Taking into account existing miscounts in the wholesale energy market is essential for consideration of the new Energy Strategy

8 june 2015

Сonsequences of the ongoing wide-scale reorganisation of the global energy industry, the recent global-scale Great Recession and the current production decline taking place in Russia compelled experts of the Analytical Center to turn their attention to the problems of the energy industry. Energy industry inertia became the focus of the current energy industry bulletin.

Experts believe that Russia’s electric power industry is now facing new problems related to the emergence of a wholesale market. The obstacles that companies face in the process of fulfilling their obligations in the commissioning of industrial capacities have been well-known, yet those have now been supplemented by consumer complaints. Consumers have begun to create their own capacities, reviving energy efficiency programmes, and this resulted in a production decline. “The surplus of electric power in the wholesale market is indicative of serious miscounts, and this is important for evaluation of prospective demand when discussing the new Energy Strategy,” experts say.

Similar processes are underway in the EU as well, experts say: large investments into the gas sector have contributed to the growing debts of energy companies. The effect of the Fukushima accident slowed down the advance of nuclear power engineering, compelling the EU to opt for renewable energy sources. The EU’s endeavour to escape the ‘carbon trap’ has a direct effect on energy independence and a lesser effect upon the reduction of GHG emissions. In terms of climate protection, it is more expedient to invest European money into, for example, India’s economy, where the expected coal generation growth will contribute significantly to CO2 emissions.

Disputes surrounding use of production sharing agreements are marked by the pendulum-like dynamic: low oil prices and lack of financial resources are good for the practice of production sharing agreements, whereas in the situation of high oil prices national companies block production sharing agreements. Issues affecting national and regional interests have no simple solutions. Russian companies would in all probability choose to work independently, yet the current geopolitical situation is complex, to say the least.

Experts of the Analytical Center believe that the situation in CIS markets now resembles the recession of 2008–2009. The LNG prices in Asia went down, the world being once again haunted by the ‘spectre’ of integration of gas markets. The decline of oil prices and, as a consequence, indexed LNG prices has led to a new situation in the world which may prove to be a more stable one. Consideration of geographic factors with regard to investments into gas production may help to make the latter more profitable, which is expected to push the development of the industry.

For more information check the Energy Industry Inertia bulletin.