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“A fair-weather friends’ advice: get rid of that Russian natural gas – it’s so easy in the summertime!”




"Don't hold your breath!" – smiles back the Russian Minister of Energy Nikolai Shulginov answering the question about the end of the hydrocarbons era. During his first interview with RIA Novosti as a Minister, he explained why the oil would never reach 100 USD per barrel in the nearest future. And what is the reason why the climate agenda sometimes is used to catch the hype train? In addition, what are the tax innovations for the fuel and energy complex, and what about hydrogen energy and the prospects for LNG exports. The interview by Tatyana Kiseleva and Elizaveta Vornovitskaya took place ahead of SPIEF 2021, amid the discussions on energy as a hot-button issue of the Forum.


Tatyana Kiseleva and Elizaveta Vornovitskaya (T.K.&E.V.): You took the Office in interesting times, when hydrocarbons, the basis of the Russian budget, are increasingly losing their former greatness. For times it has been spoken everywhere about the “peak oil” theory, then about “peak demand” and now - here you are - even about the "peak oil prestige". Do you think it has already come?

The Minister: Can I wrap it up in one sentence?


T.K.&E.V.: Sure.


The Minister: Don't hold your breath! (Smiling - ed.).


T.K.&E.V.: And yet, why do you think so?

The Minister: Because there is a lot of uncertainty. Now we see some countries – although not all of them – starting to think about abandoning fossil fuels and stopping geological prospecting work. And that’s because of the climate change concerns. Our general strategic development plan also prescribes the exploration reduce by 2035. But this does not mean a blanket ban or a sharp decline. These scenarios most likely will not happen.

Different analysts have different assessments. We look closely at the forecasts and think that there should definitely not be a sharp change in demand until 2035. However, we can expect certain changes in terms of the oil prestige. Banks are already trying to limit the fossil fuels related projects’ budgets. These restrictions, of course, may impact the fuel and energy companies and increase the cost of funds. But it seems far too soon to see the era of oil is done.


T.K.&E.V.: This impact is already in progress. We know that a group of members of the European Parliament addressed the leaders of Germany, France and Italy with an appeal not to support “Arctic LNG 2” project for the production of liquefied natural gas and to cut off funding.


The Minister: An advice like this, to get rid of that Russian natural gas, is like a faire-weather friend. It is so easy to think of it in the summertime! And as soon as the winter comes, this advice is no more valuable and everyone is ready to consume the gas and even coal.


T.K.&E.V.: Some people believe that COVID-19 pandemic restrictions together with aggressive climate strategies can influence the oil demand leading to its shortage earlier than the oil could have been really abandoned. All these discussions heightened an interest and attention given to the probable start of a new super-cycle in the market and an oil price-hike up to 100 USD per barrel. What is the Ministry feeling about it?


The Minister: At the beginning of this year, some industry analysts really tried to proffer such prognosis. We see the influence of the US stimulating measures on increasing demand. And at the same time, there is OPEC+ providing his policy of supply and demand balance. Therefore, it seems to me the oil price is unlikely to reach the mark of 100 USD soon. According to our estimations, this the oil price will remain about 50-60 USD per barrel for the foreseeable future of the next 2-3 years.

As for the long term prospective, the evaluations vary from 50 USD to 70 USD per barrel. But there are uncertainty and the energy transition. How can one make a guess under these circumstances? Companies are still watching out for what is happening in the world, thinking about low-carbon projects and carbon taxes.


T.K.&E.V.: Russia in 2019 broke the post-Soviet record for oil production. And as for repeating of this success, do you think our oil industry does not even have a chance in the context of the global energy transition?


The Minister: The amounts of oil produced depend on how much of it is needed by the domestic consumers as well as the foreign markets consumers. Therefore, everything will depend on a favorable combination of these factors. The most important thing for us is not about beating the records, it’s always about keeping the balanced market. This is the market, who determines the prices among the other influencing factors.


T.K.&E.V.: And what is your forecast for oil production for the next one or two years?


The Minister: It's hard to say for sure. Production is now several percent lower than last year. But it is recovering, as we are gradually loosening restrictions with OPEC.


T.K.&E.V.: The General development plan for the Russian oil industry indicates Russia’s reaching the peak oil in 7-8 years. That means the petroleum resources should be monetized as soon as possible. Can an accelerated transition to additional income tax (AIT) help with this? When this transition should be completed?


The Minister: The AIT is a pilot project. First we should evaluate its efficiency and then make a decision on its development. We need a balance to be maintained between the interests of subsoil users and the budget of the Russian Federation.

Proposals for expanded usage of AIT are constantly announced regarding different subjects as super-viscous oil or watered oil. Of course, we would not leave them without response, but mindful of the federal budgeting process, no proposals can be evaluated earlier than 2024. As for superviscous oil, the option is being worked out. It will take some time in 2022 to develop the criteria. But I still think that the AIT implementation adjustments expanding the range of its payers will be possible by 2024 the earliest.


T.K.&E.V.: You were saying last May that the earlier terms could have been considered.


The Minister: I wish we could. I think we will establish criteria for super viscous oil in 2022. And then we will go further trying to examine the situation whether we will succeed in some earlier date or not.


T.K.&E.V.: As for unconventional oil and watered fields, are they being also discussed in terms of expanded AIT implementation subjects?


The Minister: Now this seems to be the most relevant way and no other options are discussed. However, it is necessary to determine the effectiveness of this mechanism firstly and the necessary parameters for individual categories.


T.K.&E.V.: The oil and gas companies chorused that even if a decrease in oil demand is expected, the natural gas will keep the lights on being a transitional source of energy for a quite a long time. What do you think about it?


The Minister: Well, someone thinks that natural gas will be a transitional fuel, and someone says that it will be the main one. I think natural gas has a good future. It will either prevail, or serve as a source for “blue” hydrogen together with CO2 capture.


T.K.&E.V.: Russia holds on the gas market position and it is inextricably linked to the national export strategy. The Energy Ministry comments on further liberalization of LNG exports from time to time. What is the Ministry doing about it?


The Minister: There is an instruction from the President of the Russian Federation on this topic, and we submitted a proposal to amend the law to the Federal Government. This amendment delivered to the Federal Government is about expanding the list of LNG exporters in the framework of Arctic zone projects that are remote from the Federal gas supply system. These proposals are being considered.


T.K.&E.V.: In this regard, what are the prospects for Yakutsk-LNG?


The Minister: Well, as soon as the amendments are adopted that will create opportunities for Arctic projects, then it will be possible to return to the discussion of Yakutsk LNG issues.


T.K.&E.V.: If more Russian LNG exporters appear in the future, can this lead to their competition with Russian pipeline gas?


The Minister: That is a contentious issue. We do not believe in so-called competition between Russian pipeline gas and Russian LNG. There is a competition between Russian LNG and LNG of other nationalities: American, Australian, Qatari and so on. Cross-border LNG trade will soon exceed pipeline gas trade, and our challenge is to be sufficiently presented at this market. And we are keeping an eye on it.


T.K.&E.V.: Gazprom advocates the regulating mechanism that excludes the risks of gas competition. Do you plan to impose export duties on LNG, for example, for Europe as Gazprom's main export market?


The Minister: I think that for the moment we cannot support this. The pipeline gas has its own niche, conditions and buyers. The LNG is more mobile. When for example China or other countries of the Asia-Pacific region generate demand, then LNG is heading there. At the same time, we will definitely monitor the situation together with Gazprom and other market participants in order to protect the interests of Russia as effective as we can.


T.K.&E.V.: The Government is now focusing on the development of petrochemicals, studying support for new raw materials and deeper redistribution. However, the Ministry of Finance believes that there is no need to introduce a reverse excise tax for propylene-based projects or increase it for naphtha. What does the Ministry of Energy think?


The Minister: In this matter, we support the Ministry of Finance. There is a risk that incentives will start competing with each other. Sufficient support has now been created for naphtha. As for The Eastern Petrochemical Company project of the Rosneft company, this is another question. There may be some alternatives to the additional investment index for the reverse excise tax, which can be related to logistics.


T.K.&E.V.: Hydrogen is now considered as the main energy carrier of the future, and Russia plans to occupy 20% of this market. To this end, the Ministry of Energy is developing a concept for the development of hydrogen energy. When this concept is planned to be approved?


The Minister: Hydrogen has become the talk of the town now. Of course, we are watching closely the development of this industry. We already have elaborated a program for the hydrogen industry development, and now the corresponding concept is next in line. The document has been sent to the departments for approval, and we plan to adopt it during the second quarter.

But in fact the discussions about the hydrogen market continue: whether the total market is seized at around tens or hundreds of millions of tons. And even more uncertainty is presented: either it will be some kind of global market with sea transportation to places of consumption, for example, to Japan. Either it will be hydrogen pipelines, as they are discussing in Europe. Or the markets will be local, next to production and consumption.

There are many options and we should definitely consider them all to ensure Russia’s participation in all of them. Therefore, our goal is to work more on joint projects, for example, with Germany or other countries.


T.K.&E.V.: Germany is really keep hammering this point now. The discussions with German party are being conducted only at the stage of scientific development?


The Minister: The major part of their efforts is still at the R&D stage. But they are really interested in our potential. There were certain discussions with Japanese party. But that mutual project of hydrogen generation was not developing due to lack of safe transportation technologies. And now as those technologies appear the project discussions can be started all over again.


T.K.&E.V.: When do you think the global hydrogen market will appear?


The Minister: Felt more like by the end of the next decade. That’s when the global market can appear. If it’s going to appear. And by the way, there are already maps of hydrogen pipelines in Europe.


T.K.&E.V.: Nevertheless, our companies are already observing these trends and are working on their projects. Their difficulty is caused by the lack of a clear regulatory framework, in particular, on the capture and storage of CO2. How does the Ministry of Energy solve the problem?


The Minister: We are working on it. Within the framework of the concept for the development of hydrogen energy, we are going to prescribe that such regulation should be planned along with the deadlines. The companies are also actively exploring this area.


T.K.&E.V.: The projects of "green" hydrogen, could they be called absolutely environmentally friendly, from your point of view? After all, if the hydrogen is to replace all other fossil fuels, it would require unbelievable huge amounts of water. Will this not lead to environmental disasters similar to that of the Aral Sea?


The Minister: That is why there is no need to jump into the deep end with considering only the "green" hydrogen for acceptable, denying all other options. The various options needed to be taken into consideration. Nowadays many countries support nuclear energy, and I am sure that the nuclear energy will also be recognized as "clean".

As for the hydrogen, a number of problems still need to be solved: storage and accumulation, using of raw materials and transportation, and the way of utilization. If this is the "green" hydrogen, then the water still needs to be purified. Powerful and cheaper electrolysers are needed, and they are still at the R&D stage. These are all expenses that reduce competitiveness. And there are also countries with water shortage - what should they do?

Actually, now is an interesting time. We see that some want it this way, others want it differently. It's good that there is a range of ideas. Those who are competitive and cost-effective will distinguish themselves out of the herd.


T.K.&E.V.: The government has taken many measures this year to keep the fuel market prices down. But the Far East still remains a problem area. According to Deputy Prime Minister Yuri Trutnev, the construction of a new refinery in the region can help. Why do you think there are no volunteers to participate?


The Minister: The potentially important thing here is The Eastern Petrochemical Company with processing capacity of 12 million tons per year. This is enough to balance the regional demand. Moreover, there are also the refineries reconstructions planned in the Far East Region for the Komsomolsk refinery and for the Khabarovsk refinery.


T.K.&E.V.: Now the Russian Railways subsidies for the fuel supply for the Far East are discussed. Cancellation of the Far Eastern damper will free up 2 thousand rubles per ton, but subsidies have been announced in the amount of up to 4 thousand. From what sources will be covered the rest of that sum?


The Minister: This is what exactly needed to be done – continuing searching for funding.


T.K.&E.V.: What sources are considered for this funding? Is there a National Wealth Fund (NWF) among them?


The Minister: The National Wealth Fund is not among them. But as soon as the support is definitely needed, we will surely find the funding.


T.K.&E.V.: Next task of the Federal Government and of no less importance is the increasing the level of the gas delivery and  supply system development in Russia. There is the adopted "roadmap" for gas delivery and supply system development. What sources will be the funding of this "roadmap" requires?


The Minister: The funding is planned from the Federal Operator budget. Of course, the "roadmap" states to give proposals for additional sources of funding, but the Federal Operator is the only responsible party ensuring the “last mile” connection. We believe the sufficient funding will definitely be found. And first of all this funding must cover the expenses for ‘last mile’ gas delivery and supply for the households bringing the pipe to the borders of the consumers’ land plot by 2023.


T.K.&E.V.: In the North Caucasus, there are traditionally large debts for gas to Gazprom. This leads to losses for Gazprom Mezhregiongaz and, accordingly, problems with gas delivery and supply system. Mindful of this what is the opinion of the Ministry on the company's proposal to abandon gas sales and gas distribution in Dagestan, creating a single federal operator there?


The Minister: We do not support this idea. In the regions, it is necessary to solve the problem using standard methods, to see where the situation is most acute, involving the regional authorities. It is necessary to eliminate illegal taps and to increase the efficiency of tariff regulation.


T.K.&E.V.: How does the Ministry of Energy assess the possibilities for the development of nuclear energy in Russia in the medium term - will there still be demand for large capacity reactors or will the trend strengthen for small and medium power reactors?


The Minister: This is a global trend. The USA tries to sell their mobile small power reactors worldwide. Our industry samples are competitive. But it seems to me that there will still be room for large power reactors everywhere, including Russia.


T.K.&E.V.: It is obvious that large power reactors will hardly be needed in the north, but can they be of use in the European part of Russia?


The Minister: It is unlikely that they can be installed in the European part of Russia. And after all Rosatom is pursuing an active policy of construction abroad, so large power reactor cannot be just dismissed. Moreover, they can still be very relevant if built using closed fuel cycle technology.


T.K.&E.V.: Could You please tell us why the progressive tariff for residential electricity consumption is not being considered at the federal level, even mindful of the positive experience of the certain regions?



The Minister: In this hard times of COVID-19 as many have been left without their jobs and incomes it would be untimely and unjust to increase the tariffs for those who consume more than 100-150 kWh. Although you are right and we do have quite a positive experience in certain regions were the solutions the progressive tariff for residential electricity consumption is functioning. But I believe it is more relevant for now to pay more attention to determine the targeted support of the population measures.


T.K.&E.V.: How then could the goal of eliminating cross-subsidization in the electric power industry be achieved, as it was announced in the Russia’s Energy Strategy-2035?


The Minister: The goal to eliminating cross-subsidization in the electric power industry completely is a hard to achieve one. Under the modern circumstances, we would rather update the Russia’s Energy Strategy-2035, because there are points that needed to be refined and modernized up to date. In this regard, there is not only the cross-subsidization problem in sights. For example, there are also the criteria for the LNG-production development which we are focused on. For they were described in the Russia’s Energy Strategy-2035 in a less ambitious manner, than they should have been regarding the adopted long-term program for the development of LNG‑production.


T.K.&E.V.: If we took You right that would be not the cross-subsidization doomed to disappear from the Russia’s Energy Strategy-2035, but the word “elimination” related to cross-subsidization?


The Minister: Most likely, it would. The cross-subsidization exists in one form or another in the electric power industries all over the world. This is a matter of state and social policy, so I think it is impossible to eliminate the cross-subsidization. This process simply should be kept within the certain limits. And the most important thing is to prevent its unreasonably growth.


T.K.&E.V.: Industrial consumers in Russia still pay for various programs for the development of the electric power industry, the so-called markups above the wholesale market equilibrium price, is it possible to abandon these practices?


The Minister: It is impossible to cancel the solutions already implemented. But for the future there must not be the lack of transparency in decision-making, and all the solutions should be widely discussed before being taken. There are some solutions already  made by the Government. And among them the “Far Eastern” mark-up was designed to reduce the prices for consumers in the Far Eastern Federal District, and the Kaliningrad region’s mark-up to improve energy security, and also programs for the development of renewable energy, and the regulated contracts for subsidizing the certain regions. But at the same time, it is necessary to tame the appetites of those eager to get funding for their projects using the wholesale electricity and capacity market. The number of markups must be limited and the market principles shall be defended.

New markups should be discussed transparently. The Government Commission on the Development of the Electric Power Industry should be involved in that process. And the effectiveness criteria for each markup should be fixed to let the decisions be deliberate and well-grounded.


T.K.&E.V.: Can the construction of another 25 waste incineration TPPs be financed through this mechanism?


The Minister: We are against that. And the reasons why are as follows: to start with - we do not need additional capacity, on the second hand - the expenses of those electrical incinerators are four times higher than at nuclear generation with the same capacity. This is despite the fact that important, but still regional tasks of waste processing are being solved. The Ministry is ready to welcomes the incineration TPPs investors with a general procedure for paying for electricity and capacity supplied. This is a standard operating market procedure.


T.K.&E.V.: Can the utilities provide the "smart meters" installation without raising electricity tariffs?


The Minister: The law on "smart meters" is primarily aimed at reducing the social burden and removing responsibility from consumers for organizing metering. Now the professional market participants are responsible for the metering, thus the industry efficiency will increase thanks to the smart metering implementation. The utilities will have the opportunity to direct their obtained savings for the purposes of the "smart meters" installation. The concept of a smooth transition to smart metering will allow distributing the load on the tariff in an optimal way. That is, there should not be any excess tariff growth.


T.K.&E.V.: In general, what are the expenses of utilities expected due to the installation of smart metering devices? Could they be evaluated?


The Minister: This is a long-term project. The replacement of traditional meters will be provided gradually during the nearest 15 years. The effectiveness of smart metering implementation depends on many factors, so the estimates may differ. But we monitoring the progress of the measures undertaken by utilities during and are ready to improve the regulatory framework to achieve maximum effect if necessary. This reforming in metering is conducted amid the unconditional improvement in the quality of customer service.


T.K.&E.V.: When will a compromise solution suitable for the generating companies be found regarding the indebtness of guaranteeing energy suppliers of the North Caucasus Region?


The Minister: It is a kind of complicated story. There was a meeting with Deputy Prime Minister Alexander Novak, and also a meeting with generating companies is scheduled at the Ministry of Energy. A meeting with federal executive authorities was held at the Ministry of Economic Development. Together we are looking for solutions, the main of which is the formation of economically justified tariffs for all supply chains of housing and communal services and correct consumption standards. I think that the Governmental committee can hold a hearing as well. So this problem must be will discussed at a higher level again. A compromise solution must be found.


T.K.&E.V.: Did only three companies submit the applications for innovative gas turbines’ tender procedure? And they were the companies which previously have already passed the competitive selection?

The Minister: The selection was carried with respect to the competitive principles, there were no restrictions other than the mandatory localization of production, so there were significantly more selection participants.


T.K.&E.V.:  But at the same time, can we talk about low demand for these gas turbines?


The Minister: Mostly those gas turbines still need to be developed. The competition is held in order to form an initial order in Russia. If all goes well, other interested parties will appear. For today, the selected volumes are enough, because the requirements for the competition took into account the standard sizes of turbines and the selection was made among the small, the medium and the large ones - everything that is necessary for the test run.


T.K.&E.V.:  Can one expect additional competitive selection procedures, if those gas turbines proves to be well produced and effectively functioning?


The Minister: The most important thing now is to get operable turbines so that the task is completed and the generating companies have, among other things, confidence that Russian gas turbines will operate continuously. We are looking forward to see gas turbine unites involved in general competitive selection procedures within systematic modernization projects, with no need to separate them into a special group of competitive items.


T.K.&E.V.: If the manufacturers lowers the turbines’ price can these projects be included in the general competition?


The Minister: Yes, they can. That is why it is impossible to produce only one type of the turbine. The availability of different turbine types provides a lower level of capex, and of course, the cost will depend on the massive demand.


T.K.&E.V.: Is the privatization of Rosseti, RusHydro, Inter RAO being considered and if it is needed?


The Minister: The issue is not on the agenda. These are individual cases.


T.K.&E.V.: A system of low-carbon certificates will soon appear in the Russian Federation, while some companies are already selling "green" certificates according to international standards. Will they be included into the unified system or will they exist on their own?


The Minister: The Ministry of Energy has drafted a legislation, considering the necessity of defining the procedure for the circulation of certificates of electricity origins. But it does not prohibit companies from entering into their transactions. It is only about the obligation of setting off their results in the unified public register of certificates.


T.K.&E.V.: How do you feel about the idea of ​​transferring energy-deprived remote regions of the Far East to renewable energy sources?


The Minister: There are many remote areas in Yakutia, in the Khabarovsk and Primorsk Territories. There it is possible to replace diesel generation not entirely with renewable energy sources, but with hybrid energy. RusHydro is doing this in Yakutia and Kamchatka, where there are old diesel generators. They are replaced with modern ones, additionally they install a wind turbine or solar panels, batteries and automatic devices and thus reduce the cost of expensive diesel fuel, which is delivered by the "Northern Supply Delivery". I think this option is the best one.


T.K.&E.V.: The new market model of alternative boiler, or "alt-boiler", provides for an increase in heat tariffs, and although it is distributed for a period of 5 to 15 years, is it possible to do without increasing the tariffs?


The Minister: The tariff’s growth is manageable. How did you want to carry out the modernization? We must understand that we get the reliability of the heating network infrastructure and cutting the heat losses.


T.K.&E.V.: A number of companies are engaged in the transfer of cities to "alt-boiler". Maybe a unified heating network operator should be created?


The Minister: It is an impossible task. Each regional market has its own peculiarities, and local circumstances differ significantly. There is not and cannot be unified heat supply market. Moreover, there are some companies that do not agree that "alt-boiler" is the most effective method. Their argument is that the long term heat tariff is better. We believe that the "alt-boiler" project would show itself in the better way and would prove to be effective. It is important to strive in this direction and to improve the technical condition of the networks.


T.K.&E.V.: Are you planning to keep the voluntary nature of the transition of settlements to "alt-boiler" leaving them a chance to choose willingly?


The Minister: Of course we are. After all, one needs to explain to the population the importance of that work to be done, proving the need for changes, looking for replacements for the old, out-of-date boilers, which at least pollute the air within the city. This is a very important job.


“One should not be hasty giving hydrocarbons away. But alongside those traditional types of energy the renewable energies must be developed”

The Russian fuel and energy complex is facing а new set of challenges. The recent years brought us contemporary challenges such as energy transition, risks of global consumers abandoning traditional carbon resources, massive lockdowns due to the coronavirus pandemic, and so on. The goals to be achieved and how those tasks will be performed in Russian power industries under the modern circumstances – that’s what Russia Energy Minister Nikolai Grigorievich Shulginov told in his interview to The Energy Policy Magazine.

E.P.: The world energy industry is in transition. The developed nations have announced a movement toward transformation of the global energy sector from fossil-based to zero-carbon renewable energies and hydrogen. What impact shall this movement has on Russian energy industries? And how the national fuel and energy complex should react to these challenges?

The Minister:  First and foremost there are guidance and policy documents such as the Program for the Social and Economic Development of Russia, the Energy Strategy until 2035, the sectoral development general programs for the oil and gas industries, and others.

Of course, these guidelines need to be regularly updated to let their policies meet the emerging trends.

Moreover, the global agenda is enriching exponentially. We see new trends arising such as the desire for carbon-neutral energy and a carbon tax have become an urgent issue for many countries. So it’s obvious that the energy transition cannot be neglected. However, the fact must be understood that by the year 2035 neither Europe nor the United States would completely get rid of hydrocarbons and thus the traditional energies will continue to play a significant role.

The outcomes of the past winter regarding the severe frosts and their influence on increased demand for traditional fuels must be closely examined. It is not worth relying only on the sun and wind energy without paying attention to the fully developed energy storage systems. That is why the necessity exists to maintain a sufficient reserve of traditional generation capacity and traditional fuel stocks.

E.P.: That means that Russia still does not have to wind down the works in oil industry stepwise? And will not abandon oil expor?

The Minister: That is wrong to think about giving up oil exports. One should not be hasty giving hydrocarbons away. But alongside those traditional types of energy the renewable energies must be developed. We have to push hard to obtain an official acceptance of the atomic energy as a carbon neutral. And all the more reason the leaders of seven European countries have already requested the European Union to recognize the nuclear energy as a “clean” one. And just the same thing for the United States.

It should be stressed that on April 21st this year, the European Commission (EC) officially confirmed that in the longer run the nuclear energy industry could be considered acceptable in the list of the industries where investments can contribute to the energy transition. The decision was made despite the "green" activists’ efforts powerfully lobbying against it.

But, really it’s going to happen only if the quite positive report, released this March by EC Research Centre would be approved by the experts group of European Atomic Energy Community (Euratom) and the EC Scientific Committee on Health, Environment and Emerging Risks.

Nowadays the competition between different energies such as oil, pipeline gas, LNG is increasing. And this provides a new window of opportunity to take advantage of.

In addition, our oil producing companies, such as LUKOIL, TATNEFT, ROSNEFT and other enterprises, are actively developing their own low-carbon strategies and even talk about the possibility of reaching the carbon-neutral status by 2040-2050. Therefore, we must not stay away from these processes.

E.P.: Talking about the nearest future what annual production of oil and gas should be expected at the end of the year?

The Minister: Actually, a thankless task it is to discuss plans under a great uncertainty. However the understanding of the global economics’ recovery mechanics is necessarily needed to answer your question. And also the influence of the last winter on the energy markets and the future possible lockdowns should be taken into consideration. We should aim for obtaining the outcomes of this year at least not worse than the ones of the year 2020. And hopefully a little better.

E.P.: At the end of the last year, the mineral extraction tax (MET) and export duty exemptions for extraction of superviscous oil and oil from the depleted fields were canceled. This year, the Ministry of Energy and the Ministry of Finance turned back to this question proposing to use additional income tax (AIT) for former preferential royalty fields and the depleted ones starting from 2024. What do you think, if it is enough to keep the profitability of existing projects and let the petroleum companies proceed on greenfield development? And which kind of the industries taxpayer community can be identified as a potential subject to additional income tax (AIT)?

The Minister: The abolition of tax incentives for the mineral extraction tax and export duties, in fact, worsened the economics of these projects. According to our estimates, the loss of investment in the development of superviscous oil fields in 2021-2025 could reach the amount to about 200 billion rubles. Therefore, there is a discussion about the perspectives of converting those fields into subjects to the additional income tax starting from 2024. And the elaborating the criteria for the taxation of this hard-to-recover reserves is now on the run. In any case, our position is that the allocation of a new group of taxpayers for "difficult" oil should be carried out at the latest the year 2024. However the transition to the AIT can be performed quicker than that.

E.P.: And what should be done with the depleted fields after they also were denied preferential royalty fields status in 2021?

The Minister: From this year on the depleted fields must be considered as a part of the so called 3rd group in terms of fiscal criteria for the taxpayers of the AIT. In addition those taxpayers receive their right to use the investment tax deduction since January the 1st 2024. The need is to think how to establish the criteria to differentiate them further, as a separate group within AIT taxpayer community.

E.P.: In this case, maybe it is worth taking a chance to look at the bigger picture? And to extend the AIT taxation to the entire oil industry as a whole? But how should AIT avoid the recurrence of MET and export duties’ destiny not to let the plain and transparent fiscal system turn itself into the patchwork quilt for different fields beneficiaries?

The Minister: Generally, I believe it is necessary to gradually expand the categories of fields subjected to pay AIT. This tax regime allows one to optimize costs and financial results. That can be considered a great step forward for our oil companies. However, it should be done one day at a time and not all at once. It is necessary to observe how the AIT will show itself over several years in operation, while gradually expanding the categories of fields subjected to pay AIT.

The fiscal regimes for the oil companies are indeed numerous within the widespread system of taxation. But we really have lots of fields types: mature fields, major fields and minor  fields, easy-to-reach oil fields, sticky oil fields, and unconventional oil fields. And it is hard to settle them all down with one formula. That is why we have to go into details of fields development features and at the same time we ought to adjust the settings regarding the production climate. We need to go consistently, taking into account all the obstacles along the way. It is very important to prevent a decline in production - it is necessary to increase production and develop new oil and gas regions.

E.P.: One of the key goals of the Government policy on oil industry were the increase of the oil refining efficiency, as well as the further development of petro- and gas-chemistry. In this regard can the current efforts be considered as sufficient? And do they provide the opportunities to increase the profitability of the refineries?

The Minister: Indeed, the development of the refining industry, together with oil and gas chemistries are of the top priority among our todays efforts. Earlier this year, the Ministry of Energy has already signed 14 agreements with oil refineries based upon which they will be provided with an investment coefficient to the reverse excise tax on oil starting from 2021. The amount of the investment due to these agreements may reach 800 billion rubles by 2026.

To support the production of gas chemistry products, a reverse excise tax on liquefied hydrocarbon gases (LHG) and ethane will start operating from 2022. It will be applied in two cases: if a petrochemical company launches new processing capacities of at least 300 thousand tons of raw materials, or if the company is ready to conclude investment agreement by the end of 2022 involving more than 65 billion rubles by the end of 2027. This will also be a significant contribution to the development of the industry.

Summing up all the incentive measures taken the approximate volume of investments could be evaluated at about 800 billion rubles in oil refining and more than 2.5 trillion rubles in petro- and gas-chemicals until 2030.

E.P.: The Russian fuel market is rather balanced. And there is no shortage there. However, the Khabarovsk refinery case has showed a strong dependence of the Far East Region on the single refinery operational capacity and it’s readiness for emergency. What measures should be undertaken to reduce this dependence?

The Minister: The Khabarovsk case made us undertake some systematic measures to ensure the fuel capacities for the domestic market and to stabilize the prices. The overall trading amounts of gasoline were increased up to 11%, diesel fuel - up to 7.5%. It was also decided to adjust the indicative gasoline price in the damper calculation formula. In 2021, it will decrease by 4 thousand rubles per ton, next year - by 2.7 thousand rubles per ton. In addition, the issue of banning the export of gasoline is being discussed.

E.P.: Has the idea of subsidizing fuel transportation to the Far East Region been approved? And in case it has, what kind of financial sources could this request and how much subsidies can be allocated?

The Minister: The Ministry of Energy initiated a request to the Government of the Russian Federation to use the preferential tariff for fuel transporting to the Far East Region. The Deputy Prime Minister Alexander Novak has already approved this request. Now the approved request proceeds through the certain next stages of the consideration.

E.P.: Can the outcome of the Far East case influence the decision about relaunching the construction of another refinery - The Eastern Petrochemical company?

The Minister: Of course, it can. The Eastern Petrochemical company is both regional and national critical infrastructure facility. The discussion of that plant construction is already ongoing in a more detailed manner. The realization of the construction project requires support measures, including financing the construction of external infrastructure at the expense of the state with partial reimbursement of these costs by the investors, or the extension of benefits for Advanced Special Economic Zone (ASEZ). The case is under discussion with the Ministry of Finance and already nearing a consensus on some issues.

E.P.: One of the main tasks in the industry is the developing the gas delivery and supply system in the regions of the country. What does the Ministry of Energy think about the most effective way for financing the “last mile delivery”? Could that be a single-pot tariff, usage of overhaul funds or regional debt? When the final decision is going to be held?

The Minister: President of the Russian Federation Vladimir Putin in his annual message to the Federal Assembly assigned the Government of the Russian Federation together with the regional authorities to develop a clear plan for households gas delivery and supply. The approved "roadmap" for gas delivery and supply system contains all the necessary points for the creation of an integrated regulation system that will ensure the fulfillment of the task of accelerated gas delivery and supply, bringing gas to the consumer. I can say that the households will definitely not pay for connecting the "last mile", that is, bringing the pipe to the borders of the land plot. The Federal Operator is the only responsible party ensuring the “last mile” connection. That will make a good service for the consumer households, simplifying and speeding up things.

E.P.: How serious is the competition between Russian pipe and liquefied gas in the European market from the point of view of state interests and budget losses? Is there a need to reduce the tension of this competition, especially in the context of energy transition and plans for the development of LNG capacities?

The Minister: Of course, there is a competition between pipeline gas and LNG on the global market, and no one can deny this.

First, this is a competition between Russian gas and LNG of the United States and Qatar. When the pipeline has been functioning for a long time and gas supplies are stable, this in itself becomes a competitive advantage.

The competition between Russian pipeline gas and Russian LNG is rather far-fetched. Not all European countries are connected to our gas pipelines, so it is good that, for example, Spain has the opportunity to purchase Russian liquefied gas. In addition, mobility of LNG supplies allows NOVATEK to quickly reorient supplies to Asia when prices rise sharply there.

While there is a window of opportunity, it is necessary to develop the LNG market, and explore Yamal and Taimyr.

E.P.: By the way, about Yamal. What proposals for the development of gas resources in Yamal (including wet gas) are the optimal from the point of view of the Ministry of Energy? Is it worth creating the Yamal gas chemical cluster, directing gas to the domestic market, or creating liquefaction capacities, ethane extraction and gas chemistry development in the Far East?

The Minister: Several scenarios are currently being considered. Options for the development of gas chemistry seem to be the of most priority ones, as well as the possibility of using the resource base to enter new markets, that is, LNG production, increasing its volumes to meet Russia's strategic goals, which are aimed at achieving production of 120-140 million tons per year by 2035. All of these projects are currently at the stage of elaboration and are undergoing a thorough analysis.

E.P.: What is the outcome of Nord Stream 2? Should we await a new round of sanctions when the pipeline is nevertheless completed and preparations for gas supplies begin?

The Minister: Our position has not been changed. Europe is largely interested in this gas pipeline. Russian President Vladimir Putin in his message to the Federal Assembly noted that this is a purely economic project that has nothing to do with the political situation. In addition, the construction is at the final stage, and recently Russian Deputy Prime Minister Alexander Novak also said once again that the gas pipeline will be completed this year.

E.P.: What is the outcome of Nord Stream 2? Should we await a new round of sanctions when the pipeline is nevertheless completed and preparations for gas supplies begin?

The Minister: Our position has not been changed. Europe is largely interested in this gas pipeline. Russian President Vladimir Putin in his message to the Federal Assembly noted that this is a purely economic project that has nothing to do with the political situation. In addition, the construction is at the final stage, and recently Russian Deputy Prime Minister Alexander Novak also said once again that the gas pipeline will be completed this year.

E.P.: Russia actively announces hydrogen export increase plans. However, we have no real wide industrial hydrogen production projects so far. To what extent will we be able to fulfill the stated plans, and what should be done for that purpose?

The Minister: Hydrogen production technologies are not quite new ones. Almost every refinery can be set to produce hydrogen. The point that really must be cleared is that the large-scale production industry of hydrogen, including it’s storage capacities and transportation issues must be marked as a problem to be explored.

The hydrogen production can involve either natural gas or nuclear power. In this regard, Russia has the abilities to flourish.

The main thing is that we must not stand still, we must develop new technologies. We are facing an ambitious goal – we have to capture the market share of 20%. And that goal is absolutely beyond discussion.

Although it is hard to predict what price the market will offer for so called “blue” or “green” hydrogen. That is because there is no proper market yet. It is just being shaped and put together. And at the same time, Russia intends to be on all sorts of the hydrogen markets intending to explore all market niches.

There are interesting times we live in. The times of the energy revolution. And that is important to immediately establish a foothold and convert it into a stable position.

E.P.: How will this revolution affect the coal industry? What development prospects does it have here?

The Minister: We have done a great deal diversifying energy sources, which is the basis of independence and reliability, as well as ensuring national security. In this regard, both the country and the world need coal. We plan to continue developing the coal industry until 2035 to fully meet the needs for coal in national economy and to increase its export supplies, primarily to the countries of the Asia-Pacific region.

At the same time I would like to note that it is necessary to make coal production and consumption environmentally friendly as much as possible. For example, China is now introducing coal-fired plants with CO2 capture systems. And those newly build coal-fired plants are having 10% higher plant efficiency than the old ones. The increased plant efficiency allows you to achieve the same rates of electricity generation with less coal consumption. China will not stop running those new plants in the near future, since these capacities should pay off.

We also should not forget that the demand for coal in the Southeast Asia countries is increasing. And this is a promising direction for sales growth.

E.P.: But in order to increase the supply of coal to Asia, it is necessary to expand the Baikal-Amur Mainline (BAM) and Trans-Siberian Railway (Transsib). How quickly can this be done, taking into account the possibility of providing funds to Russian Railways from the National Wealth Fund (NWF)? What amount of coal export to Asia-Pacific region (APR) should be recorded in the investment agreements of coal miners and carriers? Will the take-or-pay principle be introduced?

The Minister: The President of Russian Federation assigned the task of increasing the throughput and carrying capacity of the BAM and Transsib up to 180 million tons by 2024. The accomplishment of that task is in progress. The development of the railway infrastructure and the necessary power supplies is the part of that progress. We are faced with the next task to increase the volume of transportation after 2024 as well. These tasks for the further development of transport and energy infrastructure are still being worked out.

The agreements signed between shippers and carriers using railway transportation stipulated by current legislation are not equal to investment agreements. At present, the issue of filling such agreements with the appropriate content is being considered on the example of additional volumes of coal transportation from Kuzbass in the eastern direction compared to the level of 2021.

As for the take-or-pay principle, it is still difficult to say how it will be implemented. The issue is still being worked out. There is no particular experience of its application for railway transportation.

E.P.: By the end of 2021, will the demand for electricity in Russia be restored at the pre-pandemic level? If yes, what volume of consumption is expected by the end of the year?

The Minister: Let’s say if not these first three months of the year with their freezing cold, the electric energy consumption would have been about 2.5% higher than the last year. If this trend continues, the consumption indicators of 2019 are going to be exceeded by approximately 1% by the end of this year.

E.P.: How strong can the upsurge in metal products prices affect the energy industry? Should we expect a significant increase in the investment programs of energy companies? What ways for price stabilization can the Ministry of Energy offer?

The Minister: This is the way it goes. The metal products prices start to rise, the costs of energy companies grow respectively. Then the investment programs increase in volume. And therefore the timeframes for project implementation are shifted. And the questions arise addressed to the Ministry. This is the reason why we asked the Government to contribute to elaboration of certain regulatory mechanism aimed to stabilize metal prices on the domestic market. And we still waiting for the answer.

E.P.: Is it worth developing renewable energy sources (RES) in Russia, taking into account the huge mining resource potential and the high costs of these projects? What will be the main parameters of the RES support program in Russia? Will the previously announced support funding in the amount of 306 billion rubles be sufficient?

The Minister: Of course renewable energies are well worth. At least in order to develop competencies, to export technologies and products. RES generation is most relevant in remote regions of Russia, especially in combination with diesel generation and efficient energy storage. But we do not assign the task of reaching a certain share of renewable energy in the country's energy balance.

As for the amount of support, now we are at the stage of negotiations on this issue with the Ministry of Industry and Trade. We believe that it is necessary to ensure the figure of 350-360 billion rubles. Indeed, the first renewable energy support program had more funding, but now we are recording a significant reduction in the costs of construction the renewable energy generation objects. And with less funding under the second program conditions, the investors will be able to build more capacities: about 7 GW versus about 5.5 GW planned by the first program.

By and large the national energy balance is very environmentally friendly in terms of “clean energy”. Taking into account the production of nuclear energy and the operation of large hydroelectric power plants the share of "clean energy" production in Russia amount to 40%.

E.P.: But this is where the discrepancies appear as European countries refuse to recognize nuclear energy and large hydropower as a “clean energy” due to their climate policy, including issuing “green” certificates. Will we seek international recognition of these energy resources as “clean” ones?

The Minister: No doubt we will. That is our goal. We plan to enter international platforms and prove, negotiate, conduct research on the absorptive capacity of our forests, on the carbon neutrality of nuclear energy.

E.P.: The Far East price premium, despite the change in its parameters until 2028, still attracts a lot of criticism from consumers in price zones. Will the price premium be undergoing further reforming?

The Minister: Supporting the economic development of the Far East regions requests more efforts than for example in the regions of central Russia. The huge territory and relatively small population are the reasons why we have to create suitable conditions for business development there. Therefore, using the price premium for the first and second zones of the energy market, we contribute to the development of the region. And this is a normal global practice.

It should be noted that the price premium would be gradually reduced. It will remain at the same level only for consumers’ categories that play a decisive role in the economy of the region, for example, residents of the Advanced Special Economic Zone. We will adjust the standards for reducing the price premium together with the Federal Antimonopoly Service (FAS), by the end of the year.

E.P.: What funding is planned for the modernization and construction of new generation capacities and can be it repaid by consumers of non-price zones in the future? Have you already determined the selection parameters for the Far Eastern facilities, what benchmarks for price, payback periods and climate impact will be laid down?

The Minister: The Government has approved a list of four power plants with a total capacity of up to 1.3 GW (Khabarovskaya CHPP-4, Artyomovskaya CHPP-2, Yakutskaya SDPP-2, Vladivostokskaya CHPP-2). The preliminary capital spending for them is about 143 billion rubles at current prices, but this figure may be adjusted based on the results of the project development.

Projects will be financed using capacity price premium and in the non-price zones of the wholesale market. But given the scale of the Far East and the established 15-year refund period after the commissioning of each of the facilities, the tariff will increase by only 0.75%.

At the second stage, it is planned to expand the Neryungrinskaya and Partizanskaya SDPP "RusHydro" and modernize the Primorskaya SDPP of SUEK company. A feasibility study is underway for them. The implementation of all these projects will contribute to the development of the Far East. And this territory by the way, is a one third of the whole country’s square.

In addition, the Ministry of Energy has developed a concept for a competitive selection for the right to build a generation with a capacity of up to 456 MW in the Bodaibo District of the Irkutsk Region. The competition will be technologically neutral, that is, it is possible to build different types of generation. The revised parameters and selection estimates will be determined in the near future, but already now we can say that they will be insignificant for consumers.


Y20 China 2016 was held in the People's Republic of China from 24 to 30 July 2016. Summit concluded with the adoption of the document, in which the G20 youth appeals to the leaders of their countries. Among others suggestions, Y20 Communiqué embodies proposal to carry out activities aimed at promoting respect for the planet's energy resources and energy-saving lifestyle. Delegates supported the initiative of the Russian delegation to conduct country's first All-Russian Festival of Energy Efficiency #TogetherBrightly. Members of the Russian team shared the information regarding key events of the festival with their colleagues from the G20 countries and offered to extend this practice to all countries.

As Roman Chukov, Russian Y20 Sherpa, says after the Summit, the success of the Festival idea among the Y20 delegates is not unfounded. ‘We offered our colleagues to focus on real actions, which our countries’ youth can undertake in order to solve the issues from the G20 agenda. Enhancement of the technological development level and standards of energy efficiency in our countries through youth involvement and promotion of sustainable development are possible exactly by means of conducting such activities, as Energy Efficiency Festival #TogetherBrightly. This is why we did not only present the idea, but also included this suggestion to host the Festival G20-wide on behalf of the all delegates to our final Communiqué to the G20 leaders.’

‘Idea of #TogetherBrightly Festival was presented as a youth initiative during the ENES-2015 Forum. Since that time thousands of people have supported this idea and participated in preparation of the Festival across all country. Today our delegation – Roman Chukov, Albina Shakirova, Victor Kalmykov, Martin Martinov and Elizaveta Tyurina – helped to develop the idea and to make a first step to promote our Festival on international arena’, - Anton Inyutsin, Deputy Minister of Energy of the Russian Federation, commented on the results of the discussion with the Russian delegation.

Full text of the Y20 China 2016 Communiqué is available at:

More information about the All-Russian Festival of Energy Efficiency #TogetherBrightly could be found at the official web-site: