Geoeconomic atlas of world energy. A vision of the future to 2030

Center for Strategic Research “North-West” Foundation

Geoeconomic atlas of world energy A vision of the future to 2030

St. Petersburg

2011

Center for Strategic Research “North-West” Foundation 2 3

Center for Strategic Research ”North-West” Foundation

Geoeconomic atlas of world energy. A vision of the future to 2030

Geoeconomic atlas of world energy. A vision of the future to 2030 / edited by Vladimir N. Knyaginin.— St. Peterburg: Center for Strategic Research

“North-West” Foundation, 2011.— 150 p.

This special edition is an abridged version of the Atlas prepared within the framework of the “Long-Term Energy Foresight of the Russian Federation” project in 2010–2011. This project was initiated by the Russian Ministry of Energy, Rosatom State Nuclear Energy Corporation, the Russian Federal Tariff Service and the Siberian Coal Energy Company (SUEK).

While working on the Atlas, experts of the Center for Strategic Research “North-West” Foundation focused their attention on the current trends in global economy and energy sector development. Sections of the Atlas cover prospective changes in energy resources, power consumption breakdown and government policies over the next 20–30 years.

V.N. Knyaginin – Head of Research M.S. Lipetskaya – Head of the Working Group

Working Group: V.Yu. Kopkin, S.V. Kostyushev,

V.D. Nikolaev, L.A. Petrova, Yu.A. Ryabov The Working Group used materials provided by:N.A. Andreeva,

E.Yu. Boze, D.V. Sanatov Design: N.V. Dynnikova

DTP: N.V. Dynnikova, K.G. Bulgachenko, M.V. Sidorova

Technical editor: A.A. Guseva Proofreaders: R.N. Ishbulatova-Elizavetinskaya, A.F. Kolesnik

© Center for Strategic Research “North-West” Foundation, 2011 ISBN 978-5-87417374-6

3

About this project

About this project

As major energy market players are in the process of defining their strategies for the decades ahead, Russia has so far lacked its own forecast for long-term changes in global commodity and technology markets, let alone technology shifts in energy production and consumption. The present atlas devised by the Center for Strategic Research “North-West” within the framework of the “Long-Term Energy Foresight of the Russian Federation” project aims to make up the lack of strategic vision and to provide expertise to those involved in decision-making.

The atlas is divided into several sections containing an analysis and a forecast for long-term trends, key challenges for further development and unresolved issues for the future. They provide a holistic understanding of global energy markets and potential challenges for producers and consumers of resources.

First sections of the atlas are devoted to the external context of the energy sector: trends in social and economic development, core/ periphery areas of economic, demographic and industrial growth, phases of population settlement and current forecasts for energy resources demand growth by industry.

Next chapters deal with the analysis of the accessibility and cost of high-carbon energy resources, such as natural gas, oil and coal. They contain basic figures and forecasts for reserves, production, consumption, export and import flows to 2030. These chapters also analyze key advanced technologies and innovation projects.

The atlas also features nuclear energy: the uranium market, potential for the construction of new nuclear power plants, information on currently operating plants and new technological developments in the sector. The atlas analyzes several models of the nuclear fuel cycle adopted by different countries.

The concluding part of the resources chapter is dedicated to renewable energy. It provides forecasts for wind and solar energy markets as the most lucrative sectors in terms of capital attracted and technological growth. This section also focuses on hydropower and biofuels.

In addition to the evaluation of key markets for energy resources the atlas pays special attention to the institutional basis of the sector. It contains sections on government policies in different sectors, including environmental protection, phases of electricity markets regulation and international organizations’ energy initiatives.

Maps, diagrams and charts in the atlas are supplemented by timelines of key developments that have occurred and events that are set to happen in the opinion of most experts and market forecasters. The timelines cover the period from 1980 to 2050. All the developments have been selected as to their impact on the markets. Lifecycles for natural gas, oil, coal and electric power markets have been drawn up to describe major milestones in their development.


Introduction

This Atlas is one of the results of works on Russian energy foresight. The project was implemented in 2010-2011. Relevance of the project is caused by the fact that major players in global markets choose different strategies to develop their energy systems proceeding from the economic and social development priorities. According to the currently made decisions the technological growth policy, standards and regulations, requirements to the related sectors and consumers, the energy resource base development projects, the external trading partnerships are worked out. The need for its own forecast of long-term changes in the world and macro regional trade and technology markets is obvious for Russia, as well as forecast of technological shifts in the sectors of energy production and consumption.

In the next 20 years the growth of the world national economies will require much more energy resources than the current production is able to provide. Increase of energy consumption will be parallel to the economic growth, especially in developing countries. The starting points of this study are questions about the ability of energy resources markets to meet the growing needs of the world economic system, about the ways of national energy balances development in accordance with the principles of safety and efficiency, about the trends in the field of energy technologies, about the new ways of solving the problems of energy security of the national economies.

During the energy forecasting to 2030, the authors discovered several key trends that would shape the directions of the sector development. It were they who made the basis for the atlas formation:

1. The global fuel and energy balance is experiencing profound transformations.The resource limitations are more obvious for carbon energy which is “doomed” to increase its cost:

a. Peaks of oil production have already been passed by majority of countries;

• Global peak of coal production is planned for the next 10-20 years, the cost of its production is increasing;

• Prospects for gas are more favorable – natural gas reserves have increased significantly in recent years, but mainly due to non-conventional gas1, which is considerably more expensive yet. In particular, several states declared the increase of reserves volume by assessing of shale gas pools;

• There will be a rise in cost of hydrocarbon extraction projects, the development of deeper layers of the ocean shelves, in Arctic areas, etc.;

• Heavy oil is much more expensive than high-gravity one. If the growth of the resource cost continues, consumers will seek to limit the oil consumption;

• New projects of the hydrocarbons extraction are so large-scale that to pay for them in the current situation will be possible only with the involvement of public funds, what is rather difficult, taking into account the general complicated situation with public finances.

b. The calculation of the full “lifecycle” of superbig non-carbon technological complexes will be carried out not earlier than 2020. These projects are so complicated, prolonged in operation and scaled concerning the influence on the ecosystems, that economists are not yet able to calculate their real value:

• The first calculations of the “lifecycle” were conducted in the nuclear industry, but the assessment of the consequences of accidents at the “Fukushima-1” nuclear power plant (or rather, the complexity of the calculation of these effects), as well as long-term trend of increased cost of building

1 Such countries as Poland, the UK, France, Germany, etc., which are currently engaged in geological exploration, could join the major holders of shale gas along with the U.S.

nuclear power plants shows that the “nuclear renaissance”, proclaimed in the early 2000s, is strongly problematizated now; the sector has to scale to new conditions in a short terms – it means to reduce the cost and to improve significantly the safety of the project;

• Hydropower has practically no estimates of “lifecycle” cost yet, but there is an obvious conflict of large hydropower plants and other industries, competing for resources, which become the main “apple of discord” in many developing regions – water2 and land. The growth of large hydropower plants is also restricted by the scale of projects, while the small hydropower plants demonstrate relatively poor effectiveness;

• In the coming years the estimation of carbon energy “lifecycles” can be expected, what could mean a significant increase of cost for a number of resources. First of all, the cost of carbon dioxide emissions for its issuers will be assessed;

• The renewable sources are the only resources, for which the reduction of generation cost is predicted. So far the assessment of available resources exceeds technological capabilities (there is a sense of infinity, low cost or even free resource - “the sun light is free”). The terms of scaling generation on renewable energy sources (hereinafter – RES) are a key factor that will influence on the transformation of the existing balance in the next 20-30 years. However there are significant difficulties with the widespread adoption of these sources: to integrate the RES into the existing power system or to build alternative networks? Whether the competitiveness with conventional energy sources will appear at the turn of 2030s? How long the systems of state support will be available for the RES in high budget deficits?

2. Resource balance becomes more projected globally.a. Today the world energy balance (hereinafter – WEB) is

sooner the object not for analytics, but for politics. WEB management is implemented through a powerful state intervention. Energy has become a key issue of both domestic and foreign policy, big part of public expenses is aimed at it.

b. At present the world has fragmented design of the future. The general vision, construction of global markets can be contour-formulated to 2030, there are also some forecasts to 2100. But some states have already moved from a scenario-alternative predicting of the future to the system planning. It is still an open question whether the transition from scenario predicting to the regulatory planning will be realized by 2030.

c. The authors fixed the presence of the competing visions of the future. Obviously, the interest groups, representing various energy sectors, have a claim to the same resource – private and public investment, and give different, sometimes even contradictory forecasts as a proof. Due to the lack of public finances it is extremely important to invest in a sector that ensures the maximum economic returns both in the medium-term and long term prospects.

3. New type of energy resources consumption appears, it will require to change the architecture of power systems. The structure of energy will depend on the economic growth model realized by the largest consumers.

a. Asia claims to become the center of the world economic system. China is the “attacking” leader, and the Asian energy market is the one, closing and determinating the demand and prices for the majority of resources. According to a variety of energy resources China will be a major buyer in the market, but still not the referee. The growth of China

2 Here it means “physical” reduction of hydro potential in some regions due to the development for the needs of agriculture, and due to the climate warming.

5Introduction

will go on as long as its urbanization will, and it likely will not over to 2030.

b. The main increase in consumption will occur in the largest urban areas, which are the key consumption centers. But the type of demand is changing within the cities: the “Prosumer model” becomes more widespread (it means the combination of energy producers and consumers); a number of megalopolises turned to the concept of building green, energy efficient, intelligent, postcarbon cities. The general sense of these concepts is the rejection of the extensive growth of the resources consumption, the transition to a new development quality. Many of the metropolises either in developed or in developing countries announced the transition to the superefficient type of growth and the readiness to restructure the municipal services, including construction sector and transport infrastructure in the next 10-15 years, the energy resources consumption will dramatically reduce.

c. The new consumption structure, its deconcentration, will require to change the architecture of power systems completely: requirements to networks flexibility are declared, there are graphics of deployment of “Smart Grids”.

4. The global nature of markets, institutional systems and infrastructures building.

a. The globalization of decision-making process. Many solutions are institutionalized due to the international consensuses (agreements of the G20, the UN and many other international organizations). First of all, it is about achieving a global consent on the need to reduce carbon emissions.

b. Overall institutional and trading systems, the globalization of markets, finances and investments urge on the unification of energy markets.

c. The globalization of fuels markets. The gas market is globalized following the oil market (it is supported by the LNG transportation projects). There is the globalization of the coal market. Its elements are the growth of international flows, the formation of several macro-regional centers of pricing (markets’ centers), the transition to the short-term contracts dominance, etc. All this new energy markets’ architecture is being formed right now.

d. The world leaders, outsourcing and equipment delivery networks were defined in the technology markets, and the key buyers / areas of technological transfer were marked out as well. It is clear who and how will determine the technological development of energy; there is a countable number of contenders for leadership.

e. There is an enlargement of power systems, supported by common infrastructure projects (transport corridors, energy corridors, gas transportation infrastructure, etc.) and by the convergence of legal regimes.

f. A common system of energy management can probably begin to form by 2030s, but so far combined solutions are planned in this area: global distribution networks and local solutions.


The structure of the Atlas

The Atlas is divided into several sections containing an analysis of long-term trends, key objectives for further development and unresolved issues for the future. In complex they provide a holistic understanding of the modern picture of the global energy markets development and potential challenges for producers and consumers of resources.

The first sections of the atlas are devoted to the analysis of the external context for energy: trends of socio-economic development, the core and peripheral areas of economic, demographic and industrial growth, assessment of phases of the settlement system in different regions, existing forecasts for energy resources demand growth by industry.

Next chapters deal with the analysis of the accessibility and cost of key resources of the existing carbon energy, such as natural gas, oil and coal. They contain basic figures and forecasts for reserves, production, consumption, export and import flows to 2030. These chapters also analyze advanced groups of technologies and innovation projects, which, in the authors’ opinion, will be claimed mostly by the fuel resources sector over the next 20 years.

The atlas also features nuclear energy: the uranium markets, potential for the construction of new nuclear power plants, currently operating plants, new technological ways for sector development. The Atlas analyzes the final part of the nuclear fuel cycle, which has now several different versions, as well as the decommissioning of active or stopped facilities.

The concluding part of the resources chapter is dedicated to renewable energy. It provides the existing potential and forecasts for markets, which recently have become the lucrative sectors in terms of capital attracted and technological growth, - wind and solar energy markets.

An estimation of technological maturity is given for these markets. This section also focuses on hydropower – the most technologically mature carbon-free energy sector; provides data on the potential of biofuels as one of the most likely competitor on motor fuel markets.

In addition to the estimation of key markets of energy resources the atlas pays special attention to the investment and institutional basis of the sector, as well as to the infrastructure. It contains sections on government policies in different sectors, including ecology; phases of electric power markets regulation; urban energy policy; integration of electric power markets; policy and international organizations’ initiatives in the sector.

Maps, diagrams and charts in the atlas are supplemented by timelines of events that have occurred in the analyzed sector or that are set to happen. The timelines cover the period for 70 years – from 1980 to 2050. All the events have been selected due to the degree of their impact on the markets – “indicative”, which illustrate the described trends, or “bifurcation points”, which lead to the system changes.

Lifecycles for natural gas, oil, coal and electric power markets have been drawn up to describe major trends of their development in historical prospect. Lifecycles of technological growth are described for a number of new technologies of the carbon energy, solar, wind and bioenergetics sectors.

7Economy and consumption

Consumption

Long-term trends in the sphere of energy resources consumption

1. Sectors pretending to the maximum growth rate with the high potential of resources demand are:

a. Transport sector. According to the IEA forecasts, energy consumption by transport will increase by 50% by 2030, by 2050 it will be 80% against 20083. The growth of consumption in the transport sector is caused by both the automobilization and the placing of the transcontinental traffics which will require a substantial expansion of sector fuel base. Different world regions should singly answer the question what fuel will be most widespread - benzine or alternative motor fuel resources - biofuels, LNG, fuel from coal or electricity.

3 Transport, Energy and CO2 // IEA/OECD, 2009

b. The housing sector is likely to experience radical transformations over the next 20 years. There is a high level of energy consumption at the household in modern cities; this is caused by the features of the housing, utilities and transport infrastructure functioning, by the specific of consumption culture. At the same time a new investment cycle is being launched in the real estate, the basis for this cycle will be the efficient use technologies.

c. New industry. Among the industries that show the maximum growth rate the following could be mentioned: the petrochemical industry, production of composite materials, electronics, sophisticated electronics, robotized systems, production based on biotechnology, etc. It is the regions that specialize in these sectors will require the energy infrastructure.

21862

14167

7601060242 54

0

5,000

10,000

15,000

20,000

25,000

Highways Railways

Comparison of infrastructure

Source: China Metals

USAChina

162

152

59

12 116 3,4 1,8

0

20

40

60

80

100

120

140

160

180

China

India

Indonesia

Mexico

Brazil

South Korea

EUUSA

People per 1 vehicle

Source: SMMT

(km per 1 million people)

Roads

1990 2005 2030 1990 2005 2030 1990 2005 2030

20

15

10

5

0

20

15

10

5

0

20

15

10

5

0

North America Europe Asia Pacific

Marine

Aviation

Rail

Heavy duty

Light duty

Light duty vehicle demand will declineby about 20% in North Americaand by one-third in Europe

In Asia Pacific, transportation demand will nearly doublefrom 2005 to 2030

Transportation demand by region(millions oil equivalent barrels per day)


2. Among the main changes, which can occur in transport sector, the following can be mentioned:

a. Future volume of motor fuel demand. According to the most of forecast centers an essential expansion of fuel base of transport sector can be expected in the next 20 years. For instance, Exxon analysts consider economical and hybrid cars the most quick-growing sector of transport field: 1.2 billion economical cars will be used in 2030 (400 million more than now), and 80% of their demand will be shared in South-East Asia, 1/3 from them — for China. In North America the demand on economical cars will grow by 20%, in Europe — by 30%. The share of traditional cars will decline from 99% (now) to 85% (in 2030). 15% will be shared by cars with different hybrid engines. The graphic below shows the forecasts of sector growth for different world regions. On the contrary the ВР Company consider that though the new fuel types will become more popular, they won’t change the situation radically. Traditional fuel will remain the only important for the industry, but by 2030 the growth of its consumption will stop.

b. The change of principles and structure of transportation organization (air traffic, rail transport mentioned earlier, etc.).

c. The possible technological modernization of shipbuilding (transition to significant lighter and more high-speed ships, which reduce the cost of sea shipping).

3. Geographical centers of energy consumption have different characteristics of demand:

a. Most analytic centers expect in BRICS, Mexico and the Middle East maximum increase in energy resources consumption to 2020-2025, and then the growth slowdown is possible. Sectors, ensuring the demand, are – traditional industry, transport and housing.

b. Europe, Japan and the USA show medium rates of industrial production growth with the restructuring of sector structure and production geography. This is the area of localization of the most high-tech kinds of activity, which

concentrate in megalopolises or urban districts and have demand characteristics different from the one of low limits industry in developing regions. Some reduction in need in energy resources is predicted in these regions even with the positive economic growth rate.

c. Transition economies (postindustrial or just entering the industrial stage states — East Europe, CIS, some states of Asia, Latin America, the most of African states) are yet a “blind” area for many forecasts. The volumes of future energy resources demand will depend on the type of economic development, which they turn to, which industries they will specialize in.

4. The consumption pattern is changing in the largest cities: a. Deregulated energy markets generate the “stochastic”

demand. It is connected with the spatial deconcentration and change of economic activity character. The notions of quality and energy accessibility, volumes and peak demand localization are changing. In the postindustrial city the daily schedule of citizens’ life and the periods of the main services differ significantly from traditional notions of peak hours in the city, the so-called “Fordist type”4. In particular, the consumption of energy and other resources increases in the night time, and it is practically impossible to predict the period and sources of peak demands.

b. The asymmetric demand growth is primary electric power demand and reduction of need in heat. This is on the one hand connected with new technological principals of building: improvement of heat reservation systems in buildings (heat insulation and recovery, etc.) and gradual transition from heating to warming (through the air supply systems and electric heat sources), and on the other hand connected with the enhanced use of electricity in transport, including private one.

c. The “digital energy” demand is the increasing volumes of use of digital devices, which create a scale demand of electric power (the value of this parameter is predicted 25% for separate states of America by 2020).

4 Cities with the traditional industry dominance.

Oil

10

20

30

40

2000 2010 2020 2030

2.6% p.a.

2.9% p.a.

World power generation

Renewables

Hydro

Nuclear

Tho

usan

d T

Wh

0 10 20 30

2

4

6

8

10

China

South KoreaThailand

Malaysia

2030

2009

1990

MW

h pe

r cap

ita

GDP per capita, $2009 PPP, thousands

Electricity and income since 1990

19900

Coal

Gas

9

5. Increasing scale of involving “local” (or distributed) energy sources and exploit them players into markets. Modern technological solutions promote gradual increase of the role of separate consumer in the market, and appearance of “consumer-producer” in one.

6. Information support of networks is able to change the system of relations “producer-consumer” significantly. Enhancement of demand management from consumers’ side: the use of new methods of accounting and individual control, including on-line. Creation of smart grid is the answer to increasing decentralization (scale reduced) of generation and consumption. Thus, the emergence of electric cars and the local (house) generation formed a need in integration of these utilities into a single network, what, on the one hand, would favour the solving the problems of uneven load distribution, on the other hand, would stimulate the demand for equipment of local generation or electric cars. For example, in the concept of such technological corporation as Siemens electric vehicles are considered not only as objects of consumption, but also as a source of electricity.

7. There is a gradual removing of barrier between the consumer and the producer and issue of new types of players into the market – the seller of objects with embedded power; owners of local generation facilities, which can be connected to a single network.

Economy and consumption

10 11Center for Strategic Research “North-West” Foundation

19%

39%

32%

10%

2010

1,542

18%

37%

35%

10%

2030

1,574

24%

27%

37%

12%

ЕU 2010

1,219

24%

24%42%

10%

ЕU 2030

1,242 27%

24%36%

13%

2010

319

30%

16%41%

2030

296

34%11%

47%8%

2010

112

37%

14%

41%

2030

162

29%

22%36%

13%

2010

436

30%

23%34%

13%

2030

502

48%11%

31%

10%

2010

1,379

47%19%

26%

8%

2030

2,274

28%

11%48%

13%

2010

408

36%

19%32%

13%

2030

807

26%

28%27%

19%

2010

388

24%

32%25%

19%

2030

645

17%

15%63%

5%

2010

484

18%

16%

61%

5%

2030

642

35%

31%

22%

12%

2010

436

36%

31%

21%12%

2030

624

29%

25%31%

15%

OECD Asia-Pacific countries

2010

555

31%

19%34%

16%

2030

564

India: continuation ofbasic industrialization

Japan: trend reversed:economic growth with falling resource consumption

Russia: effeciency in consumptionwith current consumption breakdown

China: consumption growth ensured byrise in mobility. Better energy efficiency in industry and residential sector

The Caspian: maintenance of current trends

Africa: Growth ensured bySouth and North Africa.Continent's industrializationpostponed?

Europe: Slight growth.A new consumption paradigm?

Middle East: maintenance of current trends

Unted States: Slight growth.A new consumption paradigm?

Australia: growth ensured by industry and residential sector

Latin America: further industrializationand rise in mobility

Energy consumption by country and region,IEA reference case scenario,mtoe

Industry

Transport

Residential sector

Other

World energy consumption by sector, IEA projections,mtoe

11%10%28%

27%

34%

2010

30%

28%

32%

2030

8,423 11,045

11% 10%

8%

13%

High-carbongeneration

Post-carbongeneration

Post-carbondistributed generation

Centralized asymmetric grids

Centralized superconductive grids Symmetric grids

Ener

gy e

ffic

ienc

yQ

uota

-bas

ed c

onsu

mpt

ion

Con

sum

ptio

n m

anag

emen

t

Industrial-likeenergy systems

Energy efficiency+"Carbon-free energy

sector

"New energy paradigm"Resource-producing

cities

"Energy efficiency"

RussiaChina

USA, EUJapan?

India

Saving in consumptionefficient lightingco- & trigeneration

Efficient and ecofriendly solutions (higherefficiency factors, decreased ecosystem load)

Energy consumer-producer paradigmFlexible system architecture

Trends in energy consumption as defined by respective strategy papers of several countries

ЕU–2030USA–2030

China–2030?

Russia–2030

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Primary energy consumption, 2010

Primary energy consumption, 2030

Energy consumption,IEA reference case scenario, mtoe, 2010–2030

USAChina EU

Russia

Africa

India

Middle

East Latin

Americ

aJa

panBra

zil

Caspian

region

0

Breakdown of final energy consumption by industry,2010–2030

Source: Center for Strategic Research “North-West”, based on IEA World Energy Outlook 2010, DOE, national energy development strategies

11Resource balance

Breakdown of primary energy consumption by source,2010–2030

24%

37%

24%

10%

1%4%

2010

20%

32%23%

11%

1% 13%

2030

17%

35%25%

14%

2% 7%

2010

10%

28%

28%

14%

2% 18%

2030 43%

17%

14%1%2%

15%

30%19%28%

2% 6%

2030

20%

17%60%

3%

2010

17%

17%

62%

1%2%1%

2030

17%

21%53%

6%2%1%

2010

14%

18%

52%

9%3% 4%

2030

66%

17%

3%1%

3%10%

2010

56%

19%

8%

6%

3% 8%

2030

42%

23%6%1%

27%

2010

40%

25%

10%

3%

3%

19%

2030

2%

51%

47%

2010

2%

44%

51%

1%2%

2030

16%

21%

13%1%1%

48%

2010

13%

18%

16%

2%2%

49%

2030

6%39%

9%1%13%

32%

2010

4%

31%

15%3%11%

36%

2030

2010

2,281 2,353

1749 1831

496 482169 241

688 781

2,131 3,568

6201,204

596 940

655868

245 386

44

20%1%

10%21%

2010

569

4%

36%

23%2%

10%

25%

2030

812

52%

28%

11%

3%5%

2010

4,46345%

24%

14%

7%

6%4%

2030

7,434of which Brazil

gas to gradually replace coalIndia: switch to gas and rise in oil consumption

Japan: removal of oil and coal, growth of gas. Renewable energy to replace nuclear?

Russia:egologization of the energy mix,growth of nuclear, hydro and gas

China: slow transition to low-carbon energy mixThe Caspian: conservation

of the current energy mix

Africa: switch from local to global resources

Europe: transition to post-carbonenergy

United States: transition to post-carbonenergy

Asia Pacific (including China and Japan):

Latin America: switch togas and renewable energy

Middle East: switch to gas

4%

5%

24%

Final energy consumption by country and region,IEA reference case scenario,mtoe

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Electricity generation by energy source, 2010, TWh

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Electricity generation by energy source, 2030, TWh

Wave

CSP

PV

Geothermal

Wind

Bio

Hydro

Nuclear

Gas

Oil

Coal

1%

USA EU

Caspian

Japan

Asia

Pacif

ic Russi

aIn

diaChina

South

Americ

aAfri

ca

Middle

EastBrazil

Middle

East

25%

29%22%

7%

3%

14%

World16,014 mtoe

2030

27%

33%

21%

6%

2%11%

World12,271 mtoe

2010

USA EU

Caspian

Japan

Asia

Pacif

icRussi

aIn

diaChina

South

Americ

aАфрика

Brazil

Oil

Gas

Coal

Nuclear

Hydro

Renewable

Source: Center for Strategic Research “North-West”, based on IEA World Energy Outlook 2010, Russian Energy Ministry


Gas: 2010–2030

The dynamics of the energy resource base over the last decade

1. The increase of absolute indicators of proven natural gas reserves in recent years, mainly due to the new technologies of production and spread of geological exploration to all new territories. Between 1988 and 2010 the amount of reserves grew to 185 trillion cubic meters or more than in 1.8 times.

2. Energy resource base enhancement. The growth of reserves occurred mainly due to the following reasons:

a. After-estimation of nonconventional gas reserves. In particular, the opening and scale commercial exploitation of shale gas reserves in the USA. Shale gas and gas from coal bed share already 57% of gas production in the USA. At present there are 24 fields of shale gas on the territory of North America, its reserves are evaluated at about 20–25 trillion cubic meters, what is compared to the Gazprom reserves, evaluated in the volume of 33 trillion cubic meters. It is the adoption of new technologies of shale gas exploration and production what will let gas with its reserves “distribution” overtake coal;

b. Offshore exploration; c. Geological assessment of Arctic area reserves.

3. At the same time there is an exhaustion of conventional gas resources in old fields. In the 2000s the peaks of production were passed in number of major producing countries – the USA, Azerbaijan, Algeria, Nigeria, etc. Other major exporters (Russia, Iran, China, Saudi Arabia and others) can still increase the volume of production.

4. The sophistication of the energy resource base has led to the increase of diversity and expansion of the players on the gas markets, rise in cost of field exploration, demand for a whole complex of new technological solutions.

250

300

350

200

150

100

50

0

Norway

PolandDenmark

ItalyGermany

NetherlandsUnited Kingdom

billio

n cu

bic

met

ers

per a

nnum

actual forecast

1970

1972

1974

1976

1978

1982

1980

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

Source: The Oil Drum

13

Gas proved reserves changes, 2000–2010

Russia – SouthKorea

Proved gas reserves trillion cubic meters, 2010

Brazil

Venezuela

Peru

Argentina

United States

Canada

Algeria

Libya EgyptSaudi Arabia

Iraq

Qatar

Kazakhstan

Russia

China

South Africa

India

Pakistan

Bangladesh

Australia

Ukraine

Norway

United Kingdom

Nigeria

4.66.8

47.6 47.04

29.2

8.4

3.45.13.9

4.9

4.4 4.4

1.243.08

25.1

1.71.7

0.70.3

2.2

1.7

2.31.8

Turkmenistan2.8

7.4

1.11.0

5.7 7.3

1.60.91.51.3

1.32.9

1.00.6

2.92.0

1.1

Bolivia

Myanmar

Thailand

22.7

Iran

Reserves in 2010, trillion cubic meters

Reserves in 2000, trillion cubic meters

Gas reserves growth zones

Gas reserves decline zones

Major gas pipelines projects, 2010

NameRegion Destination Capacity, billioncubic meters

Status Operational

Altai China 30 projected 2015

South Korea 10 projected 2015–2017

Nord Stream Northwestern Europe 27.5 underway 2011

Nord Stream-2 Northwestern Europe 27.5 projected 2012

South Stream Southeastern Europe 63 projected 2015

Nabucco Southeastern Europe 26–31 projected 2017

ITGI Southeastern Europe 12 projected 2017

TAP Italy 10+10 projected 2017Igat 9 Europe 37 projected 2020+

CAGP China 30 underway 2012

CAGP expansion China 20 projected 2012+

TAPI Pakistan 30 projected 2015

IPI India 8 projected 2015

Arab Gas Pipeline Middle East/Turkey 10 partially built н/д

Myanmar – China China 12 underway 2013

Galsi Europe 8 projected 2015

Russia

Caspianregion/

Middle East

Caspianregion

MiddleEast/Turkey

Asia Pacific

Africa

< 5

5–15

15–30

> 30

LNG plants under constructionPlant Capacity, billion

cubic metersOperational

Algeria Skikda 6.1 2013Gassi Touil 6.4 2013

Angola Ангола 7.1 2012Australia Pluto 6.5 2011

Gorgon 20.4 2014

Gladstone LNG 10.6 2014

Queensland Curtis 11.6 2015

Indonesia Donggi Senoro 2.7 2014

Papua New

Guinea

PNG LNG 9 2014

Peak gas by country

Canada

Azerbaijan

Uzbekistan

Turkmenistan

Kazakhstan

United States

United Kingdom

Russia

Romania

Netherlands

Italy

20072008200920082009

20072000

20061976

20082001

1950 1960 1970 1980 1990 2000 2010

Indonesia

Netherlands

1.4

Source: Center for Strategic Research “North-West”, based on EIA DOE, Forbes, IEA World Energy Outlook 2010, Russian Energy Ministry, Gazprom

Resource balance


Factors underlying the forecasts of the gas resource base transformation

1. The evaluation of “effective” reserves will vary depending on the market price for gas. Thus, in recent years the shale gas has been considered more and more profitable for production, and this gas was formerly among expensive (inefficient) resources.

2. Technological progress will likely allow to change the assessments of volumes of effective and produced reserves.

3. Reserves of nonconventional gas should be after-estimated in countries, which are approaching the peak of nonconventional gas production, in particular Russia. It will likely allow to postpone the production peaks, which are postponed to the period after 2030 in our country.

4. New regions with a huge gas reserves can appear on the map. Thus, the UK, Israel, Poland and Germany joined this group recently.

5. Rise in price and enlargement of investment projects can be predicted.

6. Key questions: the development of the infrastructure for gas transportation from new production fields; cost and laboriousness of works on new fields.

15

Gas proved reserves, 2010

Alaska

Gulf of Mexico

India’s continental shelf

SakhalinUS and CanadianAtlantic continental shelf

Brazilian continental shelf

West African continental shelf

North Sea and Arctic continental shelf

gas reserves: 6.52 trillion cubic meters

gas reserves: 3.7trillion cubic meters

gas reserves: 135 trillion cubic meters







Venezuela

Peru

Nigeria

Australia

Indonesia

China

Libya

Brazil

Algeria

Kazakhstan

Russia

South Africa

India Australia’s continental shelf

Source: Center for Strategic Research “North-West”, based on EIA DOE, Forbes, Russian Energy Ministry, Gazprom

Gas proved reserves,trillion cubic meters, 2010

< 5

5–10

15–30

> 30

Continental shelf oil and gas

Gas production costs, US$ per 1,000 cubic meters

min max

0

50

100

150

200

250

300

350

Conventionalnatural gas

Shale gas Offshore gas

Countries with the largest gas reserves, trillion cubic meters, 2010

NorwayKazakhstan

MalaysiaIndonesiaAustralia

Iraq Algeria

VenezuelaNigeria

United Arab EmiratesUnited StatesSaudi Arabia

TurkmenistanQatar

IranRussia

2.3

2.33.03.13.1

4.54.9

6.06.97.47.4

25.229.3

47.0

5.2

2.4

Resource balance


Shale gas recoverable resources,its production and exploration areas, 2010

Source: Center for Strategic Research “North-West”, based on EIA, Oil and Gas Journal, USGS, Wood Mackenzie, "TEK: Strategies of Development" Journal, Ukrainian Ministry of Energy and Coal Industry

Technically recoverable shale gas resources as stated in official assessments

n.a.

< 5 billion cubic meters

5–10 billion cubic meters

> 10 billion cubic meters

Producing areas

Areas for which estimates and exploration are carried out

Areas with shale gas potential (preliminary geological assessments)

17

Arctic gas potential, 2010

Source: Center for Strategic Research “North-West”, USGS, Assessment of Undiscovered Oil and Gas in the Arctic, Gautier et al., Science, May 2009

Greenland

Canada

Russia

1

5

79

10

1415

2

Thule

Murmansk

Тикси

PevekBarrow

Prudhoe Bay

12

Longyearbyen

WSB 1

AA 2

EBB 1

EGR 1

YK 2

AM 3

WGEC 1

LSS 1

NM 1

BP 2

EB 1

NKB 1

TPB 1

NGS 1

LM 1

SB 3

LA 1

NCWF 1

VLK 1

NW

LS 1

LV 1

ZB 1

ESS 1

HB 1

NWC 1

MZB 1

NZA

A 1

TUN 1

CB 1

LS 1

JMM 1

FS 1

AA 1

AM 2

AM 1

NWC 2

AM 4

SB 1

SB 2

FS 3

FS 2

WGEC 3

WGEC 2

WGEC 5

WGEC 7

NG

S 2

EGR 2

EGR 3

EGR 4

EGR 5

EGR 6

EGR 7

NM 2

BP 1

EBB 2

EBB 3

TPB 2

TPB 3

WSB 2

YK 1

LA 2

LA 3

LSS 2

LSS 3

EB 2 EB 3

EB 4

LM 2

LM 3

13

3

4

1211

6

8

1

Projects Operator

Pechora Sea (Russia) Lukoil/Conoco Phillips, Sevmorneftegaz

Barents Sea (Russia) Sevmorneftegaz, Gazprom, Total, Statoil Hydro

Barents Sea (Norway) Eni Norge AS, Statoil

Beaufort Sea (Canada) ConocoPhillips, Gulf Canada

Arctic Islands (Canada) Panarctic Oils, Suncor, ConocoPhillips, Gulf Canada

Beaufort Sea (Alaska) Shell, BP Exploration Alaska, Eni Petroleum, Pioneer natura

Chukchi Sea (Alaska) Shell

1211

13

1514

43

21

76

109

5

8

Undiscovered gas,trillion cubic feet

Major oil and gas projects

Main Arctic ports

> 100

6–100

1–6

< 1

area not quantitatively assessed

area of low petroleum potential

Province code Province Resources

WSB West Siberian Basin 651,498

AA Arctic Alaska 221,397

EBB East Barents Basin 317,557

EGR East Greenland Rift Basins 86,180

YK Yenisey-Khatanga Basin 99,964

AM American Basin 56,891

WGEC West Greenland East Canada 51,818

LSS Laptev Sea Shelf 32,562

NM Norwegian Margin 32,281

BP Barents Platform 26,218

EB Eurasia Basin 19,475

NKB North Kara Basins and platforms 14,973

TPB Timan-Pechora Basin 9,062

NGS North Greenland Share Margin 10,207

LM Lomonosov - Makarov 7,156

SB Sverdrup basin 8,596

LA Lena-Anabar 2,106

NCWF North Chukchi-Wrangel Foreland Basin 6,065

VLK Vikitskii Basin 5,741NWLS NorthWest Laptev Sea Shelf 4,488LV Lena Vilyui Basin 1,335ZB Zyryanka Basin 1,505ESS East Siberian sea Basin 618HB Hope Basin 648NWC Northwest Canada Interior Basin 305MZB Mezen' Basin NQANZAA Novaya Zemlya Basins and Admiralty Arch NQATUN Tunguska Basin NQACB Chuckhi Borderland NQAYF Yukon Flats NQALS Long Strait NQAJMM Jan Mayen Microcontinent NQA

Franklinian Shelf NQA

Resource appraisal,billion cubic feet

FS

Resource balance


Recent tendencies in gas markets

1. Key experts increasingly define the current situation in the energy sector as the beginning of “the gas era”. Gas generation claims to leadership in power generation by both – the volume of input capacities and the amount of investments. Gas wins in competition with other sources (nuclear, coal, renewables) as the most effective, affordable, and reliable resource.

2. The entry of liquefied natural gas to the world market and deployment of infrastructure to gain liquefied natural gas (hereinafter – LNG) in the USA and the EU. The volumes of gas carries construction increased significantly in 2006-2010. There is a rise and enlargement of fleet for gas transportation. According to IHS Fairplay, ships tonnage will increase by 30% by 2020 in comparison to the 2009 and will account 25 million cubic meters. The rise will be mainly due to implementation of large ships with tonnage of more than 50 thousand cubic meters. The minor increase of gas carries fleet is expected to 2014, but after 2016 the fleet replenishment will begin, it is connected with the implementation of new gas liquefaction facilities.

3. The expanding of the number of market participants (geographical and corporate). The process of sector restructuring has begun: new resource providers and consumers are entering the markets. The deployment of infrastructure for LNG gaining in the U.S. and the EU allowed to form the global natural gas market, flexible, balanced in terms of number and diversity of suppliers and consumers5, scaled and integrated, including American, Asian and European “centers”.

5 In 1985 there was the only country-consumer – Japan, which dominated on the global LNG market, providing more than 73% of world consumption; in 2002 Japan bought 50% of the world LNG volume, South Korea – 17% and the EU – 28%; in 2008 Japan provided only 40% of the LNG consumption, the EU – 22%, South Korea – 17%, India and the U.S. – 5% each. In the last 10 years the traditional main suppliers of LNG – Indonesia, Malaysia and Trinidad and Tobago – have been supplemented by Qatar, Nigeria, Australia, Oman, Algeria, Egypt and several other suppliers.

4. The long upward trend of rise in gas prices, which have somewhat corrected the world financial crisis during the last three years, and the increase of supply of LNG and shale gas to the market. Thus in 2009 the USA took the lead in the world natural gas production, overtaking Russia. This resulted in the redirection of LNG trade flows from the United States to Europe. In particular, the Qatar LNG suppliers, without the demand for their own production in the U.S. market, have been forced to establish a market in Europe. Thus, the shale gas entry to the markets has provided a temporary reduction in the price of this fuel. Experts predict a decline in price growth rates of the resource in the next few years.

5. Gas conflicts, particularly between Russia and Ukraine, have politicized the market. Gas has become a subject of political debates. A whole range of new investment projects and institutional initiatives has been launched in recent years in order to minimize political risks and reduce the pressure of gas suppliers and transit countries (duplicating pipeline projects, the third energy package, etc.).

6. The growth of the volumes of spot and futures gas market, the reduction of the market sector, where long-term contract prices, tied to the oil price, are in force. In the last 10 years a smooth “decoupling” of oil and gas prices has been happening.

19

Gas production and consumption, 2010

7.0

92.420,9

9.4

9,8

17.3

5.5

6.5

10

16

54

105

32

.0

72.030.3

26.97.1

44.1

8,8

0.8

5

1,8

2

8

Houston Hub

5.4

6.2

16

4.1

10.9

21

18.8

6.3

14.920.1

36.5

17.75.2

43.3

8.23.9

Brazil

Venezuela

Peru

Argentina

United States

Mexico

Canada

AlgeriaLibya

Egypt Saudi Arabia

Iraq

Iran

Russia

China

Ukraine

Индия

PakistanBangladesh

Myanmar

Thailand

Indonesia

Australia

Norway

Nigeria

Malaysia

Japan

Netherlands

United Kingdom

Italy

Trinidad and Tobago

Bolivia

Colombia

Henry HubUSA

GoldenGate Center

Waha Hub

Alberta Heren NBPindex

Germanmarket

Japanese LNG market

611.0683.4

650

13813780.4

29

106.4

4.1

93.857

43.670.5

84 8445.161.3

97109

6251

40.382

Qatar

116.720.4

2057

66.535.7

55.3 68.9

94.576.1

7.6

UAE

60.551

5030.4

475

159.893.8

8.16.5

4,5

10.9

3.7

Source: Center for Strategic Research “North-West”, based on EIA DOE, BP Statistical review 2010, Russian Energy Ministry, Gazprom, Rusenergo, Naftogaz

Top gas consuming countries, billion cubic meters, 2010

Gas flows2010

Main centers of price-setting

Gas net importers in 2010

Gas net exporters in 2010

Gas pipeline, billion cubic meters

LNG, billion cubic meters

Gas production in 2010, billion cubic meters

Gas consumption in 2010, billion cubic meters

Average gas prices in main markets, 2010, US$ per million BTUs

LNG average prices, 2010, US$ per million BTUs

Top gas producing countries, billion cubic meters, 2010

AustraliaIndia

United Arab Emirates

EgyptUzbekistan

United KingdomMexico

AlgeriaNetherlands

Malaysia

IndonesiaSaudi Arabia

ChinaNorway

QatarIran

CanadaUSA

Russia

Mexico

Germany

USARussia

IranChinaJapan

Canada

Italy

India

United Kingdom

United Arab Emirates

Saudi Arabia

UkraineFrance

Uzbekistan

EgyptThailand

NetherlandsArgentina 43.3

43.645.145.145.546.957.6

61.960.568.976.181.383.9

93.893.894.5

109.0136.9

475.0683.4

50.450.95155.357.159.161.366.570.580.482.083.9

96.8106.4116.7

138.5159.8

611650

Resource balance

Center for Strategic Research “North-West” Foundation 20

The forecast of gas market transformation

1. Further growth of consumption. The gas can become the dominant fuel in energy in the beginning investment cycle (the period of large-scale investments in the modernization of existing and construction of new facilities) as the cheapest, low-carbon and available resource. In China, the gas demand will be the largest in the world: by some assessments it will rise up to 6 times by 2030 compared to 2005.6 It is necessary for China in coming years to reduce dependence on coal in power industry and to carry out the transition to more ecological types of generation. Gas consumption in other Asian countries and the Middle East will grow faster than on the traditional markets (4.6% and 3.9% respectively).7 In Europe the key changes are expected around 2020, when decline in conventional gas reserves will occur, and Europe will have to double the import of LNG and shale gas by 2030

2. The further globalization of the market at the cost of the further growth of LNG delivery, but the assessments of the market volume are different. According to the forecast of JSC “Gazprom” the annual production of LNG will exceed 500 million tonnes, or about 700 billion cubic meters of gas by 2020. The BP forecasts, that LNG production could reach 476 billion cubic meters by 2020. Moreover m LNG market gains a global character with the developed trade infrastructure.

3. Since the early 2020s rapid growth of gas production is expected in the Middle East, North America and countries of the former Soviet Union. A key region in the LNG trade in the next 10 years will be the Middle East, which will have 40% of all LNG facilities by 2020. Indonesia, on the contrary, may become a net importer of gas.

4. New gas transport routes. In 2011 it is planned to begin the construction of trunk gas pipeline Nabucco, which will transport gas from Turkmenistan and Azerbaijan, bypassing Russia; later the following projects will be activated – Persian Pipeline (pipeline from Syria, Iraq, Iran) gas pipeline Nigeria - Algeria - Spain and others. Another aim of such projects is the reduction of transit risks of Russian gas delivery (primarily, Nord Stream and South Stream - 2). The value of suppliers, focusing on the marine transportation of gas, will increase on the natural gas market; thus, Australia is claiming to the role of the leading player in the supply of LNG.

6 The Outlook for Energy. A View to 2030. ExxonMobil.

7 Energy Outlook 2030. British Petroleum.

5. In the next 3-5 years the high competition among gas sellers on the major markets at relatively low gas prices will remain the same. In 2015 (according to some estimates, in 2020) gas prices rise will restore due to increased demand pressures.

6. In the context of the global gas market establishment the unconventional gas in the United States may play a role similar to that played by the oil reserves in the North Sea and the pipeline Texas - New York to form the modern structure of the world oil market, where such sorts as Brent and WTI, and the London and New York raw materials exchanges are the basic elements of the pricing system. It should be taken into consideration that the North American market is the most competitive. Its rules can be used to form the institutional base of the world market.

7. The increase in the amplitude of prices fluctuations, liability to speculation. The emergence of new gas crisis is possible.

8. The gradual markets integration, with the important role of regulators (the third energy package of the EU).

9. Consumer strategy is aimed at further liberalization and expansion of the number of gas suppliers. The liberalization and strategy of the number of gas suppliers expansion in the EU8 has become the most notable process of the last years; it means the development of a highly competitive gas market. Gas transport systems of the EU countries are transformed into a single network; there is a tougher regulation, designed to ensure an equal access to the “tube” and underground storage facilities; gas transport system is already reversible and has on its western and southern borders the chain of LNG regasification terminals.

10. The emergence of players who make a bet on the increase of the sectors with gas use, especially in transportation. How reasonable is the increasing number of vehicles, working with LNG?

8 Since 2004 the EU has been introducing a rule of free choice of gas suppliers for all industrial enterprises (since 2007 - for all consumers). The opening of national gas markets creates new conditions for direct access for gas producers to consumers, bypassing the vendors. Then a number of documents aimed at forming a common EU energy market, reduction of the influence of monopolies.

21

Gas market lifecycle

EU’s 1st, 2nd and 3rd energy packagesRules and standards on renewable energyOil-linked

gas prices

National markets

- utilization of associated gas from oil fields and coal mines- first uses in everyday life- absent transport infrastructure

Local resource1880–1920

1930–1960

- expansion of transport network- interregional trade- stable/regulated prices- expansion of the energy resource base

- production growthstable or decreasing prices

- production growth- low prices (?)- expansion of the energy resource base- market integration

LiberalizationGlobalization

1980–1990

2000–2010

Coal

crise

sEm

erge

nce

of c

heap

oil

Oil turned intomain fuel resource

Asi

a’s

indu

stri

aliz

atio

nC

omm

odity

sup

ercy

cle

Construction start of LNG infrastructure (Qatar, 1997)

Decisions on pricesderegulation adopted(1979)

Gas industry recognizedas natural monopoly inthe United States (1938)

Establishment of OPECnationalization of oil industries in some countries

First gas stoves

Depletion of West Texasoil fields, oil peaks passedin the United States

19

73

and

19

79

oil

cris

espo

litiz

atio

n of

oil

supp

ly

Golden age

Decoupling of oiland gas markets

Rise in M&A deals; industry consolidation; reinforcement of state-owned companies

Emergence of shale gas markets

Widespread adoption of spotmarket contracts

Emergence of new players

Discovery of oil fieldsin the Netherlands(1959)

Disputes between Russiaand gas transit countries(Belarus, Ukraine)

First concepts of transport fuel switching to natural gas

LNG drop in prices.First LNG sea terminalsin the US and UK

Manufactured coal gasfor street lighting

US gas industry subsidies

Gas Exporting Countries ForumDebate on OPEC-like organization

Resource balance


Gas production and consumption, 2030

Gas consuming countries, 2030

Others29%

USA16%

Middle East13%

Russia12%

China6%

India 3%

Japan 3%

Canada 3%

Brazil 1%Australia 1%

South Korea 1%

Source: Center for Strategic Research “North-West”, based EIA DOE, BP Statistical review 2011, Gazprom, Novatek, Ukrainian Ministry of Energy and Coal Industry

Gas producing countries, 2030

Gas net importers in 2030

Gas net exporters in 2030

Gas pipeline, billion cubic meters

LNG, billion cubic meters

Gas production in 2030, billion cubic meters

Gas consumption in 2030, billion cubic meters

Gas flows2030

Russia20%

USA15%

Middle East15%

Africa9%

Latin America6%

Canada 4%

Australia 4%

China 3%

Mexico 2%

India 2%

Brazil 1%

Others 20%

LatinAmerica5%

Mexico3%

Africa4%

7.0

92.420,9

9.4

9,8

17.3

5.5

6.5

10

16

54

105

32

.0

72.030.3

26.97.1

44.1

8,8

0.8

5

1,8

2

8

Houston Hub

5.4

6.2

16

4.1

10.9

21

18.8

6.3

14.920.1

36.5

17.75.2

43.3

8.23.9

Brazil

Venezuela

Peru

Argentina

United States

Mexico

Canada

AlgeriaLibya

Egypt Saudi Arabia

Iraq

Iran

Russia

China

Ukraine

Индия

PakistanBangladesh

Myanmar

Thailand

Indonesia

Australia

Norway

Nigeria

Malaysia

Japan

Netherlands

United Kingdom

Italy

Trinidad and Tobago

Bolivia

Colombia

Henry HubUSA

GoldenGate Center

Waha Hub

Alberta Heren NBPindex

Germanmarket

Japanese LNG market

611.0683.4

650

13813780.4

29

106.4

4.1

93.857

43.670.5

84 8445.161.3

97109

6251

40.382

Qatar

116.720.4

2057

66.535.7

55.3 68.9

94.576.1

7.6

UAE

60.551

5030.4

475

159.893.8

8.16.5

4,5

10.9

3.7

23

The issues to be resolved

1. How reasonable is the “gas optimism”? Perhaps in the coming years politicians and regulators will rise question about the optimal share of gas generation in order to ensure the “stability” of the energy balance.

2. How long the gas resources will be enough to ensure the rapid growth of consumption? There are no accurate predictions for these processes in the expert community now. Will the new “gas crisis” occur? When will the world Hubbert peaks9 on gas be passed?

3. Whether macroregional markets will close up together and what rules they will obey? As an “ideal model” of the gas market formation experts often take an example of the USA, which has now a developed market infrastructure, trading and rules of gas pricing.

4. What would be the prevalent form of agreements on natural gas contracts: spot prices, stock trading or long-term contracts? For example, the prices on the USA gas market, becoming the world key market due to the consumption growth, are traditionally defined exactly on the spot and futures markets. Simultaneously there is a reduction of market sector with long-term contract prices, tied to the oil prices, around the world.

5. Will the number of market players grow due to LNG, shale gas?

9 The Hubbert peaks on resource (oil, gas, etc.) – is the world production, which was or will be achieved. The oil peak was first theoretically predicted by american geophysicist King Hubbert, who created the model of known reserves. In 1956 Hubbert correctly predicted that production of oil from conventional sources would peak in the continental United States around 1965-1970, and the world production would reach its peak at 2000.

6. Whether there will be the nationalization or, on the contrary, privatization (liberalization) of gas resources, taking into account the high cost and scale of the projects? Whether the concentration will increase or, on the contrary, the restructure of the sector will begin?

7. Whether the gas is an independent resource or it exists as part of the “ideal mix” with the renewable energy sources, and gas generation plays only the role of peak suppliers? In particular, the assessment of many states-consumers is that the gas is a fuel, dominating only in the period of transition to “renewable” energy balance, as due to technological point of view, it is a perfect balancer for alternative energy sources.

8. What kind of impact these processes have on Russia? Russia, as a key gas supplier, will likely be under pressure from a range of new solutions (institutional, technological, design), that will be initiated and implemented primarily by consumers.

9. What competences will be required by technologically different? Are the labor markets of traditional gas market players ready for technological sophistication of the sector?

10. Whether the rise of gas production in the Arctic will occur? At the moment it strongly depends on the world prices on raw materials and on the level of technologies development?

11. Whether the “ideal mix” will be created in power industry basing on gas and the RES?

Resource balance


Oil: 2010–2030

The trends of energy resource base change

1. The peaks of oil production are already passed in some countries, which play an important role in the provision of world consumers. World production peak, according to some estimates, has already been passed (2007), according to the others – it will happen in 2050. Assessments dispersion is very wide. In the USA, the largest oil consumer, the peak production was passed in 1970. In Russia, the independent from OPEC oil exporter, the peak was probably in 2010. The largest OPEC exporters – Saudi Arabia, Iran, Venezuela, Libya, Oman – have also already passed the peak of raw materials production. In combination with the growth of absolute consumption that gives a long-term trend in growth of prices for this raw material.

2. The shift of oil production projects in deep geological structures and far out to the sea. The replenishment of global raw materials base is varied out due to the development of non-conventional oil and offshore areas in countries, that didn’t belong to the most important players in the market, in particular Canada, Brazil. Deep-water fields are about a half of the discovered oilfields since 2006. Since 2000, the world deep-water oil production increased three times and reached 5 million barrels per day, and by 2015 it will rise to 10 million barrels per day. The richest regions in terms of deep-water oil are the Gulf of Mexico, coast of Brazil and the western coast of Africa. Growth of offshore developments in recent years has led to increased demand for offshore vessels. Thus, according to IHS Fairplay forecasts, in 2020 the number of offshore vessels will be about 9.3 thousand units compared to 7.4 thousand units in 2010. The rate of the vessels number growth will remain approximately the same in all segments. By total deadweight the most significant increase will be in the number of the fleet in the segment of offshore platforms and vessels for their service and in segment of drilling vessels.

3. Geographical distance of the deposits from customers, the technical complexity of the projects lead to increased prime costs, as well as to the growth of “nominal” of investment projects. The volume of investment into new types of projects is so high that they can only be carried out by the international consortiums of mining companies, and the question about the deposits is a crucial factor of mining companies’ capitalization.

4. The non-conventional oil sources and relevant technological solutions are invested mainly by the developed countries. Geography of non-conventional oil production growth: 83% of production in 2030 will belong to the United States and Canada. Developing countries (excluding China) are practically do not execute non-conventional oil production and do not invest in exploration of such deposits. Russia exploits the resources of the Soviet developments. Mexico does not update its energy resource base, etc.

5. Risks associated with the global shortage of hydrocarbon resource base are still quite high. Experts point out that the long-term trend of oil prices rise is connected with the depletion of reserves.

6. The oil prices rise changes the conditions of competition in motor fuel markets. Thus, the prices rise provides more attractiveness of such segments as:

a. Liquefied gas for cars; b. Biofuel; c. Electric vehicles. There are the researches, which show

that the volumes of investments in electric transport technologies correlate with the oil prices;

d. Synthetic fuel from coal and shale; e. The increase of effectiveness of internal combustion engines

with the ensuring of motor fuel consumption reduction.

25

Oil proved reserves changes, 2000–2010

Source: Center for Strategic Research “North-West”, based on EIA DOE, Bundesanstalt fuеr Geowissenschaften und Rohstoffe, UKERC, The Global Oil Depletion Report, 2009, Sсhlumberger – Worldwide heavy oil by country

Oil proved reserves, billion barrels, 2010

<10

10–50

50–100

>100

Oil reserves growth areas, 2000–2010

Estimated heavy oil reserves in 2010, billion barrels

Oil reserves decline areas, 2000–2010

Reserves in 2000, billion barrels

Reserves in 2010, billion barrels

datePeak oil by country,

Yemen 2001Syria 1996

Australia 2000Colombia 1999Argentina 1999

Egypt 1993Oman 2001

Indonesia 1997United Kingdom 1999

Libya 1970Norway 2001

Venezuela 1970Mexico 2003

Iran 1974United States 1970

Russia 1987

Billion barrels per year

2000 2005

Shell

TotalUppsalaCampbel

EnergyfliesMiller Meling

LBSTOPEC

US EIA

BGRIEA

2010 2015 2020 2025 2030 2035 2040 2045 2050

Forecasts for peak oil and post-peakproduction decline rates

8%

7%

6%

5%

4%

3%

2%

1%

0%

Fo

reca

sts

for p

ost

-pea

kpr

odu

ctio

n de

clin

e ra

te

Peak oil date

Peak Oil Consulting

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500

Canada

Iran

Russia

Brazil

Mexico

Ecuador

Argentina

United States

Algeria Libya

Egypt Saudi Arabia

Iraq

Kuwait

Kazakhstan

China

India

Nigeria

Indonesia

Australia

Norway

United Kingdom

Venezuela

72.6

48.5

7.3

30

253

5.4

12.29.2

37454

22104

190

96

24

5.64.8

3.05.1

3.32.8

2.7

262

190

263

44.229.5

28.4

21.7

6.610.7175.2

2,550

4,9

112 137.6

89.7 76

0,00 500 1000 1500 2000 2500 3000 3500 4000 4500

2000 2005

Shell

TotalUppsalaCampbel

EnergyfliesMiller Meling

Peak Oll Consulting

LBSTOPEC

US EIA

BGRIEA

2010 2015 2020 2025 2030 2035 2040 2045 2050

19.1

125

10.4

137 296

2,200

12.8

16

2.5

115

447

60

264

20

402

Resource balance


Brazil

Peru

Argentina

UnitedStates

Canada

Algeria Libya

Iran

Kazakhstan

China

India

Nigeria

Indonesia

Australia

Norway

Venezuela

Russia

Saudi Arabia

Iraq

262,4175,2

137,6115,0

104,0

296

97,860,0

44,337,2

30,025,4

20,419,1

12,812,2

73%10%

3%

3%

2%

9%

СШАРоссия

Конго

Бразилия

Италия

Остальные страны

272

113,8

66,8

0

50

100

150

200

250

300

Канада Россия Казахстан 01990 1995 2000 2005 2010 2015 2020 2025 2030 2035

20

40

60

80

100Неконвенционная нефть

Природный газоконденсат

Неразведанные месторождения нефти

Неразработанные месторождения нефти

Имеющиеся месторождения нефти

Gulf of Mexico

Oil reserves: 45 billion barrels

US and CanadianAtlantic continentalshelf

Oil reserves:3.82 billion barrels

Alaska

Oil reserves:26.6 billion barrels

North Sea andArctic continentalshelf

Oil reserves: 74.8 billion barrels

West Africancontinental shelf

MediterraneanSea



Sakhalin

Oil reserves: 450 million tonnes

Brazilian continental shelf

Oil reserves:12 billion barrels

New oil producing areas, 2010

Oil proved reserves, 2010, billion barrels

<10

10–50

50–100

>100

Shale oil reserves

Continental shelf oil and gas

Oil sands and heavy oil reserves

Source: Center for Strategic Research “North-West”, based on EIA DOE, Bundesanstalt fuеr Geowissenschaften und Rohstoffe U.S. Offshore Oil and Gas Resources, Oil and Gas Journal, IEA World Energy Outlook 2010

Oil production costs, US$ per barrel

Middle Eastand NorthAfrica oil

Conventional oil Deep oil Heavy oil Arctic oil Shale oil

min

max

Production by type of crude oil,billion barrels per day

01990 1995 2000 2005 2010 2015 2020 2025 2030 2035

20

40

60

80

100Unconventional oil

Natural gas liquids

Crude oil: fields yet to be found

Crude oil: fields yet to be developed

Crude oil: currently producing fields

Countries with the largest oil reserves,billion barrels, 2010

AlgeriaBrazil

USAChinaQatar

KazakhstanNigeria

LibyaRussia

UAEKuwait

IraqIran

CanadaSaudi

ArabiaVenezuela

12.212.819.120.4

25.430.4

37.244.3

60.097.8

104.0105.0

137.6175.2

296262.4

27

Arctic oil potential, 2010

Greenland

Canada

Russia

1

56

7

9

10

14 15

2

8

Thule

Murmansk

Тикси

Pevek

Barrow

Prudhoe Bay

Longyearbyen

WSB 1

AA 2

EBB 1

EGR 1

YK 2

AM 3

WGEC 1

LSS 1

NM 1

BP 2

EB 1

NKB 1

TPB 1

NGS 1

LM 1

SB 3

LA 1

NCWF 1

VLK 1

NW

LS 1

LV 1

ZB 1

ESS 1

HB 1

NWC 1

MZB 1

NZA

A 1

TUN 1

CB 1

LS 1

JMM 1

FS 1

AA 1

AM 2

AM 1

NWC 2

AM 4

SB 1

SB 2

FS 3

FS 2

WGEC 3

WGEC 2

WGEC 5

WGEC 7

NG

S 2

EGR 2

EGR 3

EGR 4

EGR 5

EGR 6

EGR 7

NM 2

BP 1

EBB 2

EBB 3

TPB 2

TPB 3

WSB 2

YK 1

LA 2

LA 3

LSS 2

LSS 3

EB 2 EB 3

EB 4

LM 2

LM 3

13

3

4

1211

21

Undiscovered oil,billion barrels

Major oil and gas projects

Main Arctic ports> 10

1–10

0,1–1

< 0,1

area not quantitatively assessed

area of low petroleum potential

Projects Operator

Pechora Sea (Russia) Lukoil/Conoco Phillips, Sevmorneftegaz

Barents Sea (Russia) Sevmorneftegaz, Gazprom, Total, Statoil Hydro

Barents Sea (Norway) Eni Norge AS, Statoil

Beaufort Sea (Canada) ConocoPhillips, Gulf Canada

Arctic Islands (Canada) Panarctic Oils, Suncor, ConocoPhillips, Gulf Canada

Beaufort Sea (Alaska) Shell, BP Exploration Alaska, Eni Petrolеum, Pioneer natura

Chukchi Sea (Alaska) Shell

1211

13

1514

43

21

76

109

5

8

Province code Province Resources

WSB West Siberian Basin

AA Arctic Alaska

EBB East Barents Basin

EGR East Greenland Rift Basins

YK Yenisey-Khatanga Basin

AM American Basin

WGEC West Greenland East Canada

LSS Laptev Sea Shelf

NM Norwegian Margin

BP Barents Platform

EB Eurasia Basin

NKB North Kara Basins and platforms

TPB Timan-Pechora Basin

NGS North Greenland Share Margin

LM Lomonosov-Makarov

SB Sverdrup basin

LA Lena-Anabar

NCWF North Chukchi-Wrangel Foreland Basin

VLK Vikitskii BasinNWLS NorthWest Laptev Sea ShelfLV Lena Vilyui BasinZB Zyryanka BasinESS East Siberian sea BasinHB Hope BasinNWC Northwest Canada Interior BasinMZB Mezen' BasinNZAA Novaya Zemlya Basins and Admiralty ArchTUN Tunguska BasinCB Chuckhi BorderlandYF Yukon FlatsLS Long StraitJMM Jan Mayen MicrocontinentFS Franklinian Shelf

Resource appraisal,million barrels of oil equivalent

3,659

29,960

7,406

8,902

5,583

9,723

7,274

3,115

1,437

2,055

1,342

1,807

1,667

1,349

1,106

851

1,912

85

98

172

376

47

19

2

23

NQA

NQA

NQA

NQA

NQA

NQA

NQA

NQA

Source: Center for Strategic Research “North-West”, based on USGS, “Assessment of Undiscovered Oil and Gas in the Arctic”, Gautier et al., Science, May 2009

Resource balance


Canada Russia

Venezuela

Brazil

Mexico

United States

Algeria

EU

Libya Egypt

MiddleEast

Kazakhstan

China

India

Africa

Japan

Indonesia

Australia

360876

1,3142,299

8392,183

1,533

1,533

438

3,577

4,000

1,500

1,300

4,000

5,584

1,7153,467

11,424

7,847

3,978

985547

1,569

401

599

308

1,680.8

975

1,028553.6

1,043.1

400

438

433

200

1,128

1,533

1,168

1,614

1,314

20

438192.6

1,171.7

765

Саудовская Аравия13%

Россия11%

США 10%

Бразилия6%

Канада6%Ирак

5%Китай5%

Каспийский регион4%

Иран3%

Кувейт3%

ОАЭ3%

Алжир3%

Нигерия3%

Катар2%

Венесуэла2%

Ангола2%

Мексика1%

Ливия1%

Индия1%

Остальной мир13%

США21%

Китай15%

Индия4%

Япония4%

Юж ная Корея3%Россия

2%М ексика

3%Канада

2%

А встралия1%

Б лиж нийВ осток

9%

Л атинская А мерика

7%

А фрика4%

Остальной мир25%

Oil production and consumption, 2030

Source: Center for Strategic Research “North-West”, based on EIA DOE, UKERC, The Global Oil Depletion Report 2009, BP Statistical Review 2011

Oil producing countries,2030

Oil consuming countries,2030

Oil net importers in 2030

Oil net exporters in 2030

Oil flows, million barrels, 2030

Oil consumption, 2030, million barrels

Oil production, 2030, million barrels

Saudi Arabia13%

USA21%

China15%

India 4%

Japan 4%

Russia2%

Canada 2%

South Korea 3%

Mexico 3%

Australia 1%

Middle East 9%

Latin America 7%

Africa 4%

Others 25%

Russia11%

USA10%

Brazil 6%

Canada6%Iraq

5%China

5%

Caspian region

4%

Iran3%

Kuwait3%

Algeria 3%

Nigeria 3%

Qatar 2%

Venezuela 2%

Angola 2%

Mexico 1%

Libya 1%

India 1%Others 13%

UAE 3%

29

Coal: 2010–2030

The trends of energy resource base change

1. Volumes of proved reserves haven’t increased recently.

2. There are polar assessments of achievement of world production peaks of effectively produced reserves: due to the most pessimistic forecasts - in 2014, due to more optimistic forecasts – in 2045.

3. If the existing production rates are kept, reserves will be enough for more than 200 years for some countries (including large consumers – the USA and Russia).

4. Local coal deficits are already visible (e.g., China with its transport restrictions).

5. Enlargement of coal delivery requires the deployment of new transport infrastructure.

The main long-term trends in coal markets

1. Total coal consumption will continue to grow in absolute terms. The main factor of the consumption growth will be the development of economies of South-East Asia, especially Chinese one. However the prospect share of coal in the energy balance is open to question now. The coal demand depends on the growth rate of other basic energy resources prices: oil and gas, as well as on the level of technological development, investment attractiveness and resource availability in other energy sectors (first of all RES and nuclear power. If a number of expert organizations. reported in the early 2000s about the occurrence of “coal renaissance”, basing on the performances of the industrial growth in Asia and growing attention from the West to coal as the most reliable (compared to oil), safe (compared to the nuclear generation), available (compared to gas) resources, in the last few years most long-term forecasts of the global transformation of the resource balance show a decline of the coal share. Thus, the share of coal in primary energy production in the world can reduce to 30%, the absolute volume of coal consumption in the world will increase by 10%.

2. The consumption growth will occur up to 2030 in the countries outside the OECD (2% of growth per year). It is predicted that the coal demand in developing countries will increase by 60%, while in developed, on the contrary, will fall by 30-50% in comparison with 2005. Most of all the coal consumption will rise in China (60%) and India (95%) At the same time India will consume about 10% of the world coal, and its level of consumption will meet Europe and North America taken together. The efforts of the largest consumers – China and India – are increasingly focused on reduction of dependence of national energy on coal. China seeks to get away from coal dependence to other resources, and in the decade 2020-2030 the growth of coal consumption in China should be not more than 0.3% per year. According to the BP after 2020 the growth of coal consumption in India and China could slow down or even stop, and the drivers of the further growth will be the poorest countries.

3. The reduction of consumption in the developed and some developing countries is expected to be gradual. This will depend on the introduction of ecological legislation and on the dynamics of the prices of basic energy resources and the availability of technological base. In OECD countries coal consumption will decline (-1.2% in 2010-2030). There are recent data on the removal of coal from the energy balance, even in states where the electricity is largely built on coal (in particular, the USA and Australia). In European countries the decline in coal consumption has a long trend and is partly explained by the depletion of

reserves. The region began to depend on imported raw materials before other major consumers, and it is now gradually moving away from high-priced resource (the UK – from 1920). For example, in 2009 the export of American energy coal decreased in almost all European countries10. Furthermore, it was the EU countries who first prepared restrictions on emissions of carbon dioxide, actually “discriminating” coal generation.

4. Over the past few years the global coal market has been filled with a number of new net importers. In addition, state – traditional coal exporters show increase of their own consumption with the rate outstripping export growth. These are the countries realizing the transition to an industrial economy and using for the industrialization the existing (the most available) resources – Colombia, Venezuela, Indonesia.

5. The expansion of sea coal trade. On the one hand it allows to respond more flexibility to the increased demand. On the other hand the development of the sea (spot) trade makes the market more influenced by speculation and external factors, and leads to a general increase in prices, as deposits are drifting away from the main centers of consumption, and the cost of the resource transportation increases. The energy coal shipping is rising by an average of 7% annually. The volume of international coal trade amounted 941 million tonnes in 2009 (16% of consumption). There are two key regional markets:

a. The Atlantic Basin market – importing countries in Western Europe, particularly France, Germany and Spain.

b. Pacific market, which consists of the Asian importers (Japan, Korea and Taiwan). Pacific market is about 57% of world energy coal shipping.

6. The pressure on coal generation continues to increase from the environmental legislation. For example, in the USA more than 100 coal generation projects are currently canceled or delayed, or canceled due to lack of sufficient funds (investors perceive these investments as more risky than the investments in the renewable energy sector), and to the uncertainty of the future of coal generation.

7. There is a growing price competition with gas and other energy resources, especially in terms of possible levy of tax on carbon dioxide emissions. The terms of widespread dropout of old generating capacities based on coal are coming in many industrialized countries. Their dropout is supposed to compensate with the gas generation, increasing the share of nuclear and renewable energy. But at present there is no guarantee that it will be coal plants that will be reinvested. In the period from 2004 to 2008 there was no growth of this resource consumption under the absolute total growth of energy consumption in most of developed countries with a large share of coal in energy generation. Most of the countries, which energy is based on the use of coal (the USA, China, Canada, Australia, Germany, Japan, South Korea), have announced their strategies to move to a new technological platform of energy and a gradual decline of the share of generation by coal. Russia is one of the exceptions here. In particular, the General scheme of electric power facilities placing stipulates the increase of coal generation to 2030.

8. Clean coal power is open to question. It requires large investments and subsidies from the government. “Clean coal” is already available technologically, but economic effectiveness of technologies will be estimated only after 2020. “Clean coal” projects are subsidized by countries with large resource reserves or share of coal generation.

10 In Great Britain it reduced by 36% (1.24 million tonnes) — to 2.24 million tonnes, in Spain – by 85% (0.84 million tonnes) — to 0.15 million tonnes, in the Netherlands – by 18% (0.6 million tonnes) — to 2.68 million tonnes, in Germany – by 42% (0.53 million tonnes) — to 0.73 million tonnes. The USA increased twice the export of energy coal only in Portugal — from 0.25 to 0.39 million tonnes.

Oil consuming countries,2030

Resource balance


Coal reserves changes, 2003–2010

China

109

129

3.5

3.1

3.5

3.1

7

3.1

28.1

49.1

107.9

36.8

39.4

52.3

62.2

54

4.6

49.1

107.9

115

134

82.3

2

42.5

39.5

52.3

62.2

3

31.3

11.9

4930

6.6

238249

6.6

34.3 31.2

157157

114.5114.5

58.684.3

76.282.9

United States

Canada

Colombia

Venezuela

Algeria

Nigeria

Egypt

Iran Pakistan

India

Thailand

Australia

Mozambique

Argentina

Chile

Brazil

TanzaniaCongo

South Africa

Japan

Mongolia

Kazakhstan

Indonesia

United Kingdom

Germany

Norway

Poland

Ukraine

Russia

Turkey

0

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

2 000

4 000

6 000

12 000

10 000

8 000

14 000 Uppsala high case

Uppsala high case

Source: Center for Strategic Research “North-West”, based on BP Statistical Review of World Energy, EIA DOE, Energy Watch Group, IEA, Russian Ministry of Energy

Coal proved reserves,billion tonnes, 2009

< 1

1–10

10–50

> 50

Hard coal reserves, 2009

Lignite reserves, 2009

Hard coal reserves, 2003

Lignite reserves, 2003

Coal reserves decline areas over the last five years

Areas where coal reserves estimates have not been revised since 2005

Peak coal by country, million tonnesUnited Kingdom Germany Japan United Kingdom

(trend line)Germany

(trend line)Japan(trend line)

0

18151825

18351845

18551865

18751885

18951905

19151925

19351945

19551965

19751985

19952005

100

150

100

300

250

200

350

Pro

duct

ion,

milli

on

tonn

es p

er y

ear

Forecasts for peak coal World coal production forecast,million tonnes per year

Co

al p

rodu

ctio

n, m

illio

n to

nnes

per

yea

r

University of Texas

Uppsala standard case

14,000

14,000

Europe andEurasiaMajor exportersSouth AfricaAustraliaIndiaChina

Russia

USA

12,000

12,000

10,00010,000

8,0008,000

6,0006,000

4,0004,000

2,0002,000

31

Coal market lifecycle

Stagnation

production growthstable priceskey energy resource

Golden age1850–1920

1940–1960

fluctuation in productionstable or decreasing prices

production growth price instabilitycoal's closing role in the energy mixcompetition with hydro and nuclear

production volatility price volatilitycompetition with gas and renewableenvironmental regulatory pressuretransition to clean coal?

Coal renaissance1980–1990

New roundof globalization

2000–2010

Coa

l cri

ses,

lock

outs

and

st

rike

s in

the

UK

and

US

Oil cheaper thancoal Open-pit mining:

generation cost-efficiencygrowth

CCGT widespreadadoption

19

73

and

19

79

oil

cris

es

Asi

a's

indu

stri

aliz

atio

n.

Com

mod

ity s

uper

cycl

e

Coal removed from energy use intransportation

Intergovernmental Panel on Climate Change. Ratification of the Kyoto Protocol.

Environmental pressure on coal

Nationalization of the UK mining industry

Mine privatization programs adopted in the UK.Electricity marketliberalization

Industry consolidation in the United States

Depletion of traditionalbasins in Germany, the UK and severalUS states

Coal removedfrom energy use inreal estate

Resource balance


Coal production and consumption, 2010

Source: Center for Strategic Research “North-West”, based on EIA DOE, BP Statistical review 2010, Indres and Pinchin-Lloyd, Rosinformugol, Russian Federal Statistics Service

Major coal net importers in 2010

Major coal net exporters in 2010

Coal flows, million short tons (1 short ton = 0.907 metric tonne)

Largest coal exporting ports

Largest coal importing ports

China

USA

India

Australia

South Korea

South Africa

Japan

Germany

Poland

Kazakhstan

Turkey

500 1,000 1,500 2,000 2,500 3,000 3,500

Russia

Top coal consuming countries in 2010,million tonnes

3,152.3

907.6

622

226.5

208

108.6

164.7

135.8

128

102.8

93

79.2

China

USA

India

Australia

Indonesia

South Africa

Germany

Poland

Kazakhstan

Turkey

Ukraine

500 1,000 1,500 2,000 2,500 3,000 3,500

Russia

Top coal producing countries in 2010,million tonnes

3,050

973.2

557.6

409.2

323

252.5

250

183.7

135.1

101.5

84.3

73.7

10

3 050,0

973,2

557,6409,2

323252,5

250,0

183,7135,1

101,5

84,3

73,7

3 152,3

907,6

622,0226,5

208108,6

164,7

135,8128,0

102,8

93,0

79,2

Brazil

Venezuela

Chile

Argentina

UnitedStates

Canada

Algeria Egypt

Iran

Kazakhstan

Russia

China

India

Thailand

Indonesia

Australia

PolandGermany

Ukraine

Romania

Norway

United Kingdom

Colombia

AlbaniaSpain

Serbia

SouthAfrica

Japan

Mongolia

37.5

47.5

51.5

7.2

23.2

62.0 22.4 5.3

275.6

28.5

12.3

42.7

12.1

218.8

9.1

29.7

8.4

4.5

2.2

41.4

2.1

Mexico

10

24.3

NewcastleRichards Bay

Banjarmasin

Riga

Vostochny Port

RizhaoJacksonvilleYokohama

Ulsan

MundraAcapulco

Mobile

European coal market

Asian coal market

North American coal market

33

Coal production and consumption, 2030

Производители угля, 2030 годПотребление Угля, 2030 год

Производство и потребление угля, 2030 год

Brazil

Venezuela

Chile

Argentina

United States

Canada

Kazakhstan

Russia

China

India

Thailand

Indonesia

Australia

PolandGermany

Ukraine

Romania

United Kingdom

Colombia

AlbaniaSpain

Serbia

SouthAfrica

Mozambique

Japan

Mongolia

34.8

14.6

46.5

70.5

3.7

22.6

87.1

399.4

2.8

60.8

13.5

42.7

12.1

217.2

17.2

18.3

11.3

7.0

9.5

63

Mexico

62.6

24.0

6.0

0.815

24.3

Newcastle

Richards Bay

Banjarmasin

Riga

Vostochny Port

RizhaoJacksonville

MundraAcapulco

Mobile

46.5 34.8

YokohamaUlsan

European coal market

Asian coal market

North Americancoal market

Source: Center for Strategic Research “North-West”, based on EIA DOE, BP Statistical review 2010, Rosinformugol, Russian Ministry of Energy, Russian Federal Statistics Service, Platz

Coal producing countries,2030

Coal consuming countries,2030

Major coal net importers in 2030

Major coal net exporters in 2030

Coal flows, million short tons(1 short ton = 0.907 metric tonne)

China48%

China51%

USA14%

USA13%

India6%

India8%

Australia 6%

Australia 2%

Japan 2%

South Korea 1%

Canada 1%

Africa 3%

Latin America 1%

Others 15%

Russia 4%

Russia 3%

Africa 4%

Latin America 2%

Canada 1%

Others 15%

Largest coal exporting ports

Largest coal importing ports

Resource balance


Nuclear power: 2010–2030

The main long-term trends of nuclear power generation development

1. Since the early 2000s a surge of interest in nuclear power was observed in the world, it was called “nuclear renaissance”. Currently 61 reactors are under construction, about 500 reactors are designed or planned in the next two decades. 49 countries intend to implement the nuclear program in the next two decades. According to some forecasts, the development of nuclear power could increase up to 70% to 2030.

2. However in March 2011 an event occurred that can significantly affect both on the economics of the project and the long-term forecasts of nuclear power growth. It was an accident at the “Fukushima-1” plant; a full assessment of consequences of which have not still been carried out. Also there sre no principle decisions on cancellation of already announced projects. However several states stated that they refused implementation of new nuclear reactors (in particular, Germany, Switzerland, Italy, Venezuela). Some time ago such decision was made by Japan, which declared the gradual withdrawal of nuclear energy from the energy balance. The prolongation of implementation and increase of cost of new nuclear facilities should be expected as an another significant consequence of the accident at the plant. The requirements to the objects’ safety will be reviewed to toughening that may require to correct the projects of stations’ construction. A number of countries are implementing additional nuclear technology audit for security objects. Requirements to strengthen security measures are likely to lead to an increase in the cost of nuclear generation and the projects of stations’ construction.

3. The accident at the Japanese nuclear power plant has again demonstrated that nuclear technologies are extremely dangerous. Destruction of such magnitude as a rule go beyond the scope of a “national” case, and in any case they cannot be handled by the companies, operating the plant. The questions about the creating of a single global security system, the transformation of the nuclear fuel market into the centralized and about strengthening of supranational governance arrangements of the sector management are increasingly raised. In this case one of the international organizations - the IAEA or WANO, set up after the Chernobyl disaster, can claim to the role of key player. Cooperative research and industrial projects will become widespread. But while the international regime for the sector has not received the institutional design.

4. The “nuclear renaissance” will continue at least in Asia. China will continue to be the core of the growth. In 2010 the country built facilities of nuclear generation in capacity of 10 GW, but it was claimed to rise the total nuclear capacity up to 70-80 GW by 2020, it requires the construction of six reactors per year during a decade. Currently, the country is building nuclear reactors with a total capacity of 33 GW, it should be completed by 2015. Between 2015 and 2020 it is planned to reduce the construction of new nuclear reactors from six to four years. It is supposed that the accumulated power plant in China in 2030 will reach 200 GW, and by 2050 - 400 GW.

5. The decision market in the nuclear sector becomes stationary, mature. It is a widespread process of competencies distribution. The threshold of the “newcomers” entry to the markets has greatly decreased in recent years. Thus by 2016 China will be able to put the construction AP 1000

“on stream” (country has already made this decision.) Most of the new technological projects, competing with each other (AP 1000, EPR 1600, ATMEA-1, APR 1400, ESBWR), belong to the III / III+ generation, with the similar parameters of safety and reliability. Customers of such projects focuse on the characteristics of cost and terms, and the quality / flexibility of training project. The question about the new nuclear power plant proposal economy, and not about the unique technical skills, remains a key in a medium term. The main reserve of economy is the optimization of business processes: the cost and timing of construction (including logistics), modern building materials, etc.

6. Taking into account the high degree of uncertainty of capital costs for the construction of nuclear power plants today, a variety of risks of implementing nuclear projects and its funding requires a broaden participation of the state. State support of the nuclear power plants construction can be in the form of direct government funding, loan guarantees and guaranteed return on investment through the state-regulated electric power markets.

In China the construction of nuclear power plants is carried out by state companies on the centrally approved five-year plans of national development. In France nuclear energy market is dominated by two large state-owned companies – AREVA and EDF. In Russia the development of nuclear energy is managed by the State Corporation “Rosatom” integrating the construction, operation of nuclear facilities and fuel cycle. The country has a Federal target program for the development of the nuclear industry. In Japan the Government provides loan guarantees for foreign sales of the reactor. In India the National Government funds the construction of nuclear power plants. In 2005 the USA Congress adopted the basic package of incentives, including loans and guarantees for the construction of nuclear facilities.

Technological trends in the nuclear sector

1. Nuclear power is a mature sector, the most important technological component of which became the design of the reactor and the station, rather than new scientific developments. It is expressed, for example, by the fact that the innovations are adopted most actively out of the industry – in the area of new construction materials, projecting, innovation in business processes, etc. Traditional players increasingly take the management of the supply chain upon themselves (technological chains), leaving themselves the development of standards and requirements for thousands of suppliers and configuration of design partnerships. Such strategies are implemented by AREVA, GE-Hitachi, Westinghouse.

2. There is recently a reconstruction of technological chain of nuclear power, that is partly also connected with the optimization of stations building technology. The main directions of changes:

a. Modular assembly or assembly of the reactor on the site. So Westinghouse AP 1000 uses a modular design of construction, which involves the remote production of building modules with the subsequent delivery to site and installation, while AREVA EPR builts on the site.

b. The alignment of more flexible supply chain. Machinery and equipment for nuclear power plant include high pressure reactor and support equipment. Most of the support equipment is similar to that required for non-nuclear (e.g., fossil fuel power stations and chemical plants).

35

3. One of the key contenders for the future technology leadership in the sector is China. The country quickly reaches the technology copying, using the experience of others. It stakes on the use of cheaper factors of production and the optimization of business processes, and on the fact that the whole technological chain is copied and optimized, and not its separate elements. It is an integrated technological chains that compete with foreign suppliers, and not the individual suppliers.

4. Horizons of scientific research are the development of new types of reactors. The implementation of these basic researches is often based on cooperative projects.

5. The main investor in R & D is still the state. Nuclear science programs continue to have primary (compared with other energy researches and developments) access to budget finances. During the last three decades nuclear R & D have over 50% of public spending on research, development and demonstration projects in the field of energy. The same situation is common in Japan, which does not have nuclear weapons. It should be noted, that according to the International Energy Agency the cost of nuclear researches in the field of nuclear synthesis reached its peak in around 1980, and since 1985 has been steadily declining. And the most of the costs were attributable to Japan and France.

Nucleoelectrica Argentina SA 1PHWR, 1CANDU CONAUR SAHaykakan Atomayin Electrakayan VVER TVELElectrabel PWR ArevaNEK EAD VVER ТVELEletronuclear PWR SiemensBritish Energy 14AGR, 4Magnox, 1PWR British Nuclear FuelsMVM Group VVER TVELE.ON, EnBW, RWE, Vattenfall 11PWR, 6BWR SiemensNuclear Power Corporation of 18PHWR, 2BWR Nuclear Fuel Complex ANAV, CNAT, Iberdrola, Nuclenor 6PWR, 2BWR ENUSA, Westinghouse Ontario Power Generation, Bruce Power, Hydro-Quebec, NB Power

CANDU Cameco

CGNPC , CNNC 4PWR, 4CNP, 2ВВЭР, Westinghouse, Areva, CNNC, Comision Federal de Electricidad BWR General ElectricEPZ PWR SiemensPAEC 2PWR, 1CANDU CNNC, PAEC Rosenergoatom 16VVER, 11RBMK,4EGP-6 TVELNuclearelectrica CANDU FCNSlovenske elektrarne VVER TVELNuklearna Elektrarna Krsko PWR Westinghouse25 companies, largest are: Exelon, Progress Energy, FirstEnergy, Energy Future

69PWR, 35BWR Areva, Westinghouse, Babcock & Wilcox, General Electric

Taiwan Power Company 4BWR, 2PWR, General Electric, Energoatom VVER TVELTVO, Fortum 2BWR, 2VVER Westinghouse, ТВЭЛElectricite de France PWR ArevaCEZ Group VVER TVELSwissnuclear 3PWR, 2BWR Westinghouse, General Vattenfall 7BWR, 3PWR Westinghouse Eskom PWR WestinghouseKHNP 10PWR, 7OPR, 4CANDU Korea Nuclear Fuel TEPCO, Kyushu , Chubu, Tohoku, Shikoku, KEPCO, Hokuriku, Chugoku, Hokkaido, JAPC

23BWR, 3ABWR, 24PWR Toshiba, JFNL, Mitsubishi Heavy Industries, Hitachi, Nuclear Fuel Industries

Country Operators Types of reactors Fuel suppliers

Argentinta Armenia Belgium Bulgaria BrazilUnited Kingdom Hungary Germany IndiaSpain

Canada

China Mexico Netherlands Pakistan Russia Romania Slovakia Slovenia

Taiwan Ukraine Finland France Czech Rep. Switzerland Sweden

South Korea Japan

South Africa

United States

Commissioning of new reactors as statedby national strategy papers in 2011

0

20

40

60

80

100

120

Existing reactors

Reactors under construction

Reactors to be commissioned by 2030

Reactors whose commissioning by 2030is under research

Brazil

Canada

China

France

Germany

India

Japan

South K

orea

Russia

United K

ingdom

United Sta

tes

Resource balance


ABWRTaipei

АР 1000Zhejiang

(6)

АР 1000 (6)Shandong

АР 1000N. Carolina

АР 1000S. Carolina

АР 1000GeorgiaАР 1000 (4)FloridaАР 1000 (2)

Alabama

Dieppe

EPROlkiluoto

US-EPR (2)Virginia, Maryland

EPR (6)Jaitapur

EPR Jaitapur

APR 1400Shin Kori

APR 1400

APR 1400Shin Kori

VVER1200Leningrad obl.

VVER 1200Akkuyu

VVER1200Akkuyu

US-ABWR (2)Texas

ABWR Matsue

ATMEA

CANDUAlberta

CANDUSinop

CIAE, INETBeijing

“First Academy”Chengdu

GenevaGrenoble

DubnaObninsk

MumbaiHyderabad

MNRCSacramento

Nuclear Energy InstituteWashington, D.C.

SHERDIShanghai

NINTXian

WestinghousePennsylvania

Toshiba, Tokyo

Areva, ParisMIT, Boston

Max Planck Institute, Heidelberg

SeverskDimitrovgrad

Sarov

EPR (2)Wales, Gloucestershire

VHTRSCWR

VHTR,GFRSFR, SCWRLFR, MSR

VHTR,GFRSFR, SCWRLFR, MSR.

VHTR, GFR,SFR, MSR

VHTR, SFR

VHTR, SFR,SCWR, MSR

GFR,VHTR, SFR

VHTR, SFR,GFR

VHTR, GFR

MSR,GFR, SFR,SVBR (LFR)

SFR

LFR

SFR

Japan

South Korea

FranceBelgium

Switzerland

United Kingdom

IV generation reactors

VHTR

GFR

SFR

SCWR

LFR

MSR

Very high temperature reactor

Gas-cooled fast reactor

Sodium-cooled fast reactor

Supercritical water reactor

Lead-cooled fast reactor

Molten salt reactor

* ITER (International Thermonuclear Experimental Reactor) is an international project to design and build an experimental fusion reactor to address physical and technological challenges.

MNRCSacramento

Key to map symbols

Nuclear research centers

III+ generation reactors under constructionand on order, by type and number of units

ITER participating countries*

Countries conducting research on closed fuel cycle

VHTR, SFR IV generation experimental reactors, by type and country

АР 1000 (4) Florida

Nuclear energy companiesby market segment

New technologicalmarkets (water desalination,back–end, standardizationetc.)

Construction ofreactorsand NPPs

Back–end,R&D inadjacentspheres

2016

Uniquedesign

Modularor standard design

Back–end,adjacenttechnologies

AREVA

HITACHIAECLKHNP

MITSUBISHI

WESTINGHOUSE

CNEIC

ROSATOM

Newmaterials

2020s

Atomic Energy of Canada Limited (Canada)

Areva (France)

General Electric – Hitachi (USA – Japan)

Korea Hydro and Nuclear Power Company (South Korea)

Westinghouse (USA)

Rosatom State Nuclear Power Corporation (Russia)

China Nuclear Energy Industry Corporation (China)

Mitsubishi Nuclear Energy Systems (Japan)

Logos and names of nuclear energy companies on the map

Euratom

ABWR (6)Matsue, Higashidori, etc.

EPR

VVER1200Novovoronezh

HITACHI

HITACHI

HITACHI

HITACHI

Nuclear research centers, R&D and new-generation reactors

Source: Center for Strategic Research “North-West”, based on Areva, IEA, IAEA, ITER, Mitsubishi, GE-Hitachi, KHNP, NTI, NEI, Clean Energy Info Portal, Westinghouse, Generation IV International Forum, WNA, Rosatom, Bochvar VNIINM

37

The back-end of the nuclear fuel cycle

The back-end of the nuclear fuel cycle is a series of technological processes that take place after the production of electric power from nuclear power plant, it covers management of spent nuclear fuel, including its recycling, radioactive waste (air conditioning, disposal). The market will grow, but its economy is still not known.

Spent nuclear fuel

Several models of treatment with spent nuclear fuel are accepted in the world.

1. Some countries – Russia, Japan, France, the UK, India, China – chose a closed nuclear fuel cycle, that means that the discharged from the reactor fuel is recycled to extract uranium and plutonium for re-fuel production. These countries have their own production capacity of fuel.

2. Some countries do not recycle the spent nuclear fuel, equating it to the high-level waste and thus keep it on bystation or centralized storage, suggesting further bury of them in geological formations. Many countries, that pursue such policy, have previously recycled the spent fuel on their territory or abroad – the USA, Canada, Sweden, South Korea, Finland, Slovakia, the Czech Republic, Hungary, Germany, Spain, Romania, Lithuania, Taiwan

3. Some countries do not have their own capacities for fuel recycling, but it is processed at facilities of Russia, UK and France. They are the Netherlands, Italy, Bulgaria.

4. A number of countries haven’t made a final decision in favor of a closed or open cycle (“delayed decision”). For the present they keep the spent fuel at bystation or centralized storage, waiting for the moment when the advantages and disadvantages of the two types of cycle become more obvious and when the term of the possible storage of spent fuel will expire and will need to decide for recycling or disposal in geological formations. These countries are Armenia, Argentina, Mexico, Pakistan.

5. There are countries that, developing its nuclear power, expect to take the nuclear fuel on lease, and therefore they do not need to create an infrastructure for spent fuel and high-level waste (Belarus, Turkey, Jordan, Vietnam, Bangladesh, Egypt, Iran).

6. The last group of countries, while conducting a particular policy, seeks to change it in the future or find different combinations. We are talking about Belgium, Ukraine, Slovenia, South Africa, Brazil, the United Kingdom.

Shut down reactors, 1960–2009

by country total

0

5

10

15

20

25

2,000

4,000

6,000

8,000

10,000

Uni

ts

Net

cap

acity

, MW

e

1960–1964

1965–1969

1970–1974

1975–1979

1980–1984

1985–1989

1990–1994

1995–1999

2000–2004

2005–2009

ArmeniaBelgium

KazakhstanLithuania

Netherlands

Spain

CanadaSlovak Rep.

SwedenJapan

1 each

2

3 each

4 eachBulgariaUkraine

ItalyRussia 5 each

11France

19Germany

United Kingdom 26

United States 29

Source: Center for Strategic Research “North-West”, based on IAEA, World Nuclear Association, International Panel on Fissile Materials, Commissariat a l’Energie Atomique

Resource balance


Renewable energy

The majority of Russian researches on energy development in Russia and in the world usually give to renewable energy sources a modest place. The share of these resources in the energy balance of Russia is not more than 1%, although renewable resources have significant prospects in the long term.

The main long-term trends in renewable energy development

1. The share of renewable generation will grow up in the world, regardless the potential and terms of the commercial recovery of technologies. At present there are almost no forecasts indicating the slowdown of investment in renewable energy.

2. In most countries renewable energy is hardly to be called a liberalized competitive energy market, as its priority development is consolidate at the state level and subsidized with tariff and other measures.

3. Economics of renewable energy is fundamentally different from the economics of traditional generation, so it is difficult to implement the economic comparison. Technologies of renewable resources are under commercialization and scaling, so payback of projects lie outside the traditional investment / infrastructure cycles (are about 20-30 years for different types of generation, although declining rapidly). In fact, now the investing in renewable energy is “investment in the future”, respectively, it can be made mainly due to the active position of the state.

4. The fastest growing industry shows in China. Energy production on the base of renewable energy sources in China increased by 77% in 2010. As a percentage to GDP renewable energy is 1.4% of China’s GDP. And although by this indicator China loses to Denmark (3.1%), in absolute terms China has already passed it ahead: technology and production in the field of renewable energy sources gives China 44 billion euros against 6.1 billion euros, which Denmark gains on a “clean” energy. Large growth of renewable energy is also shown in the USA: 28% growth per year and the market size of 31.5 billion euros.

39

Solar energy, 2030

Source: Center for Strategic Research “North-West”, based on World Energy Council, DOE, Russian draft program of energy sector modernization to 2020

94,000North

America

Africa62,000

CentralAsia

20,000

China26,000

India33,000

Australia & New Zealand

South America19,000

23,000EU

Russia12.5

10,000

Africa18%

Middle East15%

North America28%

Central Asia6%

India10%

China7%

Asia Pacific3%

South America6%

EU7%

Russia

Solar power generation,2030

0%Africa10%

Middle East12%

North America28%

Central Asia4%

India10%

China8%

Asia Pacific3%

South America6%

EU18%

Russia

Solar power consumption,

1%

MiddleEast

50,000

10,000–20,000< 10,000

20,000 –30,00030,000 –50,00050,000–70,000> 70,000

Solar power installed capacity,2030, MW

World insolation per year,kWh/sq. m

> 2,100

1,700–2,100

1,350–1,700

1,050–1,350

< 1,050

2030

Resource balance


Regional trends in hydropower development to 2030

Source: Center for Strategic Research “North-West”, based on Norwegian University of Science and Technology, European Small Hydropower Association, TU Graz Institut fuer Elekrizitaеtswirtschaft und Energieinnovation, WEC, ANDRITZ

Country typology based on hydropower development

Areas with water shortages resulting in declining hydropowershare in electricity generation

Small hydro potential by 2030

Hydroelectricity generated by country,2030

Large-scale hydropower plants use

Small hydropower plants use

Areas for the development of large-scale pumped-storage facilities

Hydro generation is expected to grow, but there is little clarity as to what technologies will be used

Stable or declining hydro generation

N.a.

Million tonnes of oil equivalent

USA EU

Asia Pa

cific

Japan

Caspian re

gion

Russia

ChinaIn

dia

Middle East

Africa

South A

meric

aBra

zil

North America:largest investment in themodernization of hydropowerplants

Turkey:over100 smallhydropower plantsto 2015

India:construction of pumped-storage plants to store waterfor land improvement

Asia:modernization of existing hydropowerplants, use of new sites

South America:construction of large-scaleand small hydropowerplants

Europe:widespread modernization of existing hydropower plants, commissioningof pumped-storage facilities

41Investment, institutions, infrastructure

Investment in the energy sector, 2010–2030

0

2,000

4,000

6,000

8,000

10,000

12,000

Cumulative investment in energyinfrastructure, by energy source, $ billion, 2010–2030

Bio fuel

Electricity

Gas

Oil

Coal

0

10

20

30

40

50

60

China

Germany

USAIta

lyBra

zil

Canad

aSpain

France

India

Clean energy investment, $ billion, 2009–2010

Investment in 2010Investment in 2009

0

50

100

150

200

250

2004 2005 2006 2007 2008 2009 2010

Investment in clean and high-carbonenergy, $ billion, 2004–2010

High-carbon energy

Clean energy

25%

15%30%

10%

20%

Australia

100%

Brazil

10%5%

80%

5%

France

5% 3%2%

60%

30%

Canada10%

20%

30%10%

10%

10%

10%

United States

3%7%

10%

15%10%

10%10%

35%

Germany

10%10%

60%

15%5%

United Kingdom

< $2 trillion

$2–3 trillion

> $3 trillion

Cumulative energy investmnent needs, 2010–2030

0%

0%

10%

80%

0%0%

10%

Japan

60%10%

30%

China

50%40%

10%

India

10%20%

15%15%

40%

Russia

5%20%

10%10%

30%

25%

Italy

5%5%60%30%

Belgium

ССS

Clean coal

Vehicle technologies

Solar power

Nuclear

Bio

Wind

Other

R&D investment, $ million, 2008

North A

meric

a EU

OECD Asia

Pacific

Russia

Non-OEC

D Asia

ChinaIn

dia

Middle East

Africa

South A

meric

a

EU-27

(IT and G

E

excluded)

n.a.

3,119

597

45

40

402

1,021

185

459

107

99

63

2,455

433

Source: Center for Strategic Research “North-West”, based on IEA World Energy Outlook 2010, open data


Conclusion

At the basis of the Atlas are the long-term forecasts of the leading analytical institutions, major companies, think tanks, international agencies, made in the long term. However, it is almost impossible to reduce forecasts and future vision of more than 150 used sources to a common picture of the world. During the work we fixed that national energy strategies and policies of key powers, as well as foresights, scenarios and forecasts on which they are based, differ substantially. This just proves the multivariate future.

Forecasts of the future of energy is largely dependent on the vision of society, belonging to the “traditional” or “innovative” sectors of the economy, as well as being in the cores of the world markets or on their periphery. The impact of political decisions and preferences on energy forecasts should be also taken into account. Thus, the image of the energy future depends on the global market position, and core sectors and technologies in each country (or group of countries), the influence of various interest groups and the players of the energy market on energy policy.

The most obvious divergences are observed in the responses to questions about the available volumes of production and consumption of hydrocarbons and coal; markets potential and the cost of renewable energy; areas, volumes and sources of investment; system architecture; effectiveness of international agreements in the field of energy (including the adaptation of the legal norms and institutions).

Three major investment cycles can be marked out in the history of power industry of industrialized countries, the duration of each cycle is at the average 40-60 years, and it is defined by exploitation term of major generating facilities and energy infrastructure. Every time the launch of a new investment cycle had a systemic impact on the energy – the resource and technological portfolio were changing, as well as the system infrastructure. The period of the fourth cycle launch comes currently.

The world is in a phase of global design and decision-making for the next 40-60 years. This is indicated by “turbulence” of raw materials markets; the growing investment “bubbles” and a large number of high-risk projects in new technological directions; the number of managerial decisions made by the players of various sectors; the speed of technological changes. That is why we consider the next 20 years as “transitional”, which will be marked by structural and technological restructuring of energy.

To respond to the many uncertainties that accompany the sector reconfiguration is possible only by formulating own vision of the future. According to the results of two years work on the Russian Energy Foresight, with the involvement of more than 100 Russian and foreign experts in total, we made two “polar” target models, which will be a base for energy systems of different countries in the next 20 years, also we identified the main scenarios of transformation.

43Conclusion

Two basic models of energy structure

The models are formulated on the basis of assessments of external factors influence on the energy complex, as well as assessments of the players’ strategy – the countries and companies, that claim to leadership in energy markets.

1. The first model is the “Energy Efficiency +”. It means the conservation of the current based on principle centralized architecture of energy, which is dominated by large generators and powerful, unbalanced networks (including superconducting). Enlarged and obtained the financial, organizational, lobbying and technological weight energy and fuel corporations will seek to ensure the preservation of the existing principal model of energy. These corporation will “preventively” execute the new requirements of the society (the consumer), such as greater price transparency, possibility of provider’s choice, environmentally neutral character of energy production and greater efficiency of resource use. Hydrocarbons and coal will continue to be basic resources in this model; its use will be limited by their “physical” exhaustion and infrastructure constraints (possibility of transportation, etc.). Large hydro and nuclear generation will be also wide-spread. Energy resources markets will be established on a principle of “global resource - local generation”. Among the most claimed technologies will be the following: different energy efficient solutions (as the price of the main resource will gradually increase); new technology in the carbon energy production and processing; as well as a variety of solutions that increase the ecological compatibility and safety of basic resources. The USA, Canada and some countries of the EU should act as technological leaders in this model, and other countries, including Russia, India, Brazil, China, Mexico, etc., will have to import technology in the extent necessary to gain access to their own mineral resources or shelves. Model requires a steady enhancement of the energy resource base, what may lead to different market and political conflicts for the available stocks.

2. The second model is “New Energy Paradigm”. The essence of this “new paradigm” model is that the consumer gains an ability to manage not only the consumption, but also production of energy and its supply. This means that “consumer-producer” becomes a full-fledged subject of the energy market. The used consumption-production technologies should be configured in such way that all of the produced energy would be presented and could be used (100% efficiency ideally).

The technological base of the new paradigm consist of:

1. “Active houses”, which can not only keep, but also generate the resources, as well as to deliver them to the networks.

2. Scaled (more attractive in cost than traditional resources) technologies of energy production from locally accessible resources, which include renewable energy sources as the main.

3. Electric vehicles connected to an active network that can not only supply, but also to accept the electrical energy stored in the “distributed battery” of electric cars park, for example, to cover peak energy needs.

4. Network solutions that integrate distributed sources and “producers-consumers”.

5. Various technologies of energy storage, etc.

The construction of a new paradigm means a large-scale transformation of cities – they must cease to be the exclusive energy consumers, becoming a net producer. The model of “smart” or sustainable city will become mainstream. Energy networks should be completely reconstructed. Markets and their infrastructure will be configured on a “local resource - global energy market” principle. Technology markets offering scaled solutions will be also globalized.

The main motive of the transition to the new model is the achievement of generation cost reduction by gains from the adoption of new technologies. For example, wind power has a chance to reduce the cost significantly with the adoption of high-temperature conductors, and it is just one of many examples.

States, which have already created conditions for change of energy model, can be the first who prctise the technological and structural transition marked above. These include the USA, implementing the program of widespread urban and infrastructure modernization, and the program of network building; the EU countries, which have legally set the priorities in the sphere of energy balance restructuring and generously subsidizing the programs of technological renovation of energy, housing, communication systems (networks, transport etc.); other states or individual urban agglomerations, which have long-term plans for the structural transformation of the economy. It is obvious that areas, which didn’t make a decision concerning the future of the sector, will also eventually reconstruct their power systems, but already on the basis of imported technologies.


Energy transformation scenario

In the medium term so-called “gas pause” scenario can be implemented in the global energy. It is obvious, that gas is currently more effective in generation than renewables, coal (resources increasing in price), hydro and nuclear power. Investment flows allow to judge the changes of the global energy balance in the direction of “gas generation + renewable energy sources”. Oil will remain the basis of transport fuel, but will gradually reduce its value in the balance and give way to new types of biofuels and fuels from other resources (coal, gas, and first of all electricity). Coal continues to be the “closing” resource, but the limits of its use growth will further be defined by infrastructure limitations and possible reinforcement of environmental pressure on this resource in the near future. The volume of input “carbon-free” nuclear and hydro generation will depend on the available amount of finance (mainly public) for major projects. The demand of large “energy fields” will remain primarily in countries with growing energy systems (China, India, Vietnam, etc.).

The reason for the “gas pause” is a global competitive and mobile gas market, scaled solutions for gas generation, and the lack of accurate data on the peaks of production. However the stake on a one resource can gradually destabilize markets. Besides the relatively low gas prices are unlikely to remain for long, what will require moving to a more balanced energy at the turn of the 2020s.

The changes in the countries will not obviously go together, but with different speeds. Two major players that will determine the speed and scale of the changes are the United States (which is currently the largest economy, and this is where we fixed the highest dynamics of the development and application of new energy technologies, ambitious projects, large-scale infrastructure projects, favorable institutional environment, etc.) and China (the leader in terms of economic growth and resource consumption, which claims to the position of the driver of global growth in the next 20 years). Probably China will also be forced to restructure its energy model in order to ensure competitiveness. The intention of the country’s transition to effective way of development and restructuring of the balance is shown by the adopted programs and implementing project.

2010-2030-ies can be called transitional. The building of separate elements of the “new paradigm” model by 2030 is probable in different territories. The rate of penetration of the “new paradigm” will be determined by the market and technological accessibility (scale) of its elements, the formation of the energy storage market, as well as the integration of new elements and traditional (existing) facilities in total Smart Grid; the basic configuration of distributed, active, “cellular” network, which intergrates the multiple micro nets, will be determined by 2020. Such a scenario can be called balanced. The condition for this scenario realization is the reduction of the cost, access to the competitive position of renewable sources, the availability of private investment in the sector in an amount sufficient for the deployment of new markets, and the promotion of energy renovation of the state. This scenario assumes a gradual transformation of the energy balances to the direction of carbon-free energy: coal, oil and gas will gradually lose its importance in the energy balance, and the potential of hydro and nuclear power will depend on how effective and integrable in the new architecture of power systems the proposed decisions will be.

The concept of “new energy paradigm” can become firmly established by the 2040s.

There is a paradigm “tuning” at this stage. The key elements for an existing cycle are:

1. Restructuring of business processes on the energy market. The key market players are the technology companies (suppliers of technology solutions), and in fact not the power one. There is a creation of a partition for breaking the barrier between consumer and producer and putting a new player on the market – sellers and owners of facilities that have built capacity.

2. The putting of new investors and capital sources in investment markets: venture investments; funds of institutional players on the stock market; reduction of capital barrier for new players (reduced scale of investment project); the financing of energy as an integral part of other investment projects.

3. The adoption of more stringent environmental constraints.

4. The launch of new regulation cycle in energy markets (access for consumers, liberalization, enlargement of electric power markets, etc.).

5. The ensuring of new investment and technological cycles in real estate and transport sector.

6. The widespread adoption of new technology packages.

45Conclusion

The main scenarios for Russian energy

The previous cycle of the power industry reforms was a necessary step, because it opened the possibility to launch the process of system financial (due to the inflow of private funds) and engineering (due to the launch of a new investment cycle) renovation of the industry. However the directions of policy and the model of the market did not take into account the following parameters11:

1. Ecological requirements.

2. The necessity to launch the new production cycle in energy (“golden age” of the existing centralized energy in its basic parameters occurred in the second half of the 20th century, but since that time the sector has entered the stage of technological maturity, the law of diminishing return has already come in force12).

3. Requirements of consumption effectiveness.

The current model of energy market hast a number of contradictions. The most visible of them is the electricity price approaching the borders of the socially acceptable parameters.

Several conflicts appeared simultaneously in the sector in the beginning of 2011:

1. The conflicts of the production chain members, which take radically different positions relative to the cost of the energy actually resolving the issue of margin appropriation.

2. The complication of investors and state relations13, despite the fact that the application of restrictions on price increases in 2011 generally correspond to the earlier adopted model of energy, and a principled change in the state position in the industry isn’t discussed yet.

3. Conflicts of “producer-consumer”. Consumers who are not satisfied with the price and quality of services are ready to respond to the growth of tariffs with the “escape from the system”, in particular with the deployment of its own generation for large consumers – leaving for the wholesale market.

Within the existing target model maneuver for the development of electric power is very limited due to the following reasons:

1. Russian energy balance resource portfolio has significantly risen in price since the reforms launch, and its cost will continue to grow (due to a long-term upward trend in foreign markets, and in the case of the establishment of supranational programs on emissions of greenhouse gases reduction); previously available abundant resources are now in deficit (exhaustion of easy produced hydrocarbons, higher cost of gas exploration and production and moving of its production areas into the remote areas, limits on the effects on ecosystems are reached in the “old” coal basins).

2. “Optimize” technologies can not any more provide the required profitability for individual investors (without significant rise in prices) and to bring private funds into the industry is now much more difficult. The industry fully shows the law of decline in returns from investments.

11 In contrast to the similar reforms in foreign countries, first of all in EU.

12 Invested funds don’t give an adequate benefits.

13 A number of investors appealed to the Russian Government in the beginning of 2011, including the open letter of foreign investors.

3. It is hardly possible to fully delegate the responsibility for sector to the business: large private capital is at least interested in the strong position of consumers (for example, the processes of consolidation of assets in the sector and in fact its oligopolistic nature).

4. Most modern “breakthrough” technologies are beyond the energy sector – in related markets (technologies of engineering and construction, transport solutions, complex network solutions, including several lines of equipment). The investment “magnets” are sectors, provided with the long-term government programs, including environmental and infrastructure – renewable energy industry, “smart grids”, including the storage infrastructure. Russia does not have an adequate tools to attract investors in these markets.

Probably we should start a discussion of a fundamental transformation of energy. Scenarios of russian energy change are based on the decision making of the two main “forks”:

1. Whether the market update will be realized or Russian energy will remain within existing markets? The extension can be both structural and geographical (e.g., by the Eurasian Economic Community, by integration into one of the macro regional systems – European or emerging Asian, for the central positions in which China will likely to claim).

2. Whether the transition to a new technology platform will be ensured or hypercentralized energy, formed in the middle of the 20th century, will be reinvested?

Space of maneuvers – is four possible strategies of the sector development:

1. Optimization, expenses reduction and improving of the system efficiency, in case if decision on a principle renovation is not ready yet and the system is in the relatively “equilibrium” state. Russian energy policy as a whole demonstrates this type of strategy now.

2. Extensive markets expansion, including getting “external” sources of resources, while maintaining the existing technology base. Such a strategy, for example, was typical for Eastern Europe that joined the EU power grid. Another example is the establishment of the Common Economic Space between Russia, Belarus and Kazakhstan.

3. Technological renovation of the existing system with the preserving its architecture and the market. A typical example is the implementation of environmental regulations and standards that stimulate owners to improve environmental characteristics of objects (CCS, etc.).

4. Innovative sector renovation, based on the launch of a set of new markets and new technologies. The strategy of new energy model formation is now implemented by key energy centers of the world. We believe that Russia as one of the leading players in energy markets should also begin to discuss the transition to innovative model of energy


Basic principles of new energy model planning could become:

1. The focus on the creation of new technology markets, which will become the investment drivers of energy (will attract the most investments from the financial market, but on the initial stage can be opened only by government subsidies).

2. The involvement of new resources and players, using these resources (to ensure the readiness for transition to the new resource portfolio, including the institutional and legal work in related sectors – strengthening of the ecological legislation, the adoption of new energy consumption standards packages14, etc.).

3. The adoption of environmental requirements, which take into account the effects on ecosystems of different types of generation during their full “lifecycle”. Such requirements may significantly change the economy of traditional energy technologies and energy resources, on the other hand – to provide the use of the most environmentally efficient resources.

The next step in the institutional reforms is the synchronization of sector reform process on all chain stages15:

a. Resources markets (first of all gas); b. Changes on development markets and other consumption

macro sectors; c. Access to new subjects nets (producer-consumer hybrids:

energy active houses, electric vehicles, etc.). This will require an adequate rebuilding of market technological infrastructure and means different networks conception — they should become “active”16.

While adopting the policy on innovation scenario of the Russian energy it is needed to specify the requirements for the system of state administration and regulation, for what the following questions should be answered:

1. To revise the basic market model of Russian power industry: what are the limits of the sector liberalization? Or is the way to increase the role of the state reasonable?

2. To select an independent regulatory subject may require the establishment of a new body (or the distribution of authority among existing).

3. Apparently, the strategic decisions in logic of “protection” - costs reduction will be the most in demand for the old companies of the sector in coming years This raises the question about the sector renovation subjects: government, consumers or companies of new type, whose core business is technology, and not the production or processing?

4. The new market model should use the unrecorded earlier factors: perspective technological base, ecological acceptability, high efficiency.

5. Russia should gain the cutting-edge competences in new energy technologies, ensure the formation of own base and projects in the sphere of CCS, storage, different Smart Grid versions, solar and wind generation.

14 Of technological and engineering companies.

15 For example the current stages of number of industrialized countries, first of all EU.

16 Namely the Active Grid concept widespread in a number of countries.

How much time do we have to make decisions?

1. In the early 2010s it is necessary: a. To define the position in the restructured resource markets

(first of all in the gas market). b. To fix the position of Russia in supranational agreements

on ecology, in particular in negotiations on the 2009 Copenhagen agreement.

c. To define the target ecological parameters for Russian energy, real estate, transport, industry.

d. To define the new target version of market model. e. To ensure the widespread adoption of renewable energy

sources and the project cost reduction (scaling up). f. To launch the restructuring of the network economy.

2. In the early 2020s: a. To realize the commercialization and widespread adoption

of wind generation. b. To formulate the key elements of the Russian Smart Grid

concept. c. Pilot Smart Cities projects. d. Demonstration projects in the area of new mobility. e. The launch of new cycle in real estate (transition to energy

active buildings). f. The integration in macro regional electric power markets.

3. At the turn of 2030s: a. To ensure the reconstruction of energy system architecture

according to the Smart Grid paradigm. b. To realize the commercialization and widespread adoption

of the solar energy. c. To conduct the essential restructuring of energy balance. d. The widespread adoption of the Smart Cities concept.

47

Center for Strategic Research “North-West” Foundation

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