By attracting large investments to modernise its ageing power generation and transmission systems as well as district heating supply chain, and by dramatically improving energy efficiency in the building and industrial sectors, Russia could develop new economic growth pillars beyond the oil and gas sectors, the International Energy Agency (IEA) says in a new report.
The IEA’s in-depth review of Russian energy policies, conducted over the past year, identifies energy sector improvements that could contribute to putting the Russian economy on a robust and sustainable growth path. The report says that to maintain a leading position in hydrocarbon production and exports and to ensure sustained federal budget revenue contributions, Russia must focus on developing the most cost-efficient oil and gas resources and fostering competition in markets.
Russia’s energy sectors are at a turning point. The country has made considerable achievements in its oil and gas sectors in terms of investments and production as well as market reforms in the electricity sector. Yet very large private domestic and foreign investments are needed to replace ageing infrastructure; investments and unprecedented technology upgrades are required in the oil and gas upstream sectors; and the very comprehensive and ambitious energy efficiency policy framework that has been developed over past years has so far failed to deliver tangible changes. As an example, the amount of energy Russia needs to produce a unit of GDP (in purchasing power parity terms) is still about two times higher than the average of IEA member countries.
The report recommends that Russian policy makers make district heating sector reform one of their top priorities, and that they integrate such reform with energy efficiency policies, especially in the building sector. Setting up a regulatory framework that encourages more investment and stronger consumer involvement is essential.
Russia’s oil, gas and coal exports are making an important contribution to global energy supply. The IEA encourages Russia to give priority to enhanced oil recovery and tight oil development and to further develop its export potential, such as to Asian markets.
The review also points out that Russia’s energy sectors and its economy would become more efficient and competitive by progressively phasing out subsidies and cross-subsidies, removing regulated prices and de-linking social policy from energy policy while focussing more on consumer protection and quality of service.
The IEA prepared its review on the request of the government of the Russian Federation, a partner country with which the IEA has been engaged for more than 20 years. The independent review was prepared under the authority of the IEA Executive Director.