Vladimir Putin addresses Russian Energy Week plenary session

Vladimir Putin addressed the plenary session on ‘Global Energy: Transformation for Development’ at the Russian Energy Week International Forum. President of Angola and chair of the 2021 OPEC conference João Lourenço also took part in the discussion on current trends in the global fuel and energy sector, along with heads of leading global energy companies.

The energy sector has felt the full impact of the crisis caused by the COVID-19 pandemic, Putin said in his opening address at the plenary session. “The disruption to regional energy markets has once again shown the importance to the modern world of the stable and reliable functioning of the fuel and energy sector and the supply of affordable energy to consumers with a minimal environmental impact.”

“In order to secure the planet’s energy and environmental security we need balanced and responsible actions from all market participants, including both producers and consumers, focusing on the longer term in the interests of the sustainable development of our countries and ensuring the wellbeing of our people,” the President said at the REW 2021 plenary session.

Global demand for energy resources fell sharply in 2020 as a result of the restrictions, the slowdown in business activity and the suspension of production and transportation. This led to a 4.7% reduction in global consumption of primary energy, which was the most serious shock to the sector for 70 years, the President said. At the same time, the fall in demand was followed by a price correction. As Putin noted, natural gas prices in Europe fell by a factor of two and a half, from USD 282 per thousand cubic metres in 2018 to USD 113 in 2020. “The situation in the oil sector was utterly unique. None of us, absolutely no one would have believed or could even have imagined what took place last spring when the price of oil turned negative for the first time in history. Storing oil became more expensive than paying for it. This is simply a unique situation,” the head of state said.

Nevertheless, the subsequent OPEC+ agreements played a key role in stabilizing the oil market, the President continued. He added that OPEC member countries and nations that are not part of the organization managed to establish effective cooperation, ensure the stability of the oil sector amidst the pandemic and, most importantly, create the necessary conditions for investment. He added that the cooperation agreement will be valid until the end of 2022.

Unlike oil, however, the situation on the gas market still looks unbalanced and unpredictable, particularly in Europe. “The main reason for this is that not everything in this market is the result of producer behaviour: gas consumers play an equal or even a greater role. Over the last ten years, the share of renewable sources in the European energy mix has increased sharply, which appears to be a good thing. It is now a significant and notable presence in the sector. A key feature of renewable power, however, is the volatility of its generating capacity. Large reserve capacities are required and, where serious outages occur, primarily as a result to weather factors, existing reserves are simply insufficient,” the head of the Russian government said.

The President also stressed that the increase in gas prices in Europe was a consequence of an electricity shortage, rather than the other way around. “Systemic flaws have slowly seeped into European energy over the last decade, leading to a major market crisis on the continent. When nuclear and gas were the leading energy sources there were no crises of this kind, as there were no equivalent risk factors,” the President said.

In this sense, Russia is fully satisfying its contractual obligations to its partners, including those in Europe, and is securing their guaranteed and uninterrupted gas supplies, Putin said. “We are continually working to strengthen the energy security of the entire European continent. Everything points to gas supplies to the global market reaching record volumes by the end of the year. Moreover, we are always willing to accommodate our partners and discuss additional measures,” he added.

Russia has already commissioned and is using major infrastructure projects to supply gas to Europe, including TurkStream, Balkan Stream, Nord Stream 1 and Nord Stream 2, ensuring the stability and predictability of gas supplies. The production of liquefied natural gas is also in constant development, the President added. “By 2035, we expect LNG production in Russia to rise to 140 million tonnes per year and our position in this rapidly changing market to strengthen to a share of around 20%, thanks to low production costs and competitive logistics. Further to this, we expect our share in the global supply of petrochemical products to increase to 7% by 2035 from a current level of 1%,” he said.

In order to successfully avoid similar energy crises in the future, we should make sure that the climate agenda doesn’t become a tool for promoting the political and economic interests of individual nations, the President said. On the contrary, global market participants must agree on the global mechanisms needed to balance the energy market, Putin continued. “We should launch meaningful and substantive dialogue between energy producers and consumers on this matter, free from political bias and platitudes. We are talking about hugely important issues that directly affect the functioning of businesses and organizations, the wellbeing of households, and millions of people both in Russia and in our partner countries, including in Europe. I am confident that dialogue can help us to find solutions that take into account market trends and the interests of all parties. Russia is ready for constructive, trusting and close cooperation, including direct dialogue with our partners in Europe and the European Commission to find common solutions to stabilizing energy markets and combating climate change,” he said.

Changing conditions on the global energy consumption market have certainly had a significant impact on the strategies of many countries when it comes to ensuring future demand for energy resources,” President of Angola João Lourenço noted at the plenary session. “The growing impacts of climate change, increased concerns about the state of the environment and the energy transition to a low-carbon economy are some of the major topics on the current political agendas of various countries. Angola should develop a national strategy for the sustainable extraction of its mineral resources and move towards a gradual shift in the country’s energy matrix in the medium and long term, creating opportunities for the development of new renewable energy sources such as solar, wind and biomass,” he said.

That being said, main countries are reserving an important role for gas in their energy strategy while planning their transition. It is therefore important to continue joint efforts to stabilize the global gas market in the interests of the consumers themselves, Chairman and CEO of TotalEnergies Patrick Pouyanné said, in agreement with the President. “Overall demand for gas, including LNG, is growing, and we account for around 10% of the global LNG market. We are not happy with the high prices of course, as this is bad not only for the company but our customers too. We want to develop a system where coal is replaced by gas. This would have a positive climate impact but it requires low prices. As it stands, coal is becoming more attractive again when what we need is stability. We are interested in long-term price formulas that make prices more predictable,” he said.

The reliability of energy supplies is one of the most important criteria when choosing a supplier today, BP CEO Bernard Looney said in his presentation. “The energy sector must be clean and safe, but above all else it should be reliable. Natural gas is a key factor in bringing the system into balance. We should invest in storage infrastructure, underground gas storage and the diversification of our energy sources. This is essential if we want to create a comprehensive system with a safety buffer. This is not just something that we would like to have, but a necessary precondition for sustaining society,” the company head added.

The growing demand for low-carbon energy sources is being seen not only in housing and utilities, heating and manufacture, but in transport too, Chairman of the Board of Management of Daimler AG and Mercedes-Benz AG Ola Källenius said at the plenary session. “It will be very difficult for car manufacturers to raise capital from long-term investors if they are unable to present a convincing decarbonization plan. We are already being asked to provide plans for the rollout of electric vehicles and the use of hydrogen and fuel cells. Developing infrastructure is therefore a top priority, as we would be unable to transform the global economy and completely switch to electric vehicles without it. I now believe that we, as an automotive company, should be moving faster,” Ola Källenius said.