Russia: Energy flows, despite everything
Russian Energy Minister Novak recently exhibited to President Putin the development programs of an industry that still shows great volatility, with a sharp rise in exports (+6.8%) and investments (+15%) and a modernization of the industry

While it is difficult to "sit on one’s laurels", neither is it easy to "cry over spilled milk". Yet, despite some problems due to the sanctions imposed by the international community, the Russian energy sector is still fertile: in fact, it not only produces gas, oil and coal, but also nuclear power and renewables. On July 25, Energy Minister Alexander Novak was visited by President Vladimir Putin to explain the progress of the sector during the first half of 2016 in greater detail. It was thus revealed that the extraction of oil in this first half-year amounted to 270 million tons, that is, 2.1 percent higher than last year; the extraction of coal, on the other hand, amounted to 186 million tons, up approximately 6 percent, while gas was down 1.3 percent, due to higher load hydropower stations and a warm winter. Electricity production increased by 1 percent. "As regards exports, we have maintained a leading position in the world, despite the fact that competition is now fierce", said Novak. “Have exports increased again, as Aleksej Miller (CEO of Gazprom, author’s note) had told me?”, Putin asked the Minister. The latter confirmed: "The increase was approximately 6 billion cubic meters, i.e. 6.8 percent more than last year. Oil exports are up by 8.2%, while coal has increased by 6.2%. For the first time, the total volume of coal exports to the East has exceeded that to the West”, emphasized Novak.

Main goals: Diversification and trade

The most important task, according to the minister, is the diversification of production, along with the modernization of plants and the production of end products with high added value, which will reduce dependence on imports. Also, in the production of electricity, where machinery and equipment were almost all imported, the situation now seems to have changed. This year, investments in the Russian energy industry are planned for approximately 3,600 billion rubles, compared with the 3,100 billion of last year, with an increase of 15%.
“One of the goals we have set ourselves is to increase competition in the domestic market between businesses, and to ensure a transparent pricing mechanism”, said Novak. Specifically, in order to ensure competition, a trade mechanism is being developed through the stock exchange. For instance, in the first half of the year, the volume of natural gas trade on the stock exchange doubled, involving over 58 companies. “Therefore, even independent producers can grow”, noted President Putin. The gas has involved SPIMEX, the St. Petersburg International Mercantile Exchange, since the end of 2014. In 2015, 7.6 billion cubic meters of natural gas were sold. On the other hand, oil products have involved SPIMEX since 2008, and oil since 2013. In 2015, 15.5 million tons of oil products were sold, and over 1,900 companies participated.

Planned improvement of the electricity network

Novak has also announced that, by the end of the year, deliverable futures export contracts will be negotiated in St. Petersburg for Urals oil, from the port of Primorsk (the capacity is approximately 45 million tons of oil). “This is very important, as it will affect prices”, emphasized Putin. “The discount that we have today in the Urals–Brent price ratio, which ranges from $1 to $3 per barrel, should be reduced, so that our companies will have more profit. But the most important thing is stable pricing, which will not depend on speculations on Brent”. Just a few years ago, on the “Doing Business” index, the connection to electricity infrastructure was very low, in the 183th place in the world. The situation has now improved greatly, having risen to the 29th place. The Ministry of Energy has also developed the roadmap as regards gas connections, in order to improve times. In short, as the Russian President concluded, a lot of work needs to be done, “to seek, however, an intensive and non-extensive development, and the transition to even more efficient modern equipment and management methods".