Russia’s large energy resources underpin its continuing role as a cornerstone of the global energy economy over the coming decades.
Russia’s large energy resources underpin its continuing role as a cornerstone of the global energy economy over the coming decades. High prospective demand and international prices for fossil fuels might appear to guarantee a positive outlook for Russia, but the challenges facing Russia are, in many ways, no less impressive than the size of its resources. Russia’s core oil and gas fields in Western Siberia will decline and a new generation of higher-cost fields need to be developed, both in the traditional production areas of Western Siberia and in the new frontiers of Eastern Siberia and the Arctic. A responsive Russian fiscal regime will be needed to provide sufficient incentives for investment. Oil production plateaus around 10.5 mb/d before starting a slight decline to 9.7 mb/d in 2035; gas production increases by 35% to 860 billion cubic metres (bcm) in 2035, with the Yamal peninsula becoming the new anchor of Russian supply. As the geography of Russian oil and gas production changes, so does the geography of export. The majority of Russia’s exports continue to go westwards to traditional markets in Europe, but a shift towards Asian markets gathers momentum. Russia gains greater diversity of export revenues as a result: the share of China in Russia’s total fossil-fuel export earnings rises from 2% in 2010 to 20% in 2035, while the share of the European Union falls from 61% to 48%. Russia aims to create a more efficient economy, less dependent on oil and gas, but needs to pick up the pace of change. If Russia increased its energy efficiency in each sector to the levels of comparable OECD countries, it could save almost one-third of its annual primary energy use, an amount similar to the energy used in one year by the United Kingdom. Potential savings of natural gas alone, at 180 bcm, are close to Russia’s net exports in 2010. New energy efficiency policies and continued price reforms for gas and electricity bring some improvements but, in our analysis, do not unlock more than a part of Russia’s efficiency potential. Faster implementation of efficiency improvements and energy market reforms would accelerate the modernisation of the Russian economy and thereby loosen its dependency on movements in international commodity prices.