Global and Russian Energy Development Forecast to 2035
The Russian Energy Agency and the Energy Research Institute of the Russian Academy of Sciences presented their Global and Russian Energy Development Forecast to 2035 at the international conference on Forecasts for the Development of Global Energy: Analysis of Methodologies and Results, held in April within the framework of the Moscow International Energy Forum “Russian Fuel and Energy Complex in the 21st Century”.
Russia is one of the world’s largest energy suppliers and players on the energy market. It produces 9.6% of the world’s primary energy and annually invests about 4.5% of its GDP in the energy sector. Therefore, it needs to make regular and thorough analyses of global energy markets for purposes of national strategic planning and corporate investment.
The Global and Russian Energy Development Forecast to 2035 is a comprehensive analysis of the rapidly changing global situation. It is focused on the complexities of the modern world, its dynamic development, economic growth, technological advances, financial factors and risks. The global forecast is closely connected to a detailed Russian energy development forecast, which makes it possible to assess the risks and prospects of the Russian energy sector in the global energy system.
There are many sources of information for analysis, which only underscores the need to form a comprehensive picture and forecasts of global economic development based on one’s own data. Foreign experts have a wealth of experience in making long-term energy development forecasts. However, international organizations and companies often offer forecasts and development scenarios that are designed to promote views that suit their purposes.
Russian experts often act retroactively, analyzing other experts’ views of future development. But in this complicated world it is also necessary to affirm Russia’s competitiveness in the sphere of ideas and strategic analysis. This paper is an effort to ensure a consistent strategic analysis and forecast of the global economy and energy with due regard for financial and technological factors.
The Forecast consists of six chapters: methodology, scenarios, global energy trends, energy resources, Russia, and balances.
The authors explain their approaches to forecasting so that readers can assess the reliability of their conclusions. The Forecast is also unique because it is based on the expert group’s own views of global economic development. It includes demographic data as well as the pace of technological development and energy and environmental trends in different countries.
The Forecast is sufficiently detailed, covering 12 CIS countries, 37 European countries, and in general from 62 to 189 territorial “units,” and offers a long-term view of demand in industry, transportation and among the population.
The basic scenario of global and Russian energy development to 2035 stipulates an optimal reaction of politicians to the European debt crisis and to slow post-crisis recovery in industrialized countries in terms of stimulating economic growth in 2012-2015. The long-term budget efficiency strategies of industrialized countries have only had a neutral impact on the pace of long-term economic growth. The emerging economies’ active economic development and growing prosperity have not been deterred by any serious crises. China has been gradually expanding the share of end consumer demand in its GDP without experiencing major currency or financial shocks. However, global GDP growth will slow from 3.9% in 2011-2015 to 3.4% in 2031-2035.
The price of oil should be considered within the corridor of possible price fluctuations due to speculative, economic and other factors. The upper limit is determined by the price of transitioning to the use of biofuel, while the bottom price depends on production expenditures and budgetary requirements of the exporter countries. The price between these limits is based on fundamental factors and is expected to reach $125.60 per barrel by 2035.
The authors write that Europe and Asia will become the main energy importers by 2035, while the North American countries will reduce their hydrocarbon imports and even stop importing some types of fuel by that time.
Asian countries will account for the bulk of growing energy consumption and also carbon dioxide emissions. Industrialized countries will stabilize and possibly even reduce emissions, but unfortunately, this will not change the global situation.
In accordance with the Forecast, oil supply will grow to 4.9 billion tons of oil equivalent by 2035, while the book value will grow 44%. A considerable decrease in production costs for shale oil and oil sands will stimulate the production of unconventional oil, mostly in North America.
Apart from the basic scenario, the Forecast also includes several sub-scenarios assessing the influence of geopolitical factors, regulations, new technologies and international agreements on the energy sector. The authors used a broad range of tools to model various developments in order to assess the impact of decisions that have been approved or are being considered. Their calculations show that the price of oil could reach $195 per barrel in the event of a lengthy armed conflict in the Middle East. On the other hand, success in producing unconventional oil should lower oil prices, and North America would be able to stop importing crude oil.
The demand for natural gas is estimated at over 5 trillion cubic meters (176.5 trillion cubic feet) by 2035. It could be even 500 billion cu m (17.65 trillion cu f) more, but in this case the price of gas will grow by approximately 50%. The demand for gas will be mostly driven by the power industry. Overall, the situation in the gas industry is considered more stable than in the oil industry.
China and India will definitely play the key role in the development of the coal industry and are expected to account for 95% of the growth in coal demand by 2035.
The renewable energy industry will grow the fastest in the period under review, but even the declining production costs over the past few years will not allow renewable energy to compete with gas and coal. Therefore, this sector’s development will largely depend on government support.
The authors analyze each of the world’s nuclear power plants and expect many of them to be closed by 2035. Since the governments in many countries issue nuclear power plant construction permits rather unwillingly, these countries will not increase their nuclear capacity but will have to consider replacing existing nuclear power plants with other generating capacities or using alternative energy to make up for the energy shortfall. Nearly 75% of new nuclear power units are being built in the BRICS countries; this means that industrialized countries, where the majority of nuclear power plants are currently located, are not eager to modernize their nuclear facilities.
Energy intensity in Russia is expected to fall by 60% by 2035, but even in this case energy demand will continue to grow and is estimated to rise by over 50%. Due to growing domestic demand for energy, energy exports are expected to stabilize in 2025-2030 and to decrease in the subsequent five years. Throughout the period under review, energy exports to the West and the CIS countries will fall, while exports to the East will grow. The export of oil and petrochemicals will decrease, while the export of gas will grow. Domestic consumption is expected to grow especially rapidly in eastern Siberia and the Far East.
Main conclusions of the Forecast:
• For the first time ever, a considerable share of the growing energy consumption will be covered by non-fossil fuels.
• Unconventional oil and gas are changing market prospects and project risks. The accelerated development of shale oil fields in the United States will create considerable risks for the Russian oil sector.
• The world’s gas resources will be enough to satisfy an annual demand of 5 trillion cubic meters (176.5 trillion cubic feet) by 2035. If necessary, gas production could be increased by 500 billion cu m (17.65 trillion cu f).
• By 2035, North America will cut net imports of oil, coal and gas by 50%, which will change interregional energy routes considerably.
• The cost of technologies based on renewable energy is decreasing, but they still need government support. Asia is expected to account for over a third of the growth in the use of renewable energy.
• The situation in the nuclear industry needs to be considered more thoroughly. Most nuclear power plants were launched before the Chernobyl tragedy and so many old power stations will be decommissioned in the next few decades, while new ones are to be built.
Economic problems have overshadowed environmental goals. The emerging economies, primarily in Asia, account for nearly 100% of the growth of СО2 emissions. The industrialized countries will stabilize or even reduce emissions of carbon dioxide, but this will not improve the global situation.
For detailed information regarding the Forecast go to http://www.eriras.ru/ or http://rosenergo.gov.ru/
Tatyana Mitrova is Head of Oil and Gas Development Russia and Worldwide, Energy Research Institute of the Russian Academy of Science; member of the Working Group on the Future of U.S.-Russia Relations.
Leonid Grigoryev is Deputy Director General of the Russian Energy Agency of the Energy Ministry, professor, deputy head of the World Economy Department at the National Research University Higher School of Economics.
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.