Resources, technologies and finances are the three pillars of the Russian energy economy

By Vestnik Kavkaza

Due to sanctions, the Japanese Tokyo Gas is not ready to sign new contracts with Russian companies for purchasing liquefied natural gas, Reuters reports, referring to the deputy chairman of the Japanese company, Muraki Shigeru (Japan exports almost 82% of the LNG produced in Sakhalin-2). Meanwhile, the Minister of Energy of Norway, Tord Lien, stated that if the situation with imports of Russian gas to the EU worsened, Norway would increase its production and supplies to European partners. At the moment Europe depends 66% on gas imports; half of that is Russian. According to the European Commissioner for Energy, Günther Oettinger, “28 countries of the EU annually consume 450 billion cubic meters of gas. One third of the gas is produced in the EU – the UK, the Netherlands, Germany, and Romania. Two thirds is imported. Our largest gas importer is Gazprom. We buy 130 billion cubic meters from it annually. The second largest partner who provides us with 105-110 billion is the Norwegian oil and gas company Statoil.”

Another trilateral meeting on gas issues (Russia-Ukraine-EU) will take place on October 2 or October 3. In three weeks Moscow will hold the National Oil and Gas Forum, which is initiated by the Ministry of Energy and leading business and branch unions – the Russian Union of Businessmen and Entrepreneurs, the Chamber of Commerce, the Union of Oil and Gas Producers of Russia, and the Russian Gas Society.

Kirill Molodtsov, the deputy minister of energy, noted that “the forum will be the second one. The first was held in March 2013. At the moment it is a national platform for discussion of acute and important tasks of the branch. More than 1000 delegates took part in it. The exposition included 25-30 stands. This year we expect no fewer participants. At the moment the list of delegates is being corrected, as well as principles and a form of participation.”

Molodtsov says that at the forum they will discuss either internal [energy] policies (production, recycling, transit of oil and oil products) or international aspects of the Russian presence on the oil and gas markets, exports of oil and gas, and current cooperation between Russian and foreign companies on the Russian and Western markets.

“The sector, which forms a significant part of the budget and is responsible for punctually providing the internal market with oil products, faces various problems. The sector is capital intensive, energy intensive, resource intensive, I mean human resources. All these aspects will be discussed at the National Oil and Gas Forum,” Molodtsov said.

Gennady Shmal, the president of the Union of Oil and Gas Producers of Russia, thinks that the oil and gas sector is based on three pillars.

“First of all it is resources. We have been thinking a lot about enhancement of our resources. The future of the oil and gas industry and the whole economy of Russia in next 30-40 years depends on newly-discovered fields, new implemented technologies, new equipment, and the most important thing – trained staff who will deal with the exploration of new fields,” Shmal thinks.

The second pillar of the oil and gas sector is technologies. “They could even take first place. Why do I mention it? At the moment 80% of our field production comes from hard-to-extract resources. These are resources which demand new technologies of production. Today many people discuss shale oil, shale gas, but the point is not them. Shale gas is similar to ours in Urengoy, but worse. The point is that the Americans spent $20 billion, 20 years on it and managed to develop a technology of producing oil and gas from shale rocks. Shale is not burning, only what is inside is burning – oil and gas. So, of course we need technologies. Many technologies were born here in Russia, but for various reasons they were implemented abroad; and now we have to take them from foreign countries,” Shmal says.

The third pillar of the oil and gas complex, according to Shmal, is finances. “I am sure that today we are underfinancing our oil sector. Two years ago in 2012 Exxon Mobil invested almost $35 billion in exploration and production by its company. In 2012 we invested in all our oil companies about $25 to $27 billion. That’s why implementation of new technologies is troublesome, other problems occur. Companies provide exploration due to clean profit. I don’t mention football clubs and so on. Financial issues are important because our Russian banking system is not ready to support our oil and gas sector seriously,” Shmal stresses.