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Global and Russian Energy Outlook to 2040

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Global and Russian Energy Outlook to 2040 THE ENERGY RESEARCH INSTITUTE ANALYTICAL CENTRE OF THE GOVERNMENT OF THE RUSSIAN ACADEMY OF SCIENCES OF THE RUSSIAN FEDERATION GLOBAL AND RUSSIAN ENERGY OUTLOOK TO 2040 Moscow, 2014 THE OUTLOOK WAS PREPARED BY: The Energy Research Institute of the Russian Academy of Sciences (ERI RAS) and the Analytical Centre of the Government of the Russian Federation (ACRF) Research Advisor: A. A. Makarov, President of ERI RAS Project Manager: T. A. Mitrova. PhD, Head of Department, ERI RAS Professor L. M. Grigoriev, PhD, Senior Advisor to the Head of ACRF AUTHORS: N. A. Arkhipov Researcher, ERI RAS Yu. V. Galkin Senior Engineer, ERI RAS A. A. Galkina Research Fellow, ERI RAS V. I. Gimadi Head of Economics, Fuel and Energy Department ACRF D. A. Grushevenko Research Fellow, ERI RAS E. V. Grushevenko Research Fellow, ERI RAS A. L. Gutnik Engineer–Researcher, ERI RAS O. A. Eliseeva PhD, Head of Laboratory, ERI RAS A. S. Ivashchenko Independent Expert on Macroeconomics N. O. Kapustin Research Engineer, ERI RAS E. O. Kozina Research Fellow, ERI RAS V. A. Kulagin Head of Centre for Global Energy Markets, ERI RAS A. A. Kurdin PhD, Head of Strategic Energy Research Department, ACRF I. A. Makarov PhD, Head of Department of World Economy, Higher School of Economics A. S. Makarova PhD, Head of Laboratory, ERI RAS V. A. Malakhov PhD, Dead of Department, ERI RAS S.I. Melnikova Research Fellow, ERI RAS E. D. Osipova Research Engineer, ERI RAS E. V. Surova Research Engineer, ERI RAS A. E. Tarasov PhD, Senior Research Fellow, ERI RAS L. V. Urvantseva Senior Research Fellow, ERI RAS A. A. Khorshev PhD, Head of Laboratory, ERI RAS D. D. Yakovleva Research Engineer, ERI RAS TABLE OF CONTENTS Introduction ...............................................3 Section 1. Baseline Scenario .................................5 Assumptions in the Baseline Scenario ......................5 Primary Energy Consumption .............................17 Electricity Generation....................................23 Liquid fuels market .....................................26 The Gas fuel market .....................................50 The Solid fuels market . .66 Nuclear Power..........................................72 Renewable Energy Resources .............................74 Primary Energy production ...............................78 International Trade......................................80 CO2 Emissions ..........................................82 Section 2. In search of boundaries ...........................86 The New Producers Scenario .............................86 The Other Asia Scenario ............................... 103 Section 3. Russian Energy................................. 111 External conditions in the development of Russian energy . 111 Domestic primary energy consumption and energy efficiency of the economy.................... 120 Production of energy resources ......................... 128 Impact of the fuel and energy complex on the economy.... 147 Appendix............................................... 153 Countries and regions ................................. 154 Energy balances ...................................... 155 2 GLOBAL AND RUSSIAN ENERGY OUTLOOK TO 2040 INTRODUCTION ERI RAS - ACRF GLOBAL AND RUSSIAN ENERGY OUTLOOK TO 2040 3 INTRODUCTION • In the year since the publication of the last forecast we have seen particular changes in the global economy which, together with developments in the fields of energy, and politics, could, in the long term, profoundly influence the development of global energy markets. • Slightly improved figures for the global economy, together with an increased UN forecast for population figures and higher energy intensity, have resulted in a forecast of increased global energy consumption. • The political process, which in the long term will create the conditions for Iran’s large-scale emergence on global oil and gas markets, has begun; together with the continued growth in shale oil production, this make for ever-increasing expectations of a supply surplus and a fall in oil prices. Last year we examined the Shale Breakthrough Scenario in detail, and the realistic growth of shale oil and gas production is covered in the Baseline Scenario, but we regard greater growth as unlikely. In this forecast we examine the New Producers Scenario in detail, assess the prospects for the emergence of new players in the oil and gas markets (above all Iran), and consider the consequences of surplus supply for the markets. Analysis of the fundamental factors showed that even in the most optimistic scenario concerning increased production, oil prices will fall by no more than $9 per barrel, while at the same time cheaper suppliers will win a share of the market at the expense of the USA and Russia. The emergence of new gas suppliers could reduce prices on the European and Asian markets by $50–60 per thousand cubic metres and also replace significant volumes of Russian (70 bcm) and potential American exports (45 bcm). • Tensions between the EU and Russia will unavoidably influence their interaction in the energy sphere. We do not regard the introduction of large- scale sanctions as a realistic scenario, but changes in the EU’s energy policies will lead, nonetheless, to significant shifts in the European energy balance, and therefore to changes in the directions of hydrocarbon supplies. • Analysis of the key drivers in the development of global energy has brought to light yet another new factor that could seriously change the conjuncture of global markets. There are good grounds for predicting that ‘peak coal’ will be reached in China and India in the next ten years, in which case the two largest and most dynamically developing Asian economies will need significant volumes of additional energy supplies, above all natural gas and coal. In addition to this, it will be difficult for China to continue to function as the ‘Workshop of the World’ given such limitations, and a great deal of industrial production will move to the other developing countries of Asia and Africa, as well as to the USA and Russia, stimulating their growth and additional energy exports. In the Other Asia Scenario we assess the influence of these conditions on the directions and volumes of international trade in energy. • All these processes will unavoidably have an impact on Russia. On the one hand, additional risks will arise and, on the whole, the likelihood of negative scenarios arising has noticeably increased. On the other hand, new opportunities will appear, such as, for example the Other Asia Scenario. • We see our task as being one of conducting regular analysis of the changes in external conditions and of the Russian energy sector’s reaction to them. This is particularly important in the preparation of the new version of the Russian Federation’s Energy Strategy to 2035, in which all the authors of this forecast are involved. ERI RAS - ACRF 4 GLOBAL AND RUSSIAN ENERGY OUTLOOK TO 2040 Section 1 Baseline Scenario ERI RAS - ACRF GLOBAL AND RUSSIAN ENERGY OUTLOOK TO 2040 5 Section 1. BASELINE SCENARIO The Baseline Scenario’s In this section we revise the 2013 Global and Russian Energy Outlook1 assumptions on GDP and (Outlook 2013) taking into account changes that have taken place. In the population have changed preparation of Outlook 2014 the methodology employed for the previous significantly, and the forecast version2 has been refined; in particular the sections dealing with oil and methodology has been refined, coal are expanded and given in more detail, with countries’ forecast energy resulting in adjustments to last consumption examined using the emergent trend of reduced GDP energy year’s forecast. intensity for different countries, with changes in the distribution of income among the population being taken into account. Assumptions in the Baseline Scenario The main assumptions in Outlook 2014 (Table 1.1) are very similar to last year’s. Table 1.1 – Basic assumptions in the Baseline Scenario Topic Assumptions Only those technologies that are already in use at the present time, or those that have been approved, have been considered. The gradually increasing Technologies competitiveness of new technologies and the continuation of the existing trend for reduction of GDP energy intensity are assumed. The continuation of existing priorities in countries’ energy policies and the gradual introduction of plans and programmes that had already been announced Energy Policy at the end of 2013 are assumed. Additional assumptions have been introduced concerning measures adopted by energy-importing countries to increase energy security. The worlds’ population is growing at an average annual rate of 0.9% and will Demographics increase by almost 2 billion to over 9 billion by 2040. Global GDP will grow at an average annual rate of 3.5%; by 2040 it will have GDP increased by 2.8 times compared to the level in 2010. Source: ERI RAS The established natural course of scientific and technical progress provides for the introduction of new technologies as they gradually become less expensive, and also maintains the established downward trend in the GDP energy intensity of both countries and regions, with a tendency for them to converge by the end of the forecast period (Figure 1.1). The absence of any significant technological revolutions or breakthroughs has been assumed. The global economy’s energy intensity for the period 1972 through 2012 decreased by 32 per cent, and a further reduction of 44 per cent is predicted for the period 2014–40. Moreover, in Outlook 2014 energy intensity
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