Falling oil exports, moderate growth in coal production, and development of import substitution in the petrochemical industry

22 june 2015

Experts of the Analytical Center studied the main trends in Russia's fuel and energy complex as of year-end 2014. During that year, the country's fuel and energy sector had a number of limitations with which to contend: Russia's stagnant economic growth, financial and technological sanctions, as well as weakening external demand for Russian energy resources in certain markets. Having considered key indicators of the Russian as well as global economy that determine the direction of energy industry growth, experts have come to the conclusion that although the latter have had an impact on the individual parameters of the energy complex, the key structural trends remain unchanged.

The totality of structural and external factors has led to a halt in economic growth in Russia. The pace of global economic growth in 2014 has not changed significantly: according to the IMF, it was 3.4 %, the same as a year earlier. Yet this stability belies structural changes: growth in developing countries, primarily in Latin America and the CIS, slowed significantly, while developed countries have accelerated somewhat due to the resumption of growth in the European Union. The study showed the sharpest slowdown among the major economies to have occurred in Brazil, which was influenced by commodity market problems, high inflation, and weak domestic demand. Among developed countries, the situation has worsened in Japan, where tax increases are considered the culprit of a reduction in consumption. The European economy has grown stronger; although France and Italy continue to stagnate, the German and British economies are growing, supported by the weakening euro and a reduction in energy costs.

The main tendency of the Russian oil sector is believed to be a fall in oil exports, concomitant with a simultaneous increase in the production and export of petrochemicals. The situation vis-a-vis the structure of oil reserves by country has not changed in recent years: the leader is still Venezuela, which has increased its reserves by a factor of almost 4.5 since 2000 due to the heavy and extra heavy oil of the Orinoco oil belt. Oil production in Russia has continued to grow over the last 6 years (at an average of 1.2% per year). Nevertheless, production growth rates are falling due to Russia's gradual arrival at a production “plateau”, as well as on account of economic factors.

As regards natural gas, the drop in Russian gas exports has led to a decrease in production. According to the study, with the discovery of large deposits in Iran, Qatar and Turkmenistan, Russia has significantly reduced its share in world stocks. In spite of the gradual increase in gas production in recent years, against the backdrop of similar trends in the United States, Qatar, and Iran, Russia has seen its share in global production reduced.

Experts note a moderate increase in Russia's coal production, with a focus on exports to the east. Russia is second in coal reserves in the world, accounting for about 18%, trailing the US. In Russia, there are 22 coal basins and 129 individual deposits. Over 2/3 of proven coal reserves are concentrated within two coalfields – Kansk-Achinsk (brown coal) and Kuznetsk (mineral coal).

Experts note the growth of investment and import substitution in the Russian petrochemical industry. Growth in Russian plastics production for 2014 slowed to 3 % due to an accident at the Stavrolen plant in February, which led to a sharp fall in the production of polyethylene. At the same time, production of polypropylene and polystyrene has ramped up significantly, and in October, RusVinyl, a new plant for the production of PVC (300,000 tons annually) was launched. In comparison with 2013, the investment in Russia's petrochemical industry has increased by 14 % (to 140 billion roubles). The import substitution trend is also growing. In 2014, Russia has continued to reduce the volume of imports of large polymers, and (with the exception of polystyrene) to increase exports in the category. Nevertheless, according to the study, the dependence on imports in a number of categories is still significant.

Relative to 2013, in 2014, consumption increased negligibly. The increase in capacity at UES of Russia amounted to 6 GW (+ 3 % in 2013), and to 21.8 GW (10.4 %) from 2008 to 2014. Total capacity in Russia grew from 2008 to 2014 at 23 GW.

For more information check analytical report "RUSSIAN ENERGY -2014