especially corporate, governance. The latter can play an important role in attracting foreign partners into the consortia engaged in resource development (this refers especially to the eastern part of the country, the coastal shelf, and deposits of unconventional hydrocarbons). If properly managed, it would enable the country to:
- attract foreign investment and apply advanced technology;
- develop types of business activities with potential, under new conditions;
- ensure tight control over costs and other business results;
- obtain additional assurances for product sales; and
- facilitate access to logistics and adapt to the rules of international markets.
- And of course a proper taxation system, creating incentives for the development of such “difficult” regions of production are absolutely necessary.
5. Asia is pushing for more flexible pricing models for its energy sources, especially gas. What steps should Asia take to achieve this? How is a drop in gas prices going to affect Asia's trading relationship with Russia?
Dr Tatiana Mitrova: Of course Russia as a supplier is interested in profit maximization and high fuel prices. But Asia is already promoting this idea of more competitive and market-based pricing. The last couple of years saw incredible “speaking in one voice” from the Asian buyers’ side. Taking into account the new LNG export projects in the US (with Henry Hub indexation), it is quite logical to expect faster growth of the spot-based pricing in Pacific basin, which currently represents only a minor share of supplies. But ten years ago one could observe nearly the same situation in Europe, which has now already about half of gas supplies being spot-indexed. In Asia transition to the spot pricing seems to be much slower than in Europe, but some transformations will definitely have place. It is not good news for the LNG exporters (which usually prefer oil linkage in order to guarantee their profitability), but for Russia, which has probably the shortest transportation distance to the main LNG consumers, it is rather good stimulus to focus on its projects cost-efficiency. If there is economic rational, then these projects will happen anyway and trading relationship with Russia will flourish.