Natural Gas Consumption in the CIS and the Quest for Efficiency
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Elusive Potential: Natural Gas Consumption in the CIS and the Quest for Efficiency Simon Pirani* NG 53 July 2011 *Comments to: [email protected] i The contents of this paper are the authors’ sole responsibility. They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its members. Copyright © 2011 Oxford Institute for Energy Studies (Registered Charity, No. 286084) This publication may be reproduced in part for educational or non-profit purposes without special permission from the copyright holder, provided acknowledgment of the source is made. No use of this publication may be made for resale or for any other commercial purpose whatsoever without prior permission in writing from the Oxford Institute for Energy Studies. ISBN 978-1-907555-30-5 ii Preface Most publications on CIS gas focus on supply and trade issues. But with consumption greater than any geographical region other than North America, CIS gas demand is an important and much neglected research issue. A major reason for this lack of attention is the statistical difficulty confronting researchers of this subject. Lack of public domain data, and major differences between published sources (Russian and western), possibly relating to definitions and/or measurement, means that discovery and selection of historical data is a large part of the research task. Accordingly, much of this paper is focussed on trying to establish a statistical basis from which analysis can proceed, along with identification of gaps in data, disagreements between different sources and the extent to which reconciliation is possible. Given the fact that when the Soviet Union broke up it was one of the least energy efficient economies on the planet, for the two post-Soviet decades the generalisation that conservation and efficiency measures should yield huge energy and gas savings has been uncontroversial. The problem is that the actual results have been modest both in absolute terms and certainly in relation to theoretical potential. Simon Pirani’s study investigates the reasons for this relative failure and what may need to happen to produce greater success in future. This is the most recent paper on CIS gas issues from the OIES Gas Research Programme following Simon Pirani’s edited book covering the entire region, Simon’s subsequent paper on the impact of economic recession and financial crisis, and papers on various gas contract and crises between Russia and western CIS countries. It is the first piece of research to focus on the detail of gas demand, a hugely important part of the complex matrix of CIS gas issues which forms an important part of the global gas picture. Jonathan Stern Oxford, July 2011 iii Contents 1. Introduction and overview .................................................................................................. 1 1.a. Overview ........................................................................................................................ 3 Russian regional demand .................................................................................................. 5 1.b. Gas supply for the CIS region ........................................................................................ 7 1.c. Natural gas in the energy balance ................................................................................... 8 1.d. Changes in consumption over time 1998-2010 ............................................................ 11 The decade up to 2008 .................................................................................................... 11 The effect of the 2008-09 economic crisis ..................................................................... 15 1.e. Future demand trends: the impact of rising prices, market reform and energy efficiency policies ............................................................................................................... 19 Energy policies and the implications for gas demand .................................................... 19 Energy efficiency and climate change policies .............................................................. 21 Prices .............................................................................................................................. 25 Market structure and reform ........................................................................................... 29 1.f. Natural gas consumption statistics ................................................................................ 32 2. Power and heat ................................................................................................................... 33 2.a Gas for power and heat: overview ................................................................................. 33 Historical background..................................................................................................... 36 2.b. Statistical information on gas for power and heat ........................................................ 39 Russia.............................................................................................................................. 40 Ukraine ........................................................................................................................... 45 Measures of efficiency .................................................................................................... 47 2.c The Russian power sector: reform and its impact ......................................................... 50 Electricity demand and forecasts .................................................................................... 50 Policy discussions on investment in power generation .................................................. 53 Efficiency of thermal power stations and heat-power centres ........................................ 54 Investment criteria .......................................................................................................... 56 Conclusions on the Russian power sector ...................................................................... 57 2.d. The power sector outside Russia .................................................................................. 58 2.e. District heating: the challenge of reform ...................................................................... 59 Heat consumption and heat losses .................................................................................. 61 Heat production and distribution .................................................................................... 63 Heat sector reform .......................................................................................................... 66 Conclusions on the heat sector ....................................................................................... 69 3. Industry ............................................................................................................................... 71 Chemical and petrochemical industry ............................................................................ 73 Iron and steelmaking ...................................................................................................... 76 Cement industry .............................................................................................................. 77 Conclusions on industrial consumption .......................................................................... 78 4. Household consumption .................................................................................................... 80 4.a. Gas supply to households ............................................................................................. 81 Consequences of fixed dual pricing................................................................................ 82 Future trends ................................................................................................................... 83 4.b. Gasification .................................................................................................................. 83 5. Consumption during production, transport and distribution ....................................... 86 6. Issues for future research .................................................................................................. 91 7. Factors impacting demand outlook, and conclusions ..................................................... 93 Appendix 1. Conversion factors ............................................................................................ 100 iv Appendix 2. 2008 consumption, full table ............................................................................. 102 Appendix 3. The supply mix of natural gas and other types of gas ....................................... 105 Appendix 4. Energy balances ................................................................................................ 106 Appendix 5. Russian and Ukrainian demand since the economic crisis ................................ 110 Appendix 6. Statistics ............................................................................................................ 111 Appendix 7. The Russian power sector: fuel consumption, electricity and heat output and efficiency ................................................................................................................................ 119 Appendix 8. Russia’s heat market ......................................................................................... 126 Appendix