Stanislav Zhiznin,D. Sc. (Economics), Professor of Moscow State Institute (University) of International Relations, President of the Center for Energy Diplomacy and Geopolitics
MODERNIZATION AS OBJECTIVE NECESSITY
European energy security and technological improvement of the Russian energy complex
Russia contributes significantly to Europe`s energy security as a major supplier of energy resources on European markets.
At the same time, Russia is not yet visible in the technological segment of European energy security, while its fuel and energy complex and related industries need replacement or modernization of outdated equipment.
Focus on energy security
The issues that should be addressed in order to identify individual countries` external energy strategy and to ensure international energy security may be grouped as follows.
First, these are issues related to the energy resource base development and its geography. That means, above all, the situation with major proven and forecasted reserves of traditional mineral energy resources (hydrocarbons, coal and uranium ore), as well as strong hydro-energy capacities in terms of cost-effectiveness of their development and output delivery to the key markets. In addition, worthy of note are economic issues related to developing nontraditional hydrocarbons (ultraheavy oil, shale and oil-bearing sandstone, shale gas, gas hydrate, etc.). Certain prospects may appear in the future for countries with a capacity for large-scale and cost-effective crop growing development, as well as a relevant industry for biofuel production, and for location and operation of large solar panel units or wind farms.
Second, these are issues related to energy resource transportation. This concerns above all sea routes for oil, petroleum products, liquefied natural gas (LNG) and coal delivery using the existing and prospective transport infrastructure. In addition, development of international oil and gas pipeline routes for oil and gas delivery and construction of high-capacity power transmission lines (PTL) for electricity supply to customer markets is of great importance.
Third, these are problems related to the development and introduction of cutting edge technologies in production, transportation and consumption of every kind of energy resources. This group should also include technologies that improve performance in energy saving and energy efficiency, and reduce environmentally harmful impacts of global energy. Both national and international energy security is also associated with the fuel and energy complex (FEC) technology level.
Russia`s major contribution to European energy security involves addressing the first and second groups of issues (resources and their transportation). As regards technological aspects, Russia is still of minor importance in this field.
The energy cooperation issues were in the focus of Russian and European Union leaders at the regular Russia-EU summits held in Rostov-on-Don in 2010 (June 1), in Brussels (December 7), and in Nizhny Novgorod on June 10, 2011. Key energy issues discussed at these meetings included the implementation of the so-called EU Third Energy Package in European Union member-countries, promotion of the Russian initiative to improve the international legal basis for energy security, and practicalities of the Partnership for Modernization build-up. New opportunities for cooperation with the EU within the Partnership may be opened in connection with the Russian leadership plans of addressing improvements in energy efficiency and in energy saving which would require large-scale tasks of obsolete equipment replacement and upgrading to be solved in the FEC and related industries.
Energy security issues are prominent in the effort of Russian and European experts working on the Roadmap of EU-Russia Energy Cooperation until 2050.
The geopolitical and economic significance of the Russia-EU Energy Dialogue goes beyond the scope of energy interests of the parties. This is due to the EU and Russia being interested in political and economic stability in Europe. They are building a long-term strategic partnership. As concerns energy itself it should be noted that the Europeans expect Russia to promote energy security of the EU, above all through continuous supply of energy resources. For Russia, energy cooperation with the EU may present additional opportunities to attract energy technology. Furthermore, Russia is to benefit from the experience of balanced relationship between business and the state existing in many European countries by applying these practices in developing its FEC and related industries. In particular, this involves establishment of economic mechanisms attracting business to take part in the modernization effort in energy producing and energy consuming industries.
International aspects of modernization
System reliability of FEC in Russia as one of the world`s major hydrocarbon exporters largely conditions sustainable and safe energy supply on the global and regional levels. It should be mentioned that a specific position of Russia makes it actually capable of being a key actor in ensuring reliability of the international system of energy supplies, especially in Europe. At the same time, this depends, in no small measure, on the technological level of Russia`s FEC.
Along with the resource and raw material base Russia has a fairly strong industrial infrastructure and intellectual capacity including within the FEC. Their development can largely promote the country`s stronger economic and geopolitical position in the world. Recently, Russian political leaders have repeatedly pointed to the need of diversifying domestic business activities in order to reduce the raw material share in the export pattern, developing high-tech and knowledge-intensive industries, and curtailing dependence on world oil and gas price fluctuations.
Modernization of basic economic sectors with a focus on cardinal improvement of their energy efficiency and energy saving, and lower energy consumption remains a key priority of Russia`s economic policy. The fuel and energy complex has a significant innovation capacity along with sizable financial resources. A higher energy efficiency capacity can save hundreds of million tons of oil equivalent (TOE) of primary energy resources. In other words, we could channel a part of resources thus saved to exports without stepping up production. Serious measures have been taken by the Russian Federation leadership in this direction.
In his December 2010 address to the Federal Assembly, President of Russia set the task of raising the Russian economy`s energy efficiency by 40% by 2020.
Improvement of energy efficiency and significant reduction of energy consumption in the Russian economy is a key priority of the Energy Strategy of Russia up to 2030, as well as of the national economic policy and policies in the field of science and technology.
Federal Law No. 261 on Saving Energy and Energy Efficiency Increase was enacted in November 2009.
Russia`s FEC modernization issues are put on the agenda of the Commission for Modernization and Technological Development of Russia`s Economy under the RF President, and they will be also discussed in the process of drafting the Energy Security Doctrine.
On December 27, 2010, the Russian Federation Government approved the Energy Saving and Energy Efficiency Improvement up to 2020 Government Program.
Measures promoting environment friendly production have been mapped in line with major Russian energy companies` plans. In this context, specific projects have been developed with a view to foreign investors being involved in their implementation. In some cases efficiency improvement is to be achieved through "natural structural adjustments" as the share of energy-intensive industries in the GDP of Russia is expected to shrink, while the share of knowledge-intensive industries and services will be increased.
At the same time, current measures are generally of a non-system and largely fragmentary nature which explains the low level of business circles` involvement in addressing Russian FEC and related industries modernization, without which the task of energy efficiency improvement is hard to achieve. In fact, in other countries it is business supported by the state that acts as the main arranger of required technology development and up-to-date energy efficient equipment manufacture.
Public-private partnership capacity
At the moment, every sector of the FEC and every energy-intensive industry (machine building, transport, iron and steel, construction, etc.), as well as housing and community amenities in Russia are facing the need to replace and upgrade obsolete equipment.
To that end, a significant part of equipment manufactured in the 1960s and 1970s is to be replaced with modern equipment meeting the more stringent standards of energy efficiency, energy saving and safety. In the short run, the deficit may be partly covered through imports, but, given the scientific and industrial capacity inherited from the Soviet Union, there are good reasons to have new equipment produced mostly in Russia.
Modernization of existing enterprises and establishment of new ones, as well as arrangement of energy equipment production require the HR issue to be addressed, especially the need for large numbers of skilled workers, while the former system of training in technical colleges and vocational schools has been essentially demolished. In order to achieve these objectives enormous funds would have to be provided by both the public and the private sector. That is why a relevant environment should be created in which not only the state but also businesses, large, medium and small, would be interested in relevant changes and reforms. This refers primarily to the development of effective organizational and legal mechanisms for public-private partnership and closer international energy cooperation with active involvement of Russian companies.
Appropriate environment is needed for both the government and business to be interested in such cooperation. A meeting of the international energy cooperation subcommittee of the Russian Union of Industrialists and Entrepreneurs (RUIE) energy policy and energy efficiency committee initiated the development of a working draft of the Private-Public Partnership Federal Program (provisionally named "The Energy") of advanced technology and new equipment introduction to every sector of the FEC, drawing on lessons learned from international experience. No doubt, new technology should be purchased, but it is no less important to make an inventory of domestic R&D products. We have our own technology which can be used and exported. Russia is able to manufacture equipment up to the best standards, and indeed there is no alternative. Otherwise the country would not find a niche for itself in the world marketplace. In this context, it should be noted that the RUIE`s position, "Russia in the International Energy Markets: Prospects for Presence", approved by the RUIE Board Bureau on June 16, 2010, includes provisions on possible involvement of the business community in, and formulation of its own vision of such a program in order to achieve specific production objectives and significantly improve the situation in the field of energy efficiency and energy security.
That program could generate clusters of energy technologies in the oil and gas industry, coal-mining, electric power generation, alternative energy industry, and development of energy saving industries, etc.
To that end, a thorough inventory should be made of the narrowest "energy bottlenecks" in the Russian economy, relevant technologies and equipment that are or can be adopted in Russia and elsewhere in the foreseeable future; industrial enterprises and research institutions in Russia should be identified that would serve as basic elements in the field, including establishment of high-tech industrial and energy parks.
Effective private-public partnership can substantially improve energy security and address a number of social and economic issues (including job creation in the manufacturing sector), and also successful entry into international energy technology and services markets. If Russia succeeds in raising energy efficiency by 40%, large amounts of oil, gas and coal would be saved. If the economy becomes more energy efficient, then alternative energy will be developed as well. That means that business may then engage, along with producing heavy equipment for the entire oil and gas industry or for power generation, in making small boilers, windmills, etc., and become a multi-line business like in the rest of the world.
Genuine public-private partnership may specifically promote achievement of the objectives set by the national leadership concerning energy producing and energy consuming branches of the Russian economy, with subsequent strengthening of national security, and will also significantly enhance the role of Russia in European energy security. There may appear real prospects for Russian energy technologies and services entering world markets. Efforts made within the framework of the Russia-EU Partnership for Modernization and drafting the Roadmap of Energy Cooperation until 2050 may have an important role to play in this process.
http://www.oilru.com/
No. 1, 2012
