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Finnish Centre of Excellence on Russian Studies Ten theses on the transformation of the Global Energy System, Climate Issues and Expectations for Russia Valdai Discussion Group, IX Annual Meeting Scenarios for Russia’s Economic Development October 21-26, 2012, St. Petersburg –Moscow PAMI AALTO Jean Monnet Professor/Director, Jean Monnet Centre of Excellence on European Politics and EuropeanRussian Relations, School of Management University of Tampere <[email protected]> 1. Russian fossil fuel resources are not the problem for maintaining energy rents, instead the rules by which resources are converted to income are 2. Russian gas and oil producers face very different, and diversifying policy environments in the European, CIS and Asian markets. These are defined by different 1) market rules; 2) institutional rules; and 3) ecological rules. The problem is increasingly to identify and follow the ’ right’rules in each context. Global outlook: what to make of the rules? Russian federal, regional and corporate actors vs. European, CIS, Asian markets 3. Russian actors have to navigate in a policy environment with several co-existing structures 4. In deciding which rules to follow in each policy environment, Russian actors (as any actors) are bound to act sub-optimally Financial rules Institutional rules Ecological rules -Markets -Competition -Investment -Mechanisms of currency fluctuations -Informal/formal ‘ rules of the game’ -Bureaucratic politics -Energy Diplomacy -Agreements -Popular attitudes and international cultures of interaction -Environmental side-effects of energy production, transport and use -Climate change -Pressures for lessening energy consumption or use of renewable sources -Criticism of established financial and institutional rules of energy policy EU –Russia Russian actors: federal; European regions; energy and transport companies, environmental NGOs vs. other actors 6. Russian actors must develop more diversified strategies in a 5. Russian actors encounter a converging, more ‘ agile’ differentiating, yet EU market with flexible price formation mechanisms converging, competitive market! Financial Rules Institutional rules Ecological rules -Converging markets -Competition with LNG spot prices -Unconventional gas from 2020-2030s onwards, slow move away from oil -Capital still reasonably well available -High-trust supply relations vs. diversification policies away from Russia -Vertically integrated dominant companies under pressure from EU law & courts -Politically conditioned market entry, optimum degree of Russian state involvement -Pressure for developing renewables -energy efficiency to re-emerge after economic recovery -Increasing nuclear energy scepticism -If no emissions trade, then carbon tax? Japan –Russia Russian actors: federal; east Siberian; energy companies, environmental NGOs vs. japanese actors 7. Russian actors face a potentially expanding (gas) market after Fukushima 8. Prioritise gas for Japan, nuclear energy for Siberia? Financial rules Institutional rules Ecological rules -Expanding market after Fukushima -Competition to substitute Persian Gulf, East Asian supplies -Gasification of eastern Siberia vs. exports? -Investment is key & is available -Remaining Cold War era tensions, territorial disputes latent threat -Very few & weak international institutions like in post-WWII Europe! High ‘ transaction costs’ -Bilateral diplomacy vs. economic rationale for multilateralism -Nuclear energy passe -Not much competition for fossil fuels -Ecology of sea area China –Russia Russian actors: federal; east Siberian; energy companies, environmental NGOs vs. Chinese actors 9. Apart from oil, Russian actors’long wait for proper market entry? 10. Real need for developing East Siberian oil to supply more proximate resources to China more economically? Financial rules Institutional rules Ecological rules -Russian oil diversifies Chinese Gulf supplies -Gas not competitive with Chinese coal -China’ s growing, hardto-access energy market vs. mature Korea, re-expanding Japan? -Investment available -Territorial disputes settled, stable setting as long as China is stable! -Familiar ‘ great power vs. great power’setting: is it really easier to manage than the EU front? -Strategic partnership with China ‘ emptier’than the one with the EU -Competition with emerging renewable production & industry -Vast scope for energy efficiency: when ‘ fixed’ , implications for energy trade? -Relatively little pressures, as of yet, on climate issues Observations For more, see P. Aalto (ed.) Russia’ s Energy Policies: National, Interregional and Global Levels (Edward Elgar 2012) 1. Resources not the problem, but identifying and following the set of right rules in each case are, in order to maximise prospects of success in an area where outcomes/energy deals are typically sub-optimal 2. Some energy challenges are global, many are not: Russian companies will have to develop their geographically differentiated strategies even further; they will also need to start studying those contexts more in-depth? 3. Especially important to find a more flexible pricing formula in gas for Europe 4. Consider more of a role for smaller independent companies in European trade to ’ fit’better into the competitive ‘ anti-trust’EU market and ward off political suspicions? ’ Information war’is key! 5. Investment potential is not a major problem in the energy sector in any major geographical direction, if promising projects are created, but strengthening a predictable and transparent investment climate is key 6. No way round the ’ institutions/political economy’problem: in Europe, ‘ too many’intergovermental & supranational institutions, according to some, while in Asia, too few for effective business? • where you could expand on the way the global energy landscape is changing in the face of political, social, technological and climate disruptions and how it will affect the industry and the Russian energy industry in particular. Needless to say that the energy rent has been incremental for the Russian economy over the past decade thus the forecast for the industry becomes an important factor for the economic development and policies.