Global and Russian Energy Outlook Up To 2040

The Energy Research Institute of the Russian Academy of Sciences
AnalyticaI Center for the Govemment of the Russian Federation
GLOBAL AND RUSSIAN ENERGY

OUTLOOK UP TO 2040
THE OUTLOOK WAS PREPARED BY:

The Energy Research Institute of the Russian Academy of Sciences (ERI RAS)
and the Analytical Centre of the Government of the Russian Federation
(ACRF)
Scientific Advisor: A. A. Makarov, academician, director of ERI RAS
Project Manager: T. A. Mitrova, PhD, Head of Oil and Gas Department, ERI RAS
L. M. Grigoryev, PhD, Professor and Senior Advisor to the Head of AC
S. P. Filippov, corresponding member of the Russian Academy of Sciences,
Deputy Director of ERI RAS
CORPOR ATE AUTHORS:

N. Arckhipov, Researcher, ERI RAS
O. Eliseeva, PhD, Head of ERI RAS Laboratory
A. Galkina, Researcher, ERI RAS
E. Geller, Researcher, ERI RAS
A. Goryacheva, Researcher, ERI RAS
E. Grushevenko, Researcher, ERI RAS
D. Grushevenko, Researcher, ERI RAS
A. Horshev, PhD, Head of the Laboratory, ERI RAS
A. Ivashchenko, Independent Expert on Macroeconomics
E. Kozina, Researcher, ERI RAS
V. Kulagin, Head of the Centre for Global Energy Markets, ERI RAS
A. Kurdin, Head of the Directorate of the AC
A. Makarova, PhD, Head of the Laboratory, ERI RAS
V. Malakhov, PhD, Head of the Department of Energy Consumption, ERI RAS
S. Melnikova, Researcher, ERI RAS
I. Mironova, Researcher, ERI RAS
S. Sorokin, Researcher, ERI RAS
E. Surova, Researcher, ERI RAS
V. Strukova, Researcher, ERI RAS
A. Tarasov, PhD, Senior Research Scientist, ERI RAS
L. Urvantsev, Senior Research Scientist, ERI RAS
OUTLINE
Key findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1. Baseline Scenario Energy Consumption. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Long-term trends of the world energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Demography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Economic Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Primary Energy Consumption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Development of Electricity Generation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
International Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2 Emissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2. Baseline Scenario Energy Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Liquid Fuel Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Gas Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Solid Fuel Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Nuclear Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Renewable Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
3. The Impact of Technological Breakthroughs on the Energy Markets . . . 63

The Role of Technologies in the Development of the Energy Sector . . . 63

Shale Breakthrough . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Shale Failure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Gas Use in Transportation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Liquid Biofuels. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Electric vehicles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Gas Hydrates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Biogas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
4. The Impact of Global Energy Markets on Russias Economy

and Energy Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Initial Scenario for the Development of the Russian
Economy and Energy Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Russian resources in the world energy markets:
external constraints. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Forecast Scenario of Russias Economy and Energy Sector
Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
88
88
89
92
Appendixes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Appendix 1. Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Appendix 2. Regional Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Appendix 3. Comparison with Other Forecasts. . . . . . . . . . . . . . . . . . . . . . 104
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
GLOBAL AND RUSSIAN ENERGY OUTLOOK UP TO 2040
Key Findings
ERI RAS ACRF
KEY FINDINGS
The protracted nature of the current global financial crisis has led to
reduced forecasts of economic and energy consumption growth accompanied
by an obvious accelerated increase in the share taken by developing
countries.
In the long term, fossil fuels will remain dominant, against the background
of a slower growth in the share of non-hydrocarbon energy resources
than was estimated in the previous Outlook. The shale breakthrough
has postponed for two or three decades the threat of running out of
economically viable oil and gas reserves which had seemed so close
just five to seven years ago and has secured the predominantly
hydrocarbon character of the worlds energy sector. The share of oil
and gas in world primary energy consumption will remain practically
unchanged (53.6 per cent in 2010 and 51.4 per cent by 2040).
The study of oil and gas price dynamics in different scenarios did not
show fundamental cause for alarmist forecasts predicting either too high, or
extremely low, prices within the period under review. In all cases ranging
from future success to possible failure of shale technologies oil prices
in 2040 will not move out of the range $100130/bbl. Gas prices will
be closely correlated with oil prices, but also strongly differentiated by
region (which does not exclude large short-term fluctuations in prices
under the influence of political and speculative factors).
Despite the integration of oil and gas markets, as international trade in oil
and liquefied natural gas (LNG) expands, the trend towards regionalization
of prices, resulting in considerable differences in price levels, will gain
momentum.
Natural gas will account for the most substantial increase in absolute
volumes of consumption, and the share taken by gas in primary energy
consumption will increase more than that of any other fuel. The next 30
years could, quite reasonably, be considered as the era of gas. But Russia
runs the risk of missing the resulting opportunities.
The consequences of the expected transformation of world energy and,
especially, hydrocarbon markets will not significantly change the fuel
markets themselves, but the positions of the leading market participants
will clearly be rebalanced, while some global players will be able to
gain influence. The results of our research clearly show that Russia will
be more susceptible to adverse changes in market conditions during the
forecast period. In the Baseline Scenario, Russian oil and gas exports to
foreign markets appear to be significantly lower than the official national
projections.
High costs and the current taxation system both limit the competitiveness
of Russian energy resources in global markets. The Russian fuel and
energy complex could face severe restrictions on external demand for
energy resources at prices acceptable to Russia, resulting in additional
risks for Russias energy sector and economy. This research provides
preliminary estimates of the consequences of this impact on the countrys
economic growth (one percentage point slowdown per year) and possible
measures to compensate for it.
ERI RAS ACRF
Introduction
ERI RAS ACRF
INTRODUCTION
Russia is a leading force in world energy and a major participant in

international energy markets. The countrys energy sector, together with
exports of its products, is uniquely important; its dynamics directly impact
the stability of the national economy. Thus, a satisfactory vision pertaining
to the long-term development of this sector is of great importance
in predicting and planning the countrys economic development. The
study of the worlds energy future is one of the most important external
parameters that help to shape the countrys strategy for the development
of its economy and energy sector.
The worlds energy situation has undergone significant transformations
since the 2008 global financial crisis: prices for hydrocarbons have shown
strong volatility; there has been a noticeable slowdown in demand and
increased competition in traditional energy markets; most importantly,
new technologies have already started to push international energy
markets in a direction unfavourable for Russia. Therefore, now more than
ever, we need to make a fundamental study of possible turbulence in world
energy markets and develop regular world energy outlooks, based on our
own research potential.
It was this view that gave impetus to the Energy Research Institute of
the Russian Academy of Sciences (ERI RAS) and the Analytical Centre of
the RF Government (ACRF) to prepare Global and Russia Energy Outlook
up to 2040. Publication of the 2012 Energy Outlook showed how much
demand there was for Russia to produce its own review of the future of
world energy. Last year, this information was widely used in the reports
of federal government officials and the top management of major Russian
companies, and it was also discussed at scientific and other expert events
in Russia and abroad.
The new Outlook has an extended time horizon, and a significantly
upgraded modelling and methodological approach. It mainly focuses on
the study of the fuel market situation (liquid, gas, and solid fuels) not just on
forecasting the production and consumption of different energy resources,
which is more appropriate given increasing interfuel competition.
The main purpose of Outlook-2013 is the evaluation of actual trends in
global hydrocarbon markets, and of the changes resulting from anticipated
technological breakthroughs, giving the resulting implications for Russias
economy and energy sector. In this regard, the following are included:
1) A Baseline Scenario which shows the evolution of world energy and fuel
markets based primarily on existing developed energy technologies;
2) Versions of the Baseline Scenario, whose differences relate to the
success of required technological breakthroughs in the production and
consumption of hydrocarbons and their substitutes;
3) Forecasts for the development of Russias energy sector under certain
hypothetical transformations of world fuel markets, and the assessment
of their impact on the national economy.
The Baseline Scenario for the evolution of fuel markets was developed
using the world energy model incorporated in the SCANER modelling
and information complex [1], with substantially upgraded models of oil
[2, 3] and gas [4] markets. New features of interfuel competition in the
ERI RAS ACRF
transportation and power sectors are described with reference to 86

points of liquid fuel consumption (76 countries) and 192 points of gas
consumption (147 countries). Production and processing of conventional
and unconventional hydrocarbon resources from 778 oil fields and 504
gas fields were modelled. The balance of production and consumption and
balancing fuel prices were calculated for all the regional fuel markets; their
sensitivity to changes in the most important resource and technological
factors was analysed; and the roles of key market players, in particular
Russia, were estimated.
For the assessment of potential technological breakthroughs, the model includes
variants of changes in volumes of production, consumption, and substitution
(for all types of energy resources) relating to the implementation of new
technologies for: production of unconventional oil and gas; production of
synthetic liquid fuels and biofuels; and the use of efficient electrical power
storage in transportation (with estimates for the technical and economic
characteristics required for implementation of these new technologies).
In accordance with the results of these calculations, we have set out the
potential changes in fuel market dynamics.
Projections of Russias energy development were made using the modelling
system [1] for the baseline and extreme scenarios of the development
of world hydrocarbon markets, taking into account their influence on
domestic demand, production and export of energy resources, and their
consequences for the economy.
The scenarios are exploratory in nature: they show the variety and, most
importantly, possible consequences of the development options the socalled forks in the road which face the energy industry in both Russia
and the world.
For several important parameters Outlook-2013 gives new estimates,
which are substantially different from our Outlook-2012 and from the
results obtained by a number of international organizations. These
differences are noted and explained in the text; the most important of
them are mentioned below:
The protracted character of the current global financial crisis has led
to reduced forecasts for economic growth and energy consumption, in
such a way that last years prognosis for the period to 2035 has declined
slightly towards 2040, in combination with a simultaneous accelerated
economic growth for developing countries.
Fossil fuels will remain dominant in world energy, with the share of noncarbon energy resources rising more slowly. The production volumes of
oil, natural gas, and coal will continue to grow at different rates.
The shale revolution has postponed the threat of exhaustion of
economically viable oil and gas resources, which seemed so close just
57 years ago. It has also widely diversified these resources by world
region, stimulating the regionalization of world oil markets against
the background of the integration of gas markets due to the explosive
growth of LNG trade. Under these conditions, some global players will
have additional possibilities to influence hydrocarbon markets.
Analysis of the hot issue of oil and gas price dynamics has not brought
to light any justification for alarmist predictions for the period reviewed;
ERI RAS ACRF
there will be no excessively high, or excessively low, deviations in

their dynamics. In all scenarios, ranging from the future success to
the possible failure of shale technologies, balancing oil prices1 do not
exceed US$100130/bbl (2010 prices) and a good correlation with gas
prices, highly differentiated by region. However, up to 202530, there
could be wider fluctuations of oil price trends.
Seen objectively, favourable transformations in world energy, especially
hydrocarbon, markets bring extra risks for Russias economy and energy
sector. Preliminary results assessing their impact on economic growth
show a slowdown of one percentage point each year, due to decreased
energy exports and possible measures for its compensation.
It has been determined that during the forecast period Russia will be
more sensitive to negative market fluctuations reduced demand,
increased supply and, especially, price decline. Therefore, the Baseline
Scenario assumes oil and gas export volumes being at significantly
lower levels than those determined in national projections. High costs
and the current tax system hamper the competitiveness of Russian
energy resources in external markets the first time the Russian energy
sector has had to work under such difficult conditions.
Our primary objective is to promote discussion on the future shape of
world energy development and options for the adaptation of Russias
economy and energy sector to the changing environment.
Alexei Makarov, academician
Leonid Grigoryev, professor
Tatiana Mitrova, PhD
The balance price of oil is a price at which oil production in conventional and unconventional fields and the commercially viable options
of oil substitution will satisfy demand in the particular year of the forecast period (factually reflecting the point of intersection of supply
and demand).
ERI RAS ACRF
Baseline Scenario
Energy Consumption
ERI RAS ACRF
1. BA SELINE SCENARIO ENERGY CONSUMPTION

Long-term trends of the world energy
Over the past 150 years, world energy consumption has grown 35 times and
passed through three stages of development. The length of these stages
has consistently fallen (from 70 years, to 50, then 30 years); fuel prices have
doubled many times over; energy consumption growth rates have fallen
during each successive stage (by 4.8, 4.2, and 1.6 times Figure 1.1); and
there was a recessionary drop in demand for energy at the end of each stage.
The current slowdown in global energy consumption may indicate that it
is at the point of transition to a new (fourth) stage. The analysis of results
shown in this Outlook reinforces the view that the next (fourth) stage of
world energy development, characterized by a more moderate rise in energy
consumption, is approaching.
Transition to the next stage

(characterized by successive
doubling of prices and more
moderate growth of energy
consumption) of world energy
development is in progress.
Figure 1.1. Stages of world energy development

75%
Shares of fuels in primary energy production
btoe
16
15
50%
14
13
12
25%
0%
11
10
Growth of 1.6 times

in 30 years
9
8
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
7
6
5
4 2 times
Growth of 4.2
in 50 years
4
3
Growth of 4.8 times

in 70 years
1860
1870
1880
Bioenergy
1890
2
1
1900
Coal
1910
Oil
1920
1930
Gas
1940
1950
Hydro
1960
1970
Nuclear
1980
1990
2000
2010
Other renewables
The key indicator for any energy forecast demand for energy is
intrinsically (but not directly) determined by the dynamics of the demography
and economy of a particular country or region, or of the world at large. It is
obvious that the key driver of energy consumption growth is improvement
in the welfare of a growing population. The main demographic indicator is
the size of a countrys population, while the development of its economy
is characterized, somewhat relatively, by its gross domestic product (GDP).
Accordingly, the key specific indicators for our forecasts are per capita energy
consumption and GDP1 energy intensity.
Using demographic and economic variables which are defined in greater detail does not guarantee increased accuracy of energy
consumption forecasts, but just moves the problem to the margin of error of these variables.
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10
Our approach combines the

demographic and economic
projections of energy
consumption.
Our approach combines demographic and economic projections of energy

consumption. First, forecasts for each of 67 groups of countries, according
to the UN data on population dynamics, are correlated with each other
on the basis of: a) per capita energy consumption and b) per capita GDP
and GDP energy intensity. The results of forecasts for both methods are
ranges within which trends deviate; in this way, the task of optimizing the
obtaining of forecast estimates is fulfilled. This task consists of a search for
such trends in two ranges, the difference between which is minimal. The
sums of the countries forecasts are then mutually corrected in accordance
with the independent global energy projection.
The Methodology of Forecasting Energy Demand

In forecasting energy consumption, trends in population growth, economy, and the energy sector were considered
for 67 groups of countries and for the world as a whole for the last 30 years. The UN medium scenario served
as the basis for population2 for Outlook-2013 (see Figure 1.2.).
Figure1.2. Scheme of convergence of demographic and economic projections of energy consumption
$2010/cap
25000
bln people
8,8
23000
8,3
21000
7,8
19000
7,3
17000
6,8
15000
6,3
Range of possible
values
Range of possible
values
5,8
Population
GDP per capita
5,3
13000
11000
9000
7000
5000
4,8
48
1980
1990
2000
2010
2020
2030
4,3
2040
1980
1990
2000
2010
2020
2030
2040
toe/cap
2,2
S trillion
185
2,1
165
2,0
145
1,9
125
1,8
105
85
Range of possible
values
65
GDP
1,7
Range of possible
values
1,6
Energy consumption
per capita
45
25
1,5
1980
1990
2000
2010
2020
2030
2040
1980
1990
2000
2010
2020
2030
2040
mtoe
19000
toe/ thous. $
0,28
17000
0,24
15000
0,20
13000
Range of possible
values
0,16
Energy intensity
0,12
0,08
11000
Range of possible
values
Energy consumption
9000
7000
1980
1990
2000
2010
2020
2030
2040
1980
Reported information
1990
2000
2010
2020
2030
2040
Forecasted ranges
Source: ERI RAS
Based on this, and on extrapolated trends of per capita averages for each group of countries, statistical trends and
confidence intervals of future GDP indicators, as well as the consumption of primary energy, electricity, and oil
products, were determined. Duplicate demand forecasts were made analogously, based on each countrys trends
in GDP volumes and energy intensity.
2
World Population Prospects, the 2010 Revision, UN Population Division.
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11
The indicators assumed for Outlook-2013 were obtained by the alignment (using the minimum criterion of relative
deviations from the trends of all forecasting indicators) of energy consumption levels within the confidence
intervals. We did this first for each group of countries according to per capita consumption and GDP energy
intensity; second for total demand for all the groups of countries and the independent demographic and economic
forecasts of world energy consumption. Deviations from historic trends of basic social characteristics of energy use
per capita energy consumption and GDP energy intensity obtained in Outlook-2013, have given a satisfactory
explanation for world trends in general, and for key hydrocarbon markets in particular.
Analysis (for the world as a whole) of the predictive properties of the indicators mentioned, based on information
collected since 19553 (the period being twice as long as that of our forecast) has highlighted the following
problems:
World population dynamics are well-described by a linear dependence, and the UN medium case scenario (which we
accepted as the baseline for the calculation of energy consumption) starts diverging from it only after the 2030
timestamp. The dynamics of per capita energy consumption are best described by exponential (not so well by
linear) dependence, but divergence between the two only reaches 15 per cent by 2040, which made it impossible
to rely only on the demographic projection of energy consumption.
Conversely, retrospective GDP is well-characterized by exponential dependence, and only satisfactorily so by a
linear one, but these trends give more than a twofold divergence of GDP indicators by 2040. The economic forecast
of energy consumption cannot be supported by even an excellent predictability of GDP energy intensity it has
been consistently decreasing by 1.2 per cent per year for more than half a century already.
Demography
According to the latest UN demographic forecast, by 2040 the world
population will reach 8.9bn and there will be a significant change in its
qualitative patterns. The so-called demographic transition from high to low
fertility and mortality rates, which is almost complete in developed countries,
will be over (Figure 1.3). As a result, population growth, which peaked in the
1970s, will decrease twofold in comparison with the current rate. This largely
explains the expected slowdown in energy consumption growth.
By 2040, the demographic

transition will be complete,
resulting in the twofold
decrease of natural population
growth, largely explaining the
forecast slowdown of energy
consumption growth.
Figure 1.3. The worlds demographic transition

people/1000 people
60
50
40
30
21
20
10
0
18
18
13
11
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040
Range of birth rates by region
Range of deaths rates by region
Average birth rate in the world
Average death rate in the world
Natural growth
Source: UN
3
Before this period demographic, energy and, in particular, economic indicators (GDP) were quite tentative and incomplete, world energy
not being, at that point, a single system.
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12
By 2040, 73 per cent of the

worlds population will live in the
AsiaPacific Region and Africa.
India, by that time, will be the
most populous country in the
world.
The main areas of population growth are shifting to Africa (83 per cent
increase) and India (33 per cent), while the number of people in China will
remain practically unchanged due to the one family, one child policy. The
developing countries of Asia and Africa will see 90 per cent of the absolute
growth of world population (Figure 1.4), which will become a major driver of
energy demand. (Figure 1.5). By 2040, 73 per cent of the worlds population
will live in the AsiaPacific Region and Africa, with India becoming the
most populated country in the world. Out of all OECD countries, only North
America will experience a significant increase in its population (up by 24 per
cent). For Russia, we use official projections for the dynamics of population
growth.
Figure 1.4. Population by region, billions
Africa
0,85
Source: UN
8,8
Figure 1.5. Population growth, GDP, and energy consumption by region

bn people
2,5
2,0
$ trillion
mtoe
140
6 000
Africa
120
5 000
Middle East
100
1,5
80
40
0,5
-0,5
CIS
3 000
Developing Asia
60
1,0
0,0
South and Central America
4 000
20
Population growth
201040
2 000
Developed Asia
1 000
0
GDP growth 2010
40
-1 000
Europe
Energy consumption
growth 201040
North America
Source: ERI RAS
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508
5164
13
Impact of Demographic Factors on GDP and Energy Consumption

Among the demographic factors that affect energy consumption, a very important role is played by the proportion
of the population that is of working age (1564 years), as it is this part of the population that determines the rate
of economic growth and, consequently, the demand for energy (Figure 1.6).
The working-age population will fall furthest in developed Asian countries (18 per cent), the CIS (8 per cent), and
Europe (6 per cent). By 2040, the highest rates of growth in working population are expected to be: Africa (100
per cent), the Middle East (63 per cent), and Latin America (25 per cent), with a recent leader Asian developing
countries only showing 19 per cent growth. North America, with its reasonable rise in working population (15 per
cent), will face a significant increase in the number of older people (an increase of 113 per cent). China is expected
to stabilize, and after 2020 it will face a decline in its working population. This, combined with a rapid increase in
the proportion of people aged over 65, will have serious implications for the dynamics of Chinas economy and for
the countrys energy consumption.
Figure 1.6. Dynamics of working population by region, millions
USA
people, m.
450
people, m.
1 200
400
China
people, m.
1 600
people, m.
7 000
1 400
1 000
350
800
250
200
150
5 000
1 000
600
600
200
50
1980
2010
2040
2010
2040
0-14
2 000
1 000
200
1980
15-64
3 000
400
100
65+
4 000
800
400
non-OECD, excl. China
6 000
1 200
300
OECD, excl. USA
1980
2010
2040
1980
2010
2040
Source: World Bank
Internal and external migration directly relates to the quantity and quality of a countrys workforce. Until the
end of the forecast period Africa, the developing countries of Asia and Latin America, and the CIS, will continue
to remain regions of migration outflow; North America, Europe and, to a lesser extent, the Middle East and the
developed countries of Asia being recipient regions.
Another significant factor in the evaluation of energy consumption is urban growth brought about by immigration
from rural areas. This changes not only the size but also the nature of consumption, resulting in greater centralization
and concentration of power supply (Figure 1.7). In the regional context, the highest urban population growth by
2040 will be in developing countries, led by China (24 per cent by 2010). India, Africa, and other Asian developing
countries will follow China in this respect, but will stay some way behind (1314 per cent urban population
growth). The developed countries have virtually exhausted their potential for urbanization, and this factor no
longer plays a significant role in predicting energy consumption in these countries.
Figure 1.7. Percentage of
100%
urban population by region
80%
60%
40%
OECD, excl. USA

USA
20%
China
0%
1980
1990
2000
2010
2020
2030
2040
Source: UN, ERI RAS
ERI RAS ACRF
14
Economic Growth
The forecast of economic development was made in terms of GDP dynamics,
based on population forecasts for the reviewed groups of countries and
on expected changes, largely associated with the age and types of human
settlement, in per capita GDP (Figure 1.2).
In the next 30 years, there is little reason to hope for sustained GDP
growth on a world scale, to say nothing of any acceleration, compared to
the previous period. Growth is hindered by the declining intensity of the
main factors of production, the slowdown of population growth, limited
opportunities for territorial expansion, aggravated water supply problems,
and rising prices for major natural resources (in particular, the doubling of
hydrocarbon prices in comparison to the average over the last 30 years).
It is doubtful that even successful technological progress could fully
compensate for these negative processes. In this regard, the qualitative
and multi-directional economic development of certain countries is of
unquestionable importance.
Economic growth in developed
countries is based on the
continuation of trends and
parameters of post-industrial
development, with a further shift
to services.
Forecasts of economic growth in developed countries are mainly based on

the continuation of trends and parameters of post-industrial development,
together with a further shift to services (development of health services,
against a background of increasing life expectancy, etc.). Relatively slow
growth rates imply the concentration of capital on increasing efficiency and
productivity, rather than on expanding capacity. In the case of adopting
(political) objectives aimed at climate protection and conservation of
resources, development might take the form of combining the maintenance
of living standards with more severe resource constraints.
In the long term, the trend towards a levelling-out of global development,
on a technological base that will increasingly be shared, will continue,
but the degree of convergence will be very different. In the developing
world, stratification will remain enormous. Recent years have seen the
emergence of a group of fast-growing countries; a group of countries
for which take-off is proving problematic; and about 30 countries with a
critically low growth rate in relation to per capita GDP.
The future of the Chinese

economy its growth rate,
social and political stability, and
the levelling-out of its social
structure beyond 2020 is the
biggest uncertainty of long-term
economic forecasting.
In the developing world, China stands out with its unique model of
population growth reduction. Given the countrys expected doubling of
per capita GDP, its social structure is expected to change on the basis
of mass welfare promised to its people. The degree of success of the
proposed model of economic development will be of critical importance
for the growth rates of both China and the rest of the world.
Other developing countries have to be brought together for the sake of
analytical simplicity, but they are split into several groups. The common
indicators of these countries are: GDP growth is above that in developed
countries, but lower than that in China (Figure 1.8). These countries
represent the majority of the worlds population and their demographic
growth continues (above 1 per cent per year), as do their problems of
acute poverty and social inequality, as well as difficulties related to the
transition to new (high cost) and effective technologies.
ERI RAS ACRF
15
Figure 1.8. Average GDP growth by region
12%
10%
8%
6%
4%
2%
0%
1990
2000
2010
2020
USA
China
World
2030
2040
OECD, excl. USA

Source: Analytical Centre of the RF Government
Figure 1.9. Structure of world GDP by region
2040
14%
40% 31%
19%
USA
2010
22%
36%
14%
OECD, excl. USA

China
24%
By 2017, China will become the worlds largest economy, while the USA
and other OECD countries will see their share in the worlds GDP reduce
significantly (Figure 1.9 and Table 1.1).
Within the forecast period, China will rapidly increase its per capita GDP,
approaching that of the OECD countries by the end of the period (Figure
1.10).
It should be noted that although the forecast prepared for the global
economy is fairly restrained, it does not, however, differ radically from the
macroeconomic forecasts of other institutions (Table 1.2).
ERI RAS ACRF
16
Table 1.1. Changing shares of the countries in the global GDP

Rating by GDP (PPP) for 2010
Rating by GDP (PPP) for 2040
Share in global GDP

in 2010
1
2
3
4
5
6
7
8
9
10
EU-27
USA
China
Japan
India
Germany
Russia
UK
Brazil
France
Italy
Share in global GDP

in 2040
20%
19%
14%
6%
5%
4%
3%
3%
3%
3%
2%
1
2
3
4
5
6
7
8
9
10
China
USA
EU-27
India
Brazil
Russia
Japan
Germany
UK
Mexico
France
24%
14%
12%
10%
3%
3%
3%
2%
2%
2%
2%
Figure 1.10. World and regional GDP (PPP) per capita

$2010/cap
80 000
70 000
60 000
50 000
40 000
30 000
20 000
USA
China
World
2040
2035
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
10 000
OECD, excl. USA

Sources: ERI RAS, Analytical Centre of the RF Government
Table 1.2. Comparison of the latest long-term forecasts for the average annual growth of world GDP
(Constant US Dollars acc. to PPP index)
Forecast Source
IMF ($2010), UN
IEA WEO New Policies 2012, $2011
ExxonMobil 2013, $2005
DOE 2011, $2005
Oxford Economics
ACRF-2013, optimistic
ACRF-2013, pessimistic
Outlook-2013 $2010
Outlook-2013 $2010
Period
Average Annual Growth Rate of the World GDP
19802010
201035
201035
200835
201035
201035
201040
201035
201040
3.5%
3.5%
2.8%
3.4%
4.0%
3.7%
3.3%
3.4%
3.4%
Sources: ERI RAS, Analytical Centre of the RF Government
ERI RAS ACRF
17
Assumptions for the Baseline Scenario

The Baseline Scenario of world energy assumes that there will be no significant technological revolutions or
breakthroughs. It is assumed that the natural course of scientific and technological progress which lies behind
the established downward trend in GDP energy intensity will continue, with a tendency for all countries and
regions to converge towards the end of the forecast period (Figure 1.11).
Figure 1.11. Dynamics
of GDP energy intensity by
region
toe/$1000 of GDP
(2010 prices)
1,2
1,0
USA
China
0,8
OECD, excl. USA

0,6
World
0,4
0,2
0,0
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
The Baseline Scenario assumes that there will be no radical change of the institutions in energy markets (changes
in the rules of the game) apart from certain enhancements aimed at improving the functioning of energy markets
in the interests of the main players.
Within the framework of the analysis of the structure of the most important markets for Russian hydrocarbons (the
CIS countries, Europe, and north-east Asia), the scenario highlights the largest players (stakeholders), the priorities,
and strategies which significantly affect the situation in these markets (Figure 1.12).
Figure 1.12. Primary
energy production and
consumption by key players
in global energy markets
in 2010
mtoe
8 000
Production
7 000
Consumption
6 000
5 000
4 000
3 000
2 000
1 000
0
Russia
China
USA
OPEC
OECD, excl. non-OECD,

USA
excl. China
Source: ERI RAS
The Baseline Scenario also assumes that the current energy policy priorities of these players, and the measures
that have already been taken to implement them, are retained. Large importers (most of the OECD countries,
China, and other developing countries in Asia) are interested in moderate energy prices, which are helpful for their
economies. Energy exporters, (mainly consisting of the OPEC countries and the CIS) seek to maximize their export
revenues (Figure 1.13).
ERI RAS ACRF
18
Figure 1.13. Energy

policy priorities of energy
market players
Developing countries importers
CIS exporters
African and Middle East exporters
Developing Asia
Developed Asia
USA
EU
0%
20%
40%
60%
80%
Cheap energy on world markets
Expensive energy on world markets
Domestic market with prices below world averge
Environment
Security of energy supply
Support for renewable energy
100%
Source: ERI RAS
Primary Energy Consumption

The dynamics of energy consumption, by groups of countries and the whole
world, were determined by reconciling demographic forecasts (based on
population size and per capita energy consumption) and economic forecasts
(based on GDP growth and its energy intensity). The consumption of primary
energy in the world will increase by 40 per cent between 2010 and 2040
(1.1 per cent per year on average), which is three times less than the average
annual increase in GDP and is significantly slower than the growth in energy
consumption seen for the last 30 years (Figure 1.14).
Figure 1.14. Primary energy consumption by region, Baseline Scenario
mtoe
20 000
18 000
Africa
16 000
14 000
Middle East
12 000
10 000
CIS
8 000
Developing Asia
6 000
Developed Asia
4 000
Europe
2 000
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
North America
Source: ERI RAS
ERI RAS ACRF
19
While the USA and other developed countries will reduce their per capita
energy consumption, Chinas figure, on the other hand, will rapidly increase
(Figure 1.15).
Figure 1.15. Per capita energy consumption by country groups and the
world
toe/cap
10
8
6
4
USA
China
World
2040
0
2035
5
2030
0
2025
5
2020
0
2015
5
2010
0
2005
5
2000
0
1995
5
1990
0
1985
5
1980
0
OECD, excl. USA

Source: ERI RAS
Centres of energy consumption notably change their location (Figure 1.14):

population growth in developing countries is followed by an increasing
shift in the centre of energy consumption towards these countries, while
developed countries will only increase their energy consumption by 3 per
cent by 2040. In the USA and other OECD countries, the increase in energy
demand will practically come to a halt after 2020.
In China, absolute growth will continue: while total incremental energy
consumption growth for 19802010 and 201040 is almost equal (1873 and
1847 mtoe, respectively), average annual growth rates will drop from 4.8
per cent to 1.9 per cent. In the other developing countries, primary energy
consumption will increase by one and a half times: at decelerating growth
rates, absolute growth will increase from 2283 mtoe (19802010) to 3120
mtoe by 2040, which represents 60 per cent of the global consumption
growth of primary energy. Meeting regional primary energy demand will
require increased consumption of all types of fuel (Figure 1.16).
Figure 1.16. The growth of primary energy consumption by region and type of fuel, Baseline Scenario
USA
mtoe
9 000
OECD, excl. USA
China
8 000
Bioenergy
7 000
Other renewables
6 000
Hydro
5 000
Nuclear
4 000
Coal
3 000
Gas
2 000
Oil
1 000
0
1980
2010
2040
1980
2010
2040
1980
2010
2040
1980
2010
2040
Source: ERI RAS
ERI RAS ACRF
20
In the long term, the unequivocal

dominance of fossil fuels will
remain unchallenged; the share
of oil and gas in global primary
energy consumption will also be
practically unaffected (53.6 per
cent in 2010 and 51.4 per cent
by 2040).
The structure of world energy consumption will become more diversified

and balanced: by 2040 there will be a gradual alignment of the shares of
the fossil fuels (oil: 27 per cent; gas: 25 per cent; coal: 25 per cent) and nonfossil fuels (23 per cent in total), indicating the development of interfuel
competition and improved sustainability of supply.
At the same time, over the next 30 years, the global fuel mix does not appear
to show radical changes the world will still not be ready to reduce its
dependence on fossil fuels (Figures 1.17 and 1.18). Hydrocarbons will retain
absolute dominance in the fuel mix by 2040 their share will amount to
51.4 per cent, in comparison to 53.6 per cent in 2010. However, there will be
serious changes in consumption of certain types of hydrocarbons. These will
strongly affect oil its share in primary energy consumption will be reduced
from 32 per cent to 27 per cent during this period.
Figure 1.17. World primary energy consumption by fuel type, Baseline Scenario
mtoe
20 000
18 000
16 000
Bioenergy
14 000
Other renewables
12 000
Hydro
10 000
Nuclear
Coal
8 000
Gas
6 000
Oil
4 000
2 000
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
Figure 1.18. Structure of world primary energy consumption by fuel type

2040
in 2010 and 2040, Baseline Scenario
2040
10%
4%
3%
6%
10%
4%
6%
3%
6%
10%
2010
6%
10%
2010
27%
32%
27%
32%
Oil
Oil
Gas
Gas
Coal
Coal
Nuclear
Nuclear
28%
25%
Hydro
Hydro
28%
25%
21% 21%
25%25%
Other
Other renewables
renewables
Bioenergy
Bioenergy
Source: ERI RAS
ERI RAS ACRF
21
The share of primary energy consumption taken by coal which showed

the highest consumption growth rates in the first decade of the 21st century
will decline from 28 per cent to 25 per cent. This change is mainly due
to environmental concerns that would limit the use of coal, not only in
developed countries but also in developing ones.
As far as the development of nuclear energy is concerned, we make a
moderately optimistic forecast: its share (6 per cent) will not change and
there will be a marked increase in absolute volumes.
The highest consumption growth rates in the forecast period will be for
renewable energy (including biofuels but excluding hydropower): by 2040
its share in global energy consumption will reach 13.8 per cent, while
electric power generation will use 12.5 per cent of renewables (compared
with figures of 10.9 per cent and 3.7 per cent for 2010). This new trend will
be supported by cheaper technologies and by active government support in
developing countries.
Gas will have the highest
demand of any type of fuel over
the next 30 years.
However, natural gas will take first place in the absolute volumes of
consumption growth, and it will have the largest niche in the fuel mix (Figure
1.19), making it the most demanded type of fuel for the next 30 years.
Figure 1.19. The growth of primary energy consumption by fuel type,
Baseline Scenario
mtoe
6 000
5 000
4 000
Absolute growth
2010
3 000
2 000
1 000
0
Source: ERI RAS
It is obvious that the fuel mixes of some countries and regions will be
significantly different (Figure 1.16). Developed countries will reduce
their shares of coal and oil supply, increasing the consumption of gas and
renewables. China will increase its consumption of all energy resources and,
in the first place, coal, while other developing countries will consume roughly
equal volumes of oil, gas, and coal.
Development of Electricity Generation

Due to increased electrification of human activities, the share of primary
energy used for generating electricity will rise significantly, reaching 47 per
cent by 2040, in comparison to 36 per cent in 2010. Developing countries
will account for most of the growth of world electricity production (84 per
cent) (Figure 1.20).
ERI RAS ACRF
22
Figure 1.20. Electricity generation by region, Baseline Scenario

TWh
50 000
Africa
45 000
40 000
Middle East
35 000
30 000
CIS
25 000
Developing Asia
20 000
15 000
Developed Asia
10 000
Europe
5 000
North America
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
The power sector, which is the main field of competition between all energy
resources and numerous technologies, will also diversify its fuel mix: its gas
consumption will increase by 2.5 times and gas will provide more of the
expected increase in electric power generation than any other type of fuel.
The use of non-carbon energy resources will also grow rapidly, increasing by
more than 40 per cent by 2040 (Figure 1.21).
Figure 1.21. World electricity generation by fuel type, Baseline Scenario
TWh
50 000
45 000
Bioenergy
40 000
Other renewables
35 000
30 000
Hydro
25 000
Nuclear
20 000
Coal
15 000
Gas
10 000
Oil
5 000
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
Existing differences in the structure of electricity generation between OECD

countries and non-OECD countries will remain (Figure 1.22). While OECD
countries will be able to shift their focus towards natural gas and non-carbon
power generation, non-OECD countries will continue to depend heavily
on coal (facing all the environmental consequences), despite the rapidly
increasing rates at which they will use natural gas and renewable energy for
power generation.
ERI RAS ACRF
23
Figure 1.22. Electricity generation in OECD and non-OECD countries by fuel type, Baseline Scenario
TWh
OECD
16 000
14 000
12 000
Bioenergy
10 000
Other renewables
Hydro
8 000
Nuclear
6 000
Coal
4 000
Gas
2 000
Oil
0
2000
2005
2010
2015
TWh
35 000
2020
2025
2030
2035
2040
non-OECD
30 000
Bioenergy
25 000
Other renewables
Hydro
20 000
Nuclear
15 000
Coal
10 000
Gas
5 000
Oil
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
International Trade
The development of the worlds energy trade will continue against the
background of North Americas growing self-sufficiency, due to unconventional
oil and gas resources. A significant increase in supply via the Pacific and
Indian oceans will change the directions and volumes of inter-regional trade
in energy resources.
By 2040, North America will move from being a net importer of oil, coal, and
gas to being a net exporter. Imports of energy to Europe will increase by 28
per cent; growth in Europes natural gas imports will replace its decreased oil
demand. Developing countries in Asia will rapidly increase their imports of
all types of energy (Figure 1.23). LNG will prevail in inter-regional gas trade,
against the background of rising pipeline gas supply.
ERI RAS ACRF
24
Figure 1.23. International energy trade, Baseline Scenario, mtoe

0
2010
2040
900
-200
600
400
-400
300
2010
2040
150
-600
300
-800
-1000
-1200
-150
CIS
2040
1200
Europe
900
-300
-450
450
2010
1500
600
North America
300
500
2010
-300
2040
2010
2040
Middle East
-500
250
0
2010
2040
S th and
dC
t l America
South
Central
600
450
300
50
150
0
-150
-1000
Asia
-1500
2010
Africa
C d Oil
Crude
G
Gas
2040
-2000
C l
Coal
Netexportingregion
Netimportingregion
Source: ERI RAS
O2 Emissions
The volume of global O2 emissions will continue to rise, and almost all of its
growth will be attributed to non-OECD countries (especially in Asia), which will
become increasingly reluctant to adhere to global environmental agreements.
Developed countries will be able to stabilize and even reduce O2 emissions,
but this will not change the situation on the global scale (Figure 1.24).
Figure 1.24. O2 emissions in the world and by country groups
bln t
45
China
40
USA

OECD, excl. USA
35
30
25
20
15
10
5
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
ERI RAS ACRF
25
Baseline Scenario
Energy Markets
ERI RAS ACRF
26
2. BA SELINE SCENARIO ENERGY MARKETS

The forecast of primary energy consumption provides a basis for forecasts
of the way in which the main energy markets (defined by the type of energy
source, as shown in Figure 2.1) will evolve. Each section of this chapter also
shows the changes in Russias three main regional export markets Europe,
North America, and north-east Asia1.
Figure 2.1. Categorization of Energy Sources by Energy Market
Energy Resources Markets
RES
(non-fuel,converted
into electricity)
Nuclear Power
RESOURCES FOR POWER GENERATION

Gaseous fuel
Natural gas
Coalbed methane
Shale gas
Marsh gas
Biogas
Products of Solid Fuels
(Coal, Wood, etc.)
Solid fuel
Anthracite
Bituminous coal
Lignite / Brown coal
Coal Slate
Peat
Solid biomass (Wood,
Wood Waste / Pellets)
Liquid fuel
Petroleum fuels
Gas condensate
Spirit (biofuels)
Synthetic Liquid Fuels
(CTL - from coal,
GTL - from gas)
Compressed Natural Gas
Other Solid Waste

Charcoal
Source: ERI RAS
Liquid Fuels Market

Liquid Fuels Demand
By 2040, the world and, in
particular, countries which
have large and technologically
advanced economies such as
the USA, the countries of the
European Union, and Japan are
expected to continue to reduce
their specific fuel consumption
in the transportation sector
(by 50 per cent in the Baseline
Scenario).
1
Japan, South Korea, China.
ERI RAS ACRF
The main driver of liquid fuels demand will remain the growing transportation
sector (80 per cent of total oil demand by 2040), with a large increase in
demand for transportation services. The main factor restraining growth in
consumption of fuels for transport will be, as before, the increasing energy
efficiency of vehicles.
Modern vehicles still have a significant potential for energy savings (up
to 81 per cent of tank-to-wheels efficiency potential) [8]. Since 1990, the
automotive industry has undergone a significant increase in engine power and
reduction in fuel consumption. World average car engine capacity increased
by 42 per cent from 1990 to 2013, while fuel consumption decreased by more
than a third (37 per cent) at the same time. In addition to upgrading the car
27
engine from a gasoline to a hybrid device, fuel economies were achieved

by improving the transmission, reducing vehicle body structure weight, and
using advanced resins and rubbers in tyre manufacturing (Figure 2.2).
Figure 2.2. Dynamics of light motor car fuel economy
Fuel consumption
l/100km*hp
0,09
0,08
11 l
100 km
0,07
0,06
8l
100 km
Hybridization
0,05
Gasoline ICE and

transmission (autotransmission)
modernization
0 04
0,04
diesel ICE introduction
Dieselization
body weight reduction
robotized transmission,
increased transmission levels
0,03
smart controlling systems

reduction of weight
4l
100 km
hybrides development
0,02
smart starting systems

composites
0,01
0
1980
electric transport development
1990
2000
2010
2020
2030
2040
2050
Source: ERI RAS
Increased energy efficiency in the transport sector is the factor which affects
demand in OECD countries most significantly. For developing countries,
demand for liquid fuels is often stimulated by maintaining subsidized and
regulated prices for petroleum products to the public at a level below world
prices (Figure 2.3).
Figure 2.3. Regulation of petroleum products prices by country
Regulated pricing
Price linked to stock quote
Pricing transformation
Source: ERI RAS
ERI RAS ACRF
28
Given the relatively low oil prices in the Baseline Scenario, demand for
liquid non-petroleum fuels will remain low due to their high costs. The only
exception is biofuels, demand for which continues to grow due to measures
stimulating consumption in Europe, and the low cost of their production in
Brazil, Malaysia, and Indonesia.
In the Baseline Scenario, up to 2040, global demand for liquid fuels will
grow on average by 0.5 per cent per year, reaching 5.1bn tons (26 per cent
increase) (Figure 2.4). Accelerated growth in liquid fuels demand is expected
in developing countries. OECD countries will follow an opposite trend: liquid
fuels demand growth will come to a halt in the USA and Europe, while OECDAsia (Japan, in particular) will probably reduce its consumption significantly.
Figure 2.4. Liquid fuel supply and demand balance, Baseline Scenario
Supply
Demand
mtoe
5 100
2040 Level
4 900
4 700
4 500
4 300
4 100
Sh
e and tight
Shale
tig oil
Oil sands
Bi
Biofuels
Hea
Heavy oil
GTL
CTL
Conventio
C
nventional oil
2010
Developin
veloping Asia
Africa
Middl
Middle East
South
uth and Central
ntral Am
America
CIS
North Am
America
Develope
eveloped Asia
E
Europe
2010
3 900
Source: ERI RAS
Liquid Fuels Supply

In the Baseline Scenario, it is assumed that production of liquid fuels will
reach 5.1bn tons per year by 2040, of which oil and gas condensate produced
from traditional reserves will account for 77 per cent. A significant increase
in the role of unconventional oil (shale oil, tar sands oil, etc.) will live up
to expectations [9] and reach 16.4 per cent of total production, which will
amount to 837m tons by 2040. The remaining supply volumes in 2040 will be
divided between biofuel (5.9 per cent) and liquid fuels produced from natural
gas and coal, which will amount to just 23m tons (Figure 2.5).
ERI RAS ACRF
29
Figure 2.5. Dynamics of liquid fuels supply structure, Baseline Scenario

mtoe
100%
6 000
90%
5 000
80%
70%
4 000
60%
50%
3 000
GTL
CTL
Heavy oil
Biofuels
EOR
Oil sands
40%
2 000
30%
20%
1 000
Shale and tight oil

N
New
conventional
ti
l fi
fields
ld
Operational fields
Share of OPEC in Baseline Scenario
10%
0
2010
2015
2020
2025
2030
2035
0%
2040
Source: ERI RAS
Oil Production from Shale formations in the USA

The potential of unconventional oil, especially that found in low-permeability formations of US shale formations,
has been evidently underestimated by the expert community (Figure 2.6).
Figure 2.6. Evaluated and
actual shale oil production
in the USA in 2012
120
mtoe
100
80
60
40
20
0
DOE 2011
IEA WEO 2011
ERI RAS 2011
Actual production
Source: ERI RAS, DOE AEO 2011, IEA WEO 2011.
In 2012, production of these types of oil, according to the US Department of Energy, was about 100m tons [10],
and by 2030 the USA will come close to the volumes of oil production achieved by Saudi Arabia. Such a pace in the
development of unconventional oil turns yesterdays shale scenarios into todays baseline ones.
With this perspective, according to the Baseline Scenario, oil production in the USA will increase considerably,
reaching 594m tons per year by 2040. This growth will be provided by shale oil production reaching 416m tons
per year (Figure 2.7). After 2030, conventional oil production is expected to grow, almost exclusively due to gas
condensate production.
Figure 2.7. US oil
production outlook,
Baseline Scenario
700
mtoe
600
500
400
Other unconventional oil
300
Shale and tight oil
200
Conventional oil
100
0
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
ERI RAS ACRF
30
In the Baseline Scenario, global oil production from shale plays is estimated
to reach 420m tons by the end of the forecast period, and it will be mostly
provided by the North American plays. The volumes of oil and gas condensate
produced from shale plays will be sufficient for the world market not to
switch to alternative liquid fuels, derived from natural gas or coal.
Oil Prices
The fundamental factors of
supply and demand have a longterm impact on oil prices, other
factors influence the market only
in the short term.
Oil prices, like other primary commodity prices, are formed by many
countervailing factors (Figure 2.8) such as: the fundamental relationship
between supply and demand, the positions of oil market participants, and
non-market factors mainly affecting the market in the short term.
Figure 2.8. Factors affecting the price of oil (the most significant factors marked in red, least
important in blue)
PRICE
DEMAND
SUPPLY
Environmental policy
New production technologies
Energy saving state policy/Promotion of

particular energy source consumption
Resource base development
New technologies of energy consumption
Environmental policy
Economic changes
Demographic changes
EXTERNAL FACTORS
Political constraints on production

Technical and economic profitability of
new resources
EXPECTATIONS OF MARKET
PARTICIPANTS
Natural disasters
Psychological features of market players
Technogenic disasters
Large number of players
Military conflicts and unrest
Peak oil expectations
Geopolitics: elections, political

agreements
Informational white noise
Source: ERI RAS
ERI RAS ACRF
31
Long-Term Trends of Oil Pricing

Oil became a dominant resource in world energy at the second stage of its development (193070), displacing
coal, and its price varied in the range of $1020/bbl before the crisis of the 1970s. Then, the upper limit of oil
prices rose five-fold, while the average cost of oil increased three-fold to $50/bbl (Figure 2.9).
Figure 2.9 Dynamics of energy consumption and oil price
mtoe
20
$2009/bbl
History
18
Forecast
140
120
16
14
100
12
80
10
8
60
40
$15-20/bbl
20
2
0
Bioenergy
Coal
Oil
Natural gas
Hydro
Nuclear
Other renewables
Shale breakthrough prices
Shale failure prices
Baseline scenario prices

Source: ERI RAS
Many forecasts of world energy and oil market trends contain a wide range of prospective oil prices. In 2012,
the International Energy Agency estimated an oil price range of $100145/bbl (in 2011 prices) by 2035 [11].
The US Department of Energy sees an even wider range of 2035 prices: $50200/bbl [12]. The recognized
world experts predict another tripling of oil prices in their high-price scenarios up to $150/bbl at current
prices. In addition, low-price scenarios do not rule out a possible collapse in prices influenced by demand
slowdown, substitution of oil by alternative fuels, and rapid growth of unconventional oil production.
Outlook-2013 does not envisage either price tripling or price collapse. Advanced energy efficiency technologies
and the development of unconventional sources of oil actually pulled down prices, from the expected $150
to $100110 (2009)/bbl, and moved the prospect of prices tripling from their 19752005 level to a time
horizon beyond 2040. However, a sensitivity analysis showed that even the appearance of technological
breakthroughs (unconventional oil production, energy efficient technologies, etc.) would not be able to return
world oil market prices to the levels they held at the previous stage, when they were $50/bbl (2009 prices).
The OPEC-controlled market of the 1970s and 1980s depended almost

totally on the interests of the cartels member countries. Due to the markets
institutional structure, it could not form a market price (showing the actual
balance of supply and demand) for oil. Only since 1986, with the transition
to price formation in highly liquid international oil exchanges, have oil prices
come closer to ideal prices reflecting the balance of current supply and
demand, despite the influence of speculative factors (Figure 2.10).
ERI RAS ACRF
32
Figure 2.10. Correlation of balance and market oil prices

$2010/bbl
120
100
80
60
40
20
Balance price
Brent
0
1970
1975
1980
1985
1990
1995
2000
2005
2010
Source: ERI RAS
Speculative Factors in the Oil Market

After the establishment of exchange trading, the speculative factor played a significant role in shaping the
relationship between equilibrium and market oil prices. Under its influence, the market oil price could rise by
$2040/bbl (2010 prices) over the balance price and fall by $1015/bbl (2010) (Figure 2.10). Such a speculative
component in the price of oil poses extra risks for oil producers and consumers [14], and the unpredictability of
the price poses risks for oil field development projects, implementation of which takes decades. It should be noted
that the correlation between market price and equilibrium price only became significant (correlation coefficient:
0.918) in the phase of oil pricing which existed from 2000 to 2010 in exchange trading.
Equilibrium Oil Price

By 2040, the supply of oil will
increase by 1bn tons, mainly due
to unconventional resources.
There will not be a significant
growth in oil prices at forecasted
levels of demand.
In long-term projections of oil market development, it is extremely difficult

to account for the volatile deviation of oil market prices from the balance
price. In its forecasts, ERI RAS uses the equilibrium price of oil the point
at which oil production in conventional and unconventional fields, and the
commercially viable options of oil substitution being taken into consideration,
will satisfy demand during the years of the forecast period (factually reflecting
the dynamics of the supply and demand points of intersection) [2].
As shown in Figure 2.11, the Baseline Scenario shows a 1bn ton increase in
the oil supply by 2040; this will mainly occur due to unconventional supplies
that would prevent any significant increase in prices at forecast levels of
demand.
ERI RAS ACRF
33
Figure$2010/bbl
2.11. Oil supply (cost of production) curve 2011
160
$2010/bbl
2011
160
140
Demand
140
120
Demand
120
100
100
80
80
60
60
40
40
20
$2010/bbl
160
$2010/bbl
160
140
Conventional oil
140
120
Conventional
oil
Oil
sands
Oil sands
Shale
and tight oil
120
100
Shale
Heavyand
oil tight oil
4108
4108
3834
3834
3561
3561
3288
3288
3013
3013
2738
2738
2465
2465
2192
2192
1917
1917
1643
1643
1369
1369
1096
1096
821821
547547
274274
20
0
mtoe
mtoe
Growth
2040
2040
Growth
Demand
Demand
Heavy oil
100
80
80
60
60
40
40
20
5204
5204
4930
4930
4657
4657
4383
4383
4108
4108
3834
3834
3561
3561
3288
3288
3013
3013
2738
2738
2465
2465
2192
2192
1917
1917
1643
1643
1369
1369
1096
1096
821821
547547
274274
20
0
mtoe
mtoe
Source:
ERI RAS
Influenced by the growing production of shale oil in the USA, there has been a
new trend over the last three years regionalization of the world oil market.
Following the production of growing volumes of supply in the USA, trading
floor prices in the North American market have started to fall, contradicting
European market price dynamics. There has been price differentiation
between the two main global markers WTI and Brent (Figure 2.12).
In the forecast period, the change in the ratio of supply and demand in regional
markets, as well as the redistribution of oil flows, will create preconditions
for the formation of three oil markets: in North America, with its main marker,
WTI; in Europe, where the main marker will be Brent; and in the AsiaPacific
region, where currently several oil markers compete [13].
ERI RAS ACRF
34
Figure 2.12. Historical WTI and Brent price dynamics

$/bbl
160
Brent
140
WTI
120
100
80
BrentWTI difference
$/bbl
30
60
20
40
10
11.2008
09.2009
07.2010
05.2011
03.2012
2013
2012
2011
-10
0
01.2008
2010
2009
20
01.2013
Source: US DOE
The possibility of such a regionalization should not be ignored when forming

projected balance prices for oil. In the Baseline Scenario, equilibrium oil prices
will remain within the price range corridor, defined as the possible deviation
of local oil markers in European, North American, and Asian markets from
estimated equilibrium prices (in other words, average global prices), taking into
account the price dynamics of different markers in recent years (Figure 2.13).
The forecast shows the trend

for the gap between oil markers
widening, reflecting continued
regionalization of the oil market.
Figure 2.13. Projected price range of equilibrium oil prices

$2010/bbl
140
120
100
80
60
Probable price range
Balance price
40
Brent
20
0
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
ERI RAS ACRF
35
Oil Processing
Today, the world faces an excess of refining capacity, and during the
forecast period, given the construction of refineries in various regions, no
capacity deficit is to be generally expected. New projects are ready to be
commissioned in the Middle East, Africa, and the AsiaPacific region. These
could potentially almost double the processing volumes in the Middle
East, creating a significant amount of oil products, which will displace the
products of other suppliers from the European and North American markets,
and even those of their own producers. However, a number of regions (South
America and AsiaPacific) will not be able to meet their petroleum product
demand from their own capacities, which will thus require expansion after
2030 (Figure 2.14).
Figure 2.14. Oil processing by region, billion tons
302,
2
774
890
398,
398
0039
4
690
916,
149
2010
2040
CIS 612,
8347
8
2010
2040
Europe
2010
2040
North America
325
1601
2010
2040
Middle East
258
218
247
2010
2040
404
1208
2010
2040
Asia
A
i
Africa
2010
2040
South and
Central
America
Source: ERI RAS
In North America, a high utilization rate of processing capacities is expected

up to the end of the forecast period, due to increasing oil production
from shale plays and Canadian tar sands. In contrast, the CIS will face an
underutilization rate of 20 per cent of its capacities during the entire forecast
period. This will occur due to a lack of resources for Ukrainian refineries, the
surplus of refining capacities in Kazakhstan, and a declining market niche for
the export of petroleum products.
International Trade
Even in the Baseline Scenario, trade flows in the oil market will change
fundamentally (Figure 2.15). By 2040, export market niches will narrow by
275m tons for key producers, in comparison to 2010. First, the volume of
Europes oil imports will fall, in conjunction with decreased utilization levels
in European refineries and stagnant demand in the developed parts of Europe.
ERI RAS ACRF
36
Due to the growth in oil production from US shale plays and Canadian tar
sands, by 2025 North America will have already become a net exporter. The
most promising market for crude oil is the AsiaPacific region the only
region where imports will increase compared to 2010.
According to the Baseline
Scenario, trade flows of oil will
fundamentally change, forming
three oil markets: North America,
Europe, and AsiaPacific.
The leading position among oil exporters, according to the Baseline Scenario,
will remain the Middle East: its AsiaPacific and European exports will grow.
The other exporting regions will lose their positions by 2040, partly due to
compression of export markets because of stagnant demand (in Europe), and
in part because of North America coming to the markets as an exporter. High
costs of oil production are the main problem for non-Middle East exporting
regions; for CIS countries this is exacerbated by a high tax burden.
Figure 2.15. Main directions of oil flows, million tons
Source: ERI RAS
Positions of the Key Market Players

According to the Baseline
Scenario, it is expected
that the share of the world
market, dominated by national
companies will increase, while
the positions of the majors will
weaken, and small independent
companies in the North American
market will grow.
ERI RAS ACRF
Today, the changed roles of players in the global oil market is already evident.
During the forecast period, the influence of major international companies is
expected to decrease. In the regional markets of developed countries, small
independent companies with effective innovation components allowing
them to control costs throughout the whole supply chain and to develop
unconventional and difficult-to-recover oil fields will gradually replace
the majors. In international markets, the majors will start to be replaced by
growing national oil companies (NOCs), such as Saudi Aramco, the National
Iranian Oil Company, Petrobras, and Rosneft. Moreover, national companies
will not only take a large share in their own domestic markets, but also begin
to compete in foreign markets. This is, in the first place, characteristic of
Chinas CNPC and PetroChina, whose assets already have a vast geography
ranging from development projects in the Middle East to participation in
projects aimed at the development of Canadian oil sands.
37
It is also expected that the positions of major international organizations

(like OPEC) and of the largest countries playing in the oil market will change.
Certainly, the most significant change in the balance of forces in the world oil
market will be attributed to the global growth of US influence. It is estimated
that after 2030, owing to the development of shale oil, the USA will be able
to cease the import of hydrocarbons from all countries except Canada and
South America (from the fields in the portfolios of US companies).
It is expected that by 2015, US and Canadian refineries will be utilized almost
to their full capacities. By 2020, Mexican refineries will be fully utilized,
which will stabilize the demand for crude oil and petroleum products and
make the region self-sufficient. North America may become a net exporter
of oil after 2030 (Figure 2.16). Such an increase in US power on the world oil
market, with the achievement of energy independence, could lead to serious
geopolitical shifts.
Figure 2.16. Crude oil balance in the North American market
mtoe
1 000
Exports
800
Imports from CIS

600
Imports from Africa

Imports from Middle East
400
Imports from South America

200
Indigenous production
Consumption
0
2010
2015
2020
2025
2030
2035
2040
-200
-400
Source: ERI RAS
China, the other major oil importer, will increase its influence in the market.
However, the reasons for the growth of its influence will be radically different
from the factors working for the USA. China, like north-east Asia as a whole,
will not be able to meet its own demand for oil itself, and will have to increase
imports, primarily from the Middle East (Figure 2.17).
China participates in the oil market through long-term contracts concluded
at below-market prices, which ensures the long-term security of its oil
economy. In the forecast period, it is expected that Chinas oil imports from
the most politically stable regions (North America, the CIS) will increase,
as the most unstable suppliers from North and Central Africa are gradually
replaced. The securing of oil imports will also be achieved by the expansion
of Chinese NOCs into oil development and processing projects in the Middle
East, the USA, Canada, and South America.
ERI RAS ACRF
38
Figure 2.17. Crude oil balance in the north-east Asian market

mtoe
1 000
900
Imports from Africa
800
700
Imports from North America
600
500
Imports from CIS
400
Production in Japan
300
Production in South Korea
200
Production in China
Consumption
100
0
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
Processing capacities in the north-east Asian market will continue to increase

throughout the forecast period, with a positive impact on the suppliers of oil
to the region, which will lead to increased demand for crude oil up to 2035,
followed by a gradual stabilization by 2040.
During the forecast period, only the traditional importers of oil OECD
members, which are mostly European economies will be unable to
strengthen their positions. Due to relatively low oil prices and their low pace
of economic growth, European countries will probably have to reconsider their
plans for the use of renewable energy and give up a number of new high-cost
oil projects in the North Sea and the Norwegian sector of the Arctic. From the
very beginning of the period, it is expected that the working load of European
refining capacities will decline due to the low return on assets, with a gradual
increase in refinery throughput at the end of the period (Figure 2.18).
Figure 2.18. Crude oil balance in the European market
mtoe
900
800
Imports from North America
700
Imports from Africa
600
500
Imports from CIS
400
300
Consumption
200
100
0
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
The anticipated reduction in utilization of European refineries will be due

not to the sharp decline in demand for petroleum products in Europe, but
to the displacement of European-made products by cheaper ones from the
ERI RAS ACRF
39
Middle East and the AsiaPacific region. In other words, in the middle of
the forecast period, it will be cheaper for Europe to import oil products,
rather than crude oil to be processed at its own plants. Toward the end of
the forecast period, when the Middle East and the AsiaPacific region will
consume bigger volumes of their own oil products to meet their growing
domestic demand, capacity utilization in Europe will stabilize, but even by
the end of the forecast period, it will not reach the 19902000 level. The
influence of European countries on the oil market will continue to decline, as
will their ability to meet their own demands.
Stagnation of European demand for crude oil and increasingly stringent
competition for the growing markets of the AsiaPacific region will reduce the
potential export niche for Russian producers. The situation will be aggravated
by costs and taxes that are high, compared to most other exporting countries,
and which will actually make Russian oil uncompetitive, leading to a reduction
of exports, according to the Baseline Scenario. This will have a negative impact
on Russias budget revenues, especially in conditions of low world prices.
The positions taken by the OPEC oil cartel could undergo some surprising
changes. On one hand, given relatively low oil prices, some OPEC members
(Ecuador, Venezuela, Algeria, Libya, and Iran) will probably insist on reducing
production quotas so that shortage of supply lifts the level of world oil
prices that are otherwise relatively low for them. On the other hand, the
leading producers of the cartel (Saudi Arabia, Kuwait, and Iraq) will continue
to work in a price range suitable for them, while they would see production
growth and the build-up of their share in export markets as appropriate
steps to be undertaken.
Forecast balance prices will vary in a range suitable for the leading OPEC
countries from $80 to $115/bbl (2010 prices) (Figure 2.19). Due to the
commencement of shale oil production in US plays, it is expected that prices
will decrease during the period up to 2020, with a gradual return to the
current level by 2040.
Figure 2.19. Breakeven price ranges of producing countries budgets: official statements and expert
assessment
$/bbl
160
$2010/bbl
160
140
140
120
120
100
100
80
80
60
60
Price range
Estimated price
40
40
Claimed price
20
20
Balance price (right axis)
0
Nigeria
Kuwait
Saudi Arabia
UAE
Russia
Iran
Algeria
Venezuela
Calculated price: Analytical Centre of the RF Government

Estimated prices: by the Government of Saudi Arabia, Oman Finance Minister Darwish al-Balushi, Emirates NBD, Arab
Petroleum Investments Corp., the Forbes magazine, Kuwaiti Finance Minister Mustafa al-Shamali, CIBN, and IEA.
Source: ERI RAS, Analytical Centre of the RF Government
ERI RAS ACRF
40
It is natural that there is a considerable divergence in the estimates of oil

producing countries budget breakeven prices; between those in official
statements on the one hand and in experts research on the other. The
official prices are always politicized, and reflect the specifics of the budgetary
control of the country. The largest differences in the estimates are observed
in countries that are not mono exporters, or countries with an unstable
political situation.
A significant difference in
prices which are suitable for
OPEC members might signal
potential instability and lack of
coordination of the activities of
the organizations members.
In fact, two poles of the required price level are formed among major
exporters in OPEC: on the one hand, there are countries Iran, Algeria,
Venezuela that are extremely sensitive to price reduction and, on the other,
countries which are less sensitive, ready to operate at relatively low price
ranges. It is very important to note that, according to the forecast, Saudi
Arabia will join the second group (Figure 2.19).
Such divergence of interests may lead to conflicts within the organization and
loss of influence in the world market for a number of its members, or for all
the OPEC countries. Also, the leading OPEC producers have recently launched
a number of processing projects, effectively shifting them from being oilproducing countries into vertically integrated suppliers (Figure 2.20).
Figure 2.20 OPEC oil balance
mtoe
194
2 500
255
2 000
199
1 500
1 000
500
0
2010
2020
2040
OPEC production
Spare crude oil production capacity
Oil exports
Oil products exports
Domestic consumption
Source: ERI RAS
Over the forecast period, OPECs

potential impact on the average
annual oil price is estimated at
$29/bbl (2010 prices), with
provision for significant changes
in volumes of spare capacity.
For OPEC members, the market will expand, despite the not-so favourable
price situation in the Baseline Scenario. On the one hand, this will be due to
growing demand in the AsiaPacific region and its own rising demand. On
the other, the cartel may partially compensate for the loss of revenue due
to the lack of growth in oil prices by the introduction of additional refining
capacities and the sale of processed oil products in the export market.
In general, it can be stated that there will be a redistribution of influence
between groups of countries and international organizations.
ERI RAS ACRF
41
Can OPEC Affect Oil Prices?

Any real possibility for OPEC members to influence the price of crude oil is doubtful even now. OPEC has largely
only one lever of influence oil production quotas for its members, or control over free production capacities.
Based on the forecasted free production capacities (190250m tons), the potential impact of the cartel on prices
can be estimated for the entire forecast period as follows:
The cartel can have an upward impact on equilibrium prices only by fully coordinated activities and reducing
production quotas for the entire amount of spare capacities from the basic volumes. This will increase the oil
price by $59/bbl (2010 prices).
To have a downward impact on equilibrium prices (an attempt to increase its export niche and squeeze out
other players by price dumping), the cartel would have to raise production quotas and reduce the use of spare
production capacities. Assuming complete coordination of action, the prices will fall by no more than $26/bbl
(2010 prices) (Figure 2.21).
Figure 2.21. Changes
in the balance price
depending on OPEC policy,
Baseline Scenario
$2010/bbl
10
0
2011
2020
2030
2040
-5
5
-10
Price increase by the amount of forecasted spare crude oil

production capacity
-15
Price decrease by the amount of forecasted spare crude oil

production capacity
Source: ERI RAS
In fact, such a small sensitivity of forecast equilibrium prices to OPECs potential activities objectively characterizes
that the oil cartel will have little impact on world prices.
Gas Market
Gas Demand
In the Baseline Scenario, by 2040 forecast global gas consumption will reach
5.3 tcm this is 60 per cent higher than the volumes consumed in 2010.
As in the case of liquid fuels, the main increase in demand for gas (81 per
cent) will be attributed to developing countries (Figure 2.22). The main driver
of this rapid growth in demand for gas in all regions will primarily be the
development of gas-fired power generation due to increasing electrification
and a corresponding increase in electricity consumption; developing
countries are also expected to increase their industrial gas demand rapidly.
The environmental advantages of gas will support (but not determine) its
role in individual markets.
ERI RAS ACRF
42
Figure 2.22. Gas consumption by region, Baseline Scenario

bcm
6 000
Africa
5 000
Middle East
4 000

CIS
3 000
Developing Asia
2 000
Developed Asia
1 000
Europe
North America
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
In the first place, demand for

natural gas in the electric power
sector will be determined by
its price. In Europe, demand is
expected to stagnate; in North
America, there will be moderate
growth; in developing countries,
gas consumption will increase
rapidly.
First of all, the prospects for gas demand in the electric power sector are
determined by its price: in recent years, fuel competition between natural
gas, coal, and subsidized renewable energy sources has not always been in
favour of gas. For instance, in 200913, low prices for coal used in power
generation (provoked by cheap shale gas, which replaced coal in the US
market) in Europe made gas-fired generation unattractive [15] and have
already led to the closure of a number of gas-fired power stations and to a
stagnation in demand for gas in the region2.
The expected decline in economic growth in the eurozone and the ambiguity
of European energy policy aimed primarily at the decarbonization of the
economy and reduction in the role of fossil fuels has led to a cautious
assessment of the prospects of gas consumption in the region. According to
our estimates, the average annual growth in European demand for gas will
not exceed 0.5 per cent (the total growth will be only 15 per cent from 2010
to 2040).
Among other OECD countries, only North America will show relatively high
growth rates an average of 0.8 per cent per year due to oversupply and
low gas prices. Gas demand in the region will grow in all sectors: electric
power, where coal will be displaced by gas; industry, where its use will
actively develop, including its use in the chemical sector; and transportation.
Gas consumption will increase more intensively in the developing world: in
Asian countries, it will more than triple; it will double in South and Central
America; and it will rise by 7578 per cent in the Middle East and Africa
(Figure 2.23).
At the time of Outlook-2013, the US coal price is higher than the price of gas, while in Europe, given the reduced price of CO2 (3 euros per
ton), electric power generation has switched to coal.
ERI RAS ACRF
43
Figure 2.23. The Balance of gas supply and demand in 2040, Baseline Scenario
bcm
6 000
2040 Level
5 500
5 000
4 500
4 000
3 500
3 000
2 500
Biogass
Coal-to-gas
Co
-to-gas (China)
a)
Offshore (USA)
Offshor
A)
CBM
M
Shale
gass
Sh
New fieldss
Operationa
O
erational fieldss
Production
Pr uction in
i 2010
0
non-OECD,
non-O
CD, excl.
exc Chinaa
Chinaa
OECD,
ECD, excl.
ex USA
A
USA
A
Demand
emand in
i 2010
0
2 000
Source: ERI RAS
Production of Shale Gas in the USA

The USA continues to ramp up the production of shale gas. Despite the reduction in prices and significant excess
supply in the market in 2012, its average annual production, according to the Department of Energy of the USA,
amounted to about 260 bcm [10]. Several years ago, the USA became the worlds largest natural gas producer,
however, according to baseline estimates, the country will not retain its position to the end of the forecast period.
In the future, gas production in the USA, according to the Baseline Scenario estimates, will stabilize, and even
undergo a small reduction after 2020, followed by a slow rise to 870 bcm by 2040. This growth will be achieved
due to shale gas production, which will reach 485 bcm by 2040 (Figure 2.24).
Figure 2.24. US gas
CBM
bcm
production forecast,
Shale gas
1 000
Baseline Scenario
Conventional gas
900
800
700
600
500
400
300
200
100
0
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
ERI RAS ACRF
44
Figure 2.25. World natural gas supply curve (cost of production) Baseline Scenario
2010
4
$2010/mmbtu
3,5
Demand
Conventional gas
2,5
Shale gas
2
1,5
1
0,5
3 347
3 196
3 043
2 891
2 738
2 588
2 435
2 282
2 131
1 978
1 827
1 674
1 521
1 369
1 216
912
1 065
762
609
456
305
152
0
bcm
2040
$2010/mmbtu
8
7
6
Growth
5
4
Demand
3
2
1
6 065
5 791
5 518
5 242
4 969
4 696
4 422
4 146
3 873
3 600
3 327
3 051
2 777
2 504
2 231
1 955
1 682
1 408
1 135
859
586
313
40
0
bcm
Source: ERI RAS
Gas Supply
Analysis of fields and areas of gas production shows that there are available
potential resources in the world that can be produced at prices lower than
4 $/mmbtu by 2040 (Figure 2.25).
In the Baseline Scenario, all world regions (excluding Europe) will significantly
increase gas production (Figure 2.26). The leaders in terms of growth (in
addition to the traditional suppliers the CIS and the Middle East, which by
2040 will have grown by 59 per cent and 95 per cent respectively), will be
the developing countries of Asia (+202 per cent). North America will be next,
with a production growth of 39 per cent.
ERI RAS ACRF
45
Figure 2.26. Gas production by region, Baseline Scenario

bcm
6 000
Africa
5 000
Middle East
4 000
CIS
3 000
Developing Asia
2 000
Developed Asia
1 000
Europe
North America
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
Major production gains will be provided by new reserves of conventional

gas and by further expansion of unconventional gas, which by the end of the
forecast period will account for 15 per cent of world gas production (shale gas:
11 per cent; coal-bed methane: 3 per cent; and biogas: 1 per cent) (Figure 2.27).
Figure 2.27. Gas production by source, Baseline Scenario
bcm
6 000
Biogas
5 000
Coal-to-gas (China)
4 000
Offshore (USA)
Shale
3 000
CBM
2 000
Associated Gas
New fields
1 000
Operational fields
0
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
North America will achieve the largest increase in unconventional gas

production. Other world regions are only in the initial stages of geological
exploration, and this entails great uncertainty regarding the potential of shale
gas production and, in certain regions, regulatory constraints. It is assumed
in the Baseline Scenario that aside from North America, shale gas production
will be carried out only in Argentina, China, India, South Africa, Australia, and
Europe, and will not exceed 70 bcm in total by 2040.
ERI RAS ACRF
46
At the same time, gas production from new traditional fields will become
more high-tech. There will be the need for development of deepwater fields,
those with more complex geological structures, and fields located in harsh
climatic conditions.
Gas Price
Currently, the world is witnessing a transformation of the various regional
gas pricing systems, primarily due to the gradual expansion of trade based on
gas-to-gas competition. However, more than 60 per cent of gas in the world
is still sold at regulated prices, or at prices related to oil indexes, or by other
mechanisms (Figure a).
Figure 2.28. Current world pricing of gas and its changes in 200510
Source: ERI RAS, IGU 2009-2012 Triennium Work Report, June 2012
Currently, the regionalization of gas market prices is becoming more

pronounced, due not only to the mechanisms of regulation and pricing, but
also by price levels:
Low prices have been established in recent years in the US spot market,
due to cheap domestic production;
Medium price levels have been established in the European market, with
hybrid pricing (around half the gas is supplied at spot-indexed prices and
the other half linked to the prices of petroleum products), and due to a
temporary excess supply of gas;
The highest prices are observed in the Asian market, where trading is
carried out mainly with reference to the price of crude oil;
The governments of most countries that are net exporters of gas, and also
many importing developing countries, are eager to keep domestic prices
below the world level, to support other sectors of the economy and to
reduce social tensions.
ERI RAS ACRF
47
Further changes in regional pricing mechanisms will be driven, apparently,

in the direction of increasing the proportion of spot-indexed supplies in all
markets. The rapid development of the LNG market and its globalization
will reinforce this process, not only in Europe but also in the AsiaPacific
region, where consumers, against the background of high prices, look for any
opportunity to reduce their bills. Most developing countries will obviously
retain pricing based on government regulation for significant volumes of gas
trade in their domestic markets; there could be limited competition in the
closed domestic market, or prices linked to those in the international market
with some lowering coefficients.
For the period to 2040,
conditions will not be right for
the formation of a single global
gas market and a unified gas
price.
Calculations using the model have confirmed that, in the Baseline Scenario,
the significant differences between regional gas prices seen in 20068 will
remain. The main reason for this is the high price of gas transportation, which
for intercontinental shipments, adds more than 4 $/mmbtu to the price of
gas. Accordingly, this high cost of transportation supports the regionalization
of gas markets and prevents the creation of a single liquid market. In this
situation, the limited ability to redirect routes, the high mutual dependence of
suppliers and customers on pipeline supply, and the continuing limitations of
LNG market flexibility still give some advantages to the traditional mechanism
of linking to alternative fuels, which would increase predictability, reduce
investment risks for producers, and simplify the process of project funding.
It is estimated that by the end of the forecast period, Europe and the Asia
Pacific region will experience a noticeable price increase (Figure 2.29), due
to the need to develop new and more expensive fields to meet demand. In
these circumstances, the North American market will find itself in a price
range determined by its own production; the USA, for the forecast period,
will retain the lowest prices which, however, will also increase by the end
of the period. In 201530, Europe will experience a decline in prices due to
sluggish demand and oversupply of gas, while there will be rapid demand
growth in the AsiaPacific region which will stimulate the development of
a large number of new, quite expensive, gas supply projects and, in contrast,
an additional price premium will prevail here until 202025.
Figure 2.29. Forecast weighted average price* of gas by regional market,
Baseline Scenario
14
$2010/mmbtu
12
10
8
6
4
2
Europe (average weighted)

Japan (average weighted)
China (average weighted)

USA (Henry Hub)
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
* Weighted average price between the prices of long-term contracts linked to alternative
fuels, and spot prices.
Source: ERI RAS
ERI RAS ACRF
48
International Trade
For the next three decades, the main focus of the international gas trade
will be Asia which, according to estimates, will increase its net imports by
nearly 500 bcm by 2040, which implies, in in its turn, the need for new huge
infrastructure and supply routes.
The development of shale gas production in the USA, even while remaining
a regional phenomenon, has already had a significant indirect impact on the
world market, especially in terms of redistribution of LNG flows. Such an
influence would only increase with the possible launch of LNG exports from
the USA and Canada which, starting from 201618, are likely to be delivered
to premium markets of the Pacific, Latin America, and Europe (Figure 2.30).
Figure 2.30. Inter-regional gas trade in 2040, Baseline Scenario, bcm
Source: ERI RAS
In this perspective, the emergence of major new players in the LNG market
(the USA and Canada; Australia, which will by 2018 leave Qatar behind in
terms of liquefaction facilities; and East Africa) will significantly redirect the
routes of traditional producers, increasingly focusing exports on Asia.
Positions of the Major Market Participants

In the forecast period, according to the Baseline Scenario, the USA and China
will become the most influential participants in the gas market, in addition
to Russia. The USA, being behind Russia in terms of gas production and
export volumes by 2040, will, however, significantly increase its influence
by entering the LNG market. North America will become completely selfsufficient, reducing its dependence on any external suppliers, and able to
add about 100 bcm of gas to the markets (Figure 2.31), responding flexibly
to market changes and promptly forwarding supplies to the most lucrative
markets.
ERI RAS ACRF
49
Figure 2.31. Gas balance in North America
bcm
Exports
1 200
1 000
LNG from Africa and Middle

East
800
LNG from South and Central

America
600
LNG from Asia
400
200
Consumption
0
-200
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
As a result, it is likely that US spot prices (plus the costs of gas liquefaction
and transportation) will form a kind of ceiling for prices in the markets of
the Pacific and Atlantic basins, which means that when prices rise above this
level, US LNG plants would forward significant amounts of gas to the market,
forcing prices down to the desired level. Therefore, the USA will be able to
influence the price situation in major gas markets, and the US spot index
might become a price reference for the other markets.
The European market will show low rates of growth, but against the
background of weak domestic production its need for gas imports will
inevitably grow (Figure 2.32). Some of these needs will be covered by
pipeline gas, but a growing share in gas demand (31 per cent of European
consumption by 2040) will be covered by LNG supply.
Figure 2.32. Gas balance in Europe
bcm
800
Pipeline gas from CIS
700
LNG from CIS
600
LNG from North America
500
LNG from South and Central America
400
LNG from Africa

LNG from Middle East
300
Pipeline gas from Middle East
200
Pipeline gas from Africa
100
0
2010
2015
2020
2025
2030
2035
2040
p
Consumption
Source: ERI RAS
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50
The gas market of north-east Asia (Figure 2.33) will grow the fastest. It will
hold second place in the world by volume, partially due to the rapid growth
of demand in China.
Chinas own large reserves of unconventional gas and its desire to actively
develop them, its successful policies of import diversification, its accelerated
development of infrastructure, and pricing reform in its domestic market all
make China the most difficult country to forecast, but yet it is an increasingly
important player in the global market. Meanwhile, China strengthens its
position in other regions through the participation of its national companies
in the development of gas resources, securing its supplies with long-term
contracts at reduced prices.
Figure 2.33. Gas balance in north-east Asia

bcm
1000
LNG from developed Asia
900
LNG from North America
800
LNG from Africa
700
Pipeline gas from CIS
600
500
LNG from CIS
400
LNG from developing Asia
300
LNG from Middle East
200
Pipeline gas from Burma
100
0
2010
2015
2020
2025
2030
2035
2040
Consumption
Source: ERI RAS
OPEC members will clearly lose their positions in the gas market due to the
emergence of powerful new players (the USA, Australia), and because of the
explosive growth in domestic demand for gas and the need to satisfy it to
avoid social problems, even at the expense of gas exports.
In this scenario, Russia will remain an important participant in the gas
market, while maintaining leadership in production and export (although its
export performance will be somewhat lower than the figures used in official
forecasts). However, Russias bargaining position will be weakened, due to
its investment in expensive projects, gas from which will be marginal in all
export markets. This will make the country susceptible to even relatively
small fluctuations in market conditions: in such situations, Russian gas will
be pushed out of the market by cheaper suppliers.
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51
Solid Fuel Market

Until 1960, solid fuels (mainly coal) provided the bulk of energy consumed in
the world, due to their economic and technological accessibility; from 1960
to 1980, the share of solid fuels in global energy consumption fell. However,
during the last 30 years, solid fuels have stabilized at around 25 per cent of
primary energy consumption, and during 200010 solid fuels showed the
highest absolute levels of growth (almost half of total energy consumption
growth), increasing their share to 28 per cent.
According to our estimates, during the next three decades, solid fuels will
maintain their significance in the energy sector and will satisfy about a
quarter of global energy demand. In this sector, coal will continue to play
the key role.
Coal
During the forecast period up to 2040, the main increase in world coal
consumption will be attributed to the developing AsiaPacific countries
(especially China and India) (Figure 2.34). The OECD countries, mainly Europe
and the USA, will reduce their demand for coal.
Figure 2.34. Coal consumption by region, Baseline Scenario

mt
8 000
7 000
6 000
Africa
Middle East
CIS
Developing Asia
Developed Asia
Europe
North America
5 000
4 000
3 000
2 000
1 000
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
The power sector in the developing countries of Asia will provide the main
growth in coal consumption. Currently, the leaders in coal-fired generation
capacity are China, the USA, Russia, and India; the planned new generation
facilities in China and India (over 500 GW per country) will make them
absolute leaders (Figure 2.35) with an aggregate share of 77 per cent of the
worlds total coal-fired generating capacity.
ERI RAS ACRF
52
Figure 2.35. Installed and planned coal-fired capacity

GWh
1 800
1 600
1 400
1 200
1 000
Planned capacity commissioning
800
Installed capacity
600
400
200
0
Source: ERI RAS
Non-OECD Asia will retain its

leadership in coal consumption;
its share by 2040 will amount to
75 per cent.
By 2040, developing countries in Asia will have strengthened their leadership

not only in coal consumption but also in coal production (Figure 2.36). Coal
production in Europe will drop by half, which, despite the declining demand
for coal in European countries, will lead to additional imports of coal being
needed.
Figure 2.36. Coal production by region, Baseline Scenario

mt
8 000
Africa
7 000
Middle East
6 000
5 000
CIS
4 000
Developing Asia
3 000
Developed
Asia
D l
dA
i
2 000
Europe
1 000
North America
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
Under the Baseline Scenario, international steam coal trade will reach 1.4bn
tons by 2040. The equilibrium price of traded coal, calculated in accordance
with the balance of supply and demand (Figure 2.37), will be at least $120/
ton (2010 prices).
ERI RAS ACRF
53
Figure 2.37. Global steam coal supply for the international trade, Baseline Scenario, 2040*
$2010/t
160
South Africa
Indonesia
140
Russia
Steam coal
trade volume
Columbia
120
Australia
Other
100
80
60
40
20
0
0
150
300
450
600
750
900
1050
1200
* f.o.b. prices are shown both for maritime trade and at the border for land transportation.
1350
1500
Source: ERI RAS
Coal Pricing in International Trade

Spot prices for coal are formed regionally, but generally are interrelated. There are several main trading platforms.
For exporters: prices are formed on f.o.b. terms; the main ports at which this is done are Richards Bay (South Africa),
Bolivar (Colombia), and Newcastle (Australia). For importers: prices are formed on c.i.f terms; at ARA (Amsterdam,
Rotterdam, and Antwerp) and other ports. These port prices are determined by supply and demand.
During 200812, the market price for coal experienced turbulence due to the global financial crisis, the floods in
Australia, the nuclear plant disaster in Japan, increased supply from the USA, and other factors (Figure 2.38). In
the period up to 2040, we expect a relatively moderate increase in equilibrium prices for traded coal, as a result of
increasing demand and growing production costs.
.
Moderate growth in equilibrium
prices for traded coal, ranging
from $120 to $125/ton (2010
prices) is expected during the
forecast period.
By 2040, the existing trading platforms will still play a key role, but there
will be some sort of redistribution of the shares in world trade. In Europe,
trade in the ARA triangle will be reduced, while in Asia new trade centres will
possibly emerge. Our perspective assumes that the structure of the market
will largely rely on long-term fixed price contracts (Figure 2.38), that prices
will be based on the prices at certain ports, and that these contracts will
cover 80 per cent of the market leaving spot contracts with 20 per cent.
Figure 2.38. Weighted average import prices for steam coal, Baseline
Scenario
140
$2010/t
120
100
80
60
40
20
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
ERI RAS ACRF
54
The AsiaPacific region will hold

the dominant position in global
steam coal trade, accounting for
more than 70 per cent.
By 2040, under the Baseline Scenario, the global coal market will maintain its
bipolar structure: the Atlantic and AsiaPacific markets will remain (Figure
2.39). The AsiaPacific market will occupy the leading position; its share of
the worlds steam coal trade will exceed 70 per cent.
Figure 2.39. Key Steam Coal Trade Flows by 2040
Source: ERI RAS
Despite the adequate resource

base of coal, development
of new coal mining capacity
is limited by the high capital
costs of a number of projects.
Nevertheless, if the demand
for coal, and its price, increase,
existing coal resources will allow
a significant increase in coal
production.
The largest exporters (Australia, South Africa, Indonesia, Russia, and

Colombia) and importers (Europe, developed and developing Asian countries)
will dominate the global coal market. By 2040, India will become the largest
importer of coal. The USA will remain a coal exporter, but this role will be
largely determined by the situation in its domestic market, and the competition
between coal and gas. Environmental requirements and emission charges
will strongly influence the market. The Baseline Scenario does not envisage
a significant increase in payments for CO2 emissions, or the extension of
this practice worldwide. Given the increased competition between coal and
gas in the future, we do not expect a widespread introduction of clean coal
technologies.
Despite the adequate resource base, the introduction of new production

capacities is limited by the high capital intensity of coal projects. However, if
there is an increase in coal prices and demand, existing resources will be able
to increase coal production significantly. Given a favourable market situation,
Russia will be one of the best-placed countries in terms of an anticipated
increase in coal production.
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55
Solid Biomass
The term solid biomass refers to wood and wood products (pellets,
briquettes), dry and dehydrated plants, etc. Today, traditional biomass
remains the most affordable energy resource for poor countries.
However, processed biomass (formed into pellets, briquettes, etc.), is
becoming increasingly popular in developed countries. For example, its
production in the EU had increased to 80 mtoe by 2011 (Figure 2.40).
Figure 2.40. Solid biomass production in the European Union

mtoe
90
60
30
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: EurObservER
In certain markets, biomass and solid household waste are quite competitive
with conventional energy sources [16] (Figure 2.41).
Figure 2.41. 2012 The levelized cost of electricity ranges

Biomass incineration
Onshore wind
Waste
Large hydro
Nuclear
Coal
CCGT
$/MWh
0
50
100
150
200
250
Source: World Survey of Energy Technologies, Bloomberg New Energy Finance 2012
ERI RAS ACRF
56
Wood Pellets
Table 2.1. Demand for
wood pellets by region
until 2040, million tons
2020 2040
EU
32
49
North
America
14
East Asia
20
Among the different types of solid biomass, the use of wood pellets has become
widespread. In 2010, world production of wood pellets reached some 15.7m
tons, about 60 per cent of which was produced in the EU. The EU is also a major
consumer of this fuel in 2010 its share amounted to 85 per cent of global demand.
Calculated in terms of energy equivalence, the price of pellets is approximately
twice that of gas.
By 2040, global consumption of pellets, according to the forecast, will reach 92m
tons; this will be mainly used in the EU, North America and east Asia (Table 2.1).
Source: ERI RAS
Nuclear Energy
During the forecast period, nuclear energy will obviously begin a new stage
of development after nearly 60 years of operation. In addition, the service
life of many nuclear reactors currently in operation will be prolonged for up
to 60 years. Despite this prolongation, a number of nuclear facilities will be
decommissioned, and this will not be balanced by the introduction of new
nuclear capacity in all regions (Figure 2.42).
Figure 2.42. Cumulative dynamics of NPP commissioning and decommissioning by region
GW
120
500
World nuclear plants capacity growth, GW
GW
100
120
500
80
World nuclear plants capacity growth, GW
400
400
300
100
60
80
40
60
20
40
0
20
-20
0
-20
300
200
200
Capacity commissioning
Capacity commissioning
100
100
0
2013
0
2013
-100
2018
2023
Capacity conclusion
2018
2023
2028
2033
2028
2033
2038
2038
Capacity conclusion
-100
-200
-200
-300
-300
North America
North America
ERI RAS ACRF
Europe
Europe
CIS
CIS
Developed Asia
Developed Asia
China
China
India
India
Other countries
Source: ERI RAS
Other countries
57
The most sensitive situation will be in OECD countries, which do not always
intend to replace retired capacities with new ones (Figures 2.43 and 2.44).
Instances of abrupt short- and medium-term growth in demand for alternative
capacities and energy imports may therefore be expected. The installed
capacity of decommissioned nuclear facilities in OECD countries will be four
times higher than that in non-OECD countries, which have reactors that were
built more recently.
After 2020, the world will be likely to return to the level of nuclear capacity
additions that it reached in the 1980s and 1990s, which will be mostly due to
developing countries. By the end of the forecast period, the aggregate amount
of nuclear capacity in non-OECD countries will exceed that of the OECD.
Figure 2.43. The dynamics of nuclear capacities
GW
150
Change in capacities from 2010 to 2040
GW
400
100
300
OECD
200
non-OECD
100
0
50
2010
2015
2020
2025
2030
2035
2040
-50
-100
Capacity conclusion non-OECD
Capacity conclusion OECD
Capacity commissioning non-OECD
Capacity commissioning OECD
-150
Source: ERI RAS
Figure 2.44. Nuclear plants installed capacity by country groups

GW
160
OECD
non-OECD
140
120
100
2010
80
2040
60
40
20
0
OECD Europe
USA
OECD Asia
India
CIS
China
Source: ERI RAS
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58
By 2030, it is expected there will be a reasonably stable growth of electricity

generated in nuclear plants, and that during 203035, nuclear electricity
production will stabilize, due to the decommissioning of large numbers of old
nuclear power plant units. However, the growth of nuclear capacity will be
restored in the following five year period (203540). The developing countries
of Asia will dominate the global nuclear power industry (Figure 2.45).
Figure 2.45. Nuclear electricity generation by region
GWh
5 000
4 500
4 000
3 500
3 000
Africa
Middle East
CIS
Developing Asia
Developed Asia
Europe
North America
2 500
2 000
1 500
1 000
500
0
Source: ERI RAS
The Baseline Scenario does not consider technological breakthroughs in the

field of nuclear energy, but it is expected that there will be increases in the
efficiency of existing nuclear power plants and improvement in the quality of
new ones. In particular, the industrial use of fourth-generation reactors will
begin. However, this will not have a significant effect on the energy balance,
as the share of such units will be relatively small. The long lifespan of nuclear
plants makes the time taken for equipment upgrades rather protracted.
Outlook-13 is based on the premise that during the period up to 2040, the world
will not experience accidents at levels 6 or 7, as set forth by the International
Nuclear Event Scale (INES). Otherwise, there will be new moratoriums on
nuclear power plants, postponements and cancellations of new projects, as
well as instances of refusal to renew operation of existing units.
Renewable Energy
Renewable energy sources (RES) are very diverse in nature and are used in
various fuel markets: biogas competes in the gas fuels market; bioethanol
and biodiesel do the same in the liquid fuels market; and wood and wood
pellets in the solid fuel market. In our description of fuel markets, we focused
on certain types of renewable energy; here, renewable energy sources will be
considered in general, with an emphasis on renewables used for electricity
and heat production (in other words, technologies based on the conversion
of solar, wind, tidal, geothermal sources, etc.).
World consumption of renewable energy will approach 3000 mtoe by 2040;
of this, 2700 mtoe will be used in the production of electricity and heat,
including 500 mtoe of hydropower.
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59
Developed countries will lose their leading position in renewable energy

consumption, in comparison to 2010, their share of consumption will decline
from 57 per cent to 44 per cent (Figure 2.46). Developing Asia will represent
35 per cent of the growth in renewable energy sources, while Chinas share
will amount to 19 per cent.
Figure 2.46. Renewable energy consumption and growth by region, Baseline Scenario
Growth byregion,20102040
mtoe
3 500
12,5%
0,4%
11,2%
1668
1668
mtoe
3,3%
17,6%
3 000
16,2%
4,2%
2 500
Africa
34,6%
Middle East
2 000
CIS
Developing Asia
1 500
Developed Asia
Europe
North America
1 000
500
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
The use of renewable energy for electricity generation and heat will develop
rapidly; it will grow by 77 per cent by 2040 (Figure 2.47).
Figure 2.47. Consumption of renewable energy by type, Baseline Scenario
mtoe
3 500
Solid biofuels and waste

Liquid biofuels
3 000
Other renewables
2 500
Hydro
2 000
1 500
1 000
500
0
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
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60
The prospects for growth in demand for certain types of renewable energy
vary widely by region. Thus, during the forecast period to 2040, the highest
increase in demand for renewable energy sources used for electricity and
heat generation will be expected in China (4.4 times), which will also become
the worlds leading consumer of these resources. A different situation will be
found in the bioenergy sector, which includes liquid biofuels and biomass
and waste sub-sectors. In China, consumption of bioenergy will grow at a
moderate pace (5 per cent increase during the forecast period), and although
most of the increase will occur in liquid biofuels consumption (74 per cent),
the most significant share of total biomass consumption will continue to be
biomass and waste (96 per cent by 2040).
The developing countries in
Asia will increase their use of
bioenergy at a restrained pace,
unlike the USA and some other
developed countries.
In the USA, a different dynamic is expected. Liquid biofuels will comprise 94

per cent of the growth in bioenergy consumption; they will also constitute a
large part (67 per cent by 2040) of total bioenergy consumption. Besides this,
by 2040, the USA will overtake China in terms of the total consumption of all
types of bioenergy (Figure 2.48).
Figure 2.48. Dynamics of bioenergy consumption in selected countries,
Baseline Scenario
mtoe
250
200
Brazil
150
China
India
100
Germany
USA
50
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
A high degree of dependence on government support makes RES vulnerable

in times of economic slowdown, when the economy will not provide the
required level of support. Despite technological improvements, which enable
costs to be reduced and help the development of renewable energy use,
many renewable energy technologies will require government support for
the next decades.
The competitive level of renewable energy sources in the electric power
sector may be determined if they are compared to conventional technologies
in terms of the levelized costs of electricity (LCOE). This takes into account
capital costs, fixed and variable operating costs, tax rates, and the availability
and effectiveness of the technology [16]. In developed markets, the most
competitive renewable energy technologies are large and small hydro plants
(about $30 per megawatt-hour), with a LCOE, in some cases, even lower than
that for nuclear, coal, and gas power plants (Figure 2.47). Some geothermal
plants may be economically close to hydro plants, but their use is limited
to regions where these (geothermal) resources are available. Among the
biotechnologies, the most attractive one, in terms of this indicator, is municipal
solid waste and landfill gas (from $45 per MWh). Onshore wind turbines, being
already a well-developed and widespread technology, fit practically into a
LCOE range for traditional energy resources ($50130 per MWh).
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Figure 2.49. Global levelized cost of electricity ranges for developed markets
Marine wave
789
Marine tidal
1049
Offshore wind
Solar thermal parabolic through
Solar thermal tower and heliostat
PV
Biomass anaerobic digestion
Biomass gasification biogas
Geothermal binary plant
Biomass incineration
Onshore wind
Landfill gas
Municipal solid waste
Geothermal flash plant
Small hydro
Large hydro
Nuclear
Coal fired
Natural gas CCGT
$/MWh
0
100
200
300
400
500
Over the forecast period, global investments in new electrical power plants
and infrastructure are estimated at $1920 trillion (2010 prices). Of this, 32
per cent (about $6 trillion) of the total investment will be spent on renewable
energy development, 14 per cent of which will be invested in the USA and 22
per cent in China (Figure 2.50).
Figure 2.50. Regional structure of investments in the construction of new
power plants utilizing renewable and other energy sources
100%
75%
China
50%
USA
25%
OECD, excl. USA
0%
Renewables
Other energy
sources
Source: ERI RAS
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The Impact of Technological

Breakthroughs on Energy Markets
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3. THE IMPACT OF TECHNOLOGIC AL BREAKTHROUGHS

ON ENERGY MARKETS
The Role of Technology in the Development of the Energy Sector
The role of energy innovation is crucial not only for the development of
world energy, but also, to a large extent, for the whole of civilization (Figure
3.1). It is the development of new forms of energy and energy technologies
that has formed the basis of all industrial revolutions. Understanding the
impact of these technological advances on the current circumstances in the
fuel market is an important task of Outlook-2013.
Figure 3.1. History of technological revolutions and breakthroughs*
Electric cars
mtoe
Commercial shale oil and

gas production
Energy consumption
14
12
3D & 4D seismic
10
Alternative liquid and gaseous fuels
8
Other renewables growth
Unconventional sources of oil and gas
Wind and water mills
Steam engine
Electric motor
Coal production
Steam turbine
Deepwater and ultradeepwater drilling

LNG
Mechanization
400000 before A.D.
500
Steam engine
Internal combustion engine,

Electricity
Commercial oil and gas production

Wood
Nuclear energy
1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
* Technological revolutions are shown in red, breakthroughs in black.
Source: ERI RAS
In the history of the development of energy technologies, we differentiate

technological revolutions and technological breakthroughs.
Technological revolution means the realization of at least three components:
A set of new technologies, which enables the development of a new, usually
more concentrated, form of primary energy with a multiple expansion of
the energy resource base;
Energy for final consumption of significantly increased value [17, 18], which
radically improves production processes and living conditions, accompanied
by a steep increase in the efficiency of labour;
Creation of new energy and associated markets
Technological breakthroughs, in contrast to technological revolutions,
contribute to a significant expansion of the economically attractive resource
base, or to increased efficiency of the technologies used, resulting in a
substantial change in market conditions for existing energy sources. However,
they result only in an incomplete set of the above components and, as a rule,
have much smaller social consequences.
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Technological Revolutions and Breakthroughs in the 20th Century

For a period of about 30 years around the turn of the 19th century, two truly revolutionary technologies were
created which are now at the heart of the worlds need for energy the internal combustion engine (ICE) and the
electrical power industry. The invention of the ICE marked the sunset of the coal and steam century, and gave
both a powerful impetus to the era of oil and a thousand-fold increase in decentralized (including individual)
mobile energy. Large-scale generation of electricity by thermal and hydro power plants, long-distance power
transmission, and electrification of all spheres of life created the energy fundamentals not only for industrial
but also for post-industrial society. Electric machines and alternating current transformers revolutionized the
structure of stationary energy production: powerful centralized energy systems, using every single type of primary
energy resource, were created.
Later on, up to the end of the 20th century, energy technologies continued to improve, on the basis of a series
of technological breakthroughs. Gas turbines, jets, and rocket engines appeared in addition to the ICE. The
electrical power industry increased in size many times more than the parameters and capacities of facilities
and networks, and made possible the creation of transcontinental systems. There was an explosive growth of
electrical technologies ranging from electrolysis, computing technology, telecommunications, and control
systems to efficient lighting. Gas turbines gave new impetus to the development of aviation and formed
the demand for jet fuel. In many instances, due to the gas turbine, modern gas transportation systems were
created, together with the gas industry as such. The development of high-power gas turbines, and their use
in stationary power facilities, enabled a switch from the steam cycle to the more efficient gassteam cycle.
The efficiency of the best types of combined-cycle gas turbines reached 60 per cent, which is close to the
maximum values for the heat engine.
It became possible to increase the hydrocarbon resource base, on account of technical advances in exploration and
production of liquid and gaseous hydrocarbons and coals: 3D and 4D geological surveys and numerical modelling
by supercomputers; methods of impacting, physically and chemically, on surrounding rocks and extracted fluid,
which change their structure and properties; technical means of hydrocarbon extraction in extreme conditions
(deep sea, deep water shelf, drift ice, etc.); robotic systems with remote control for underground mining from thin
coal layers; and other techniques.
In the second half of the 20th century, the world waited for another revolution in the development of nuclear
energy, which became a by product of nuclear defence projects. The energy intensity of nuclear fuel is three
times higher than that of any organic fuel, but it is still used very ineffectively in the steam turbine cycle with
low steam parameters, efficiency levels of only 3233 per cent are attained. Thus, nuclear power has failed to
fulfil the second criterion of a technological revolution. Moreover, the technical difficulty of providing guaranteed
nuclear safety, unresolved problems with disposal of radioactive waste, and the incomplete nature of the nuclear
fuel cycle have made it impossible for nuclear generation to occupy a dominant position in the energy sector, as
was predicted in the 1970s.
In the next 30 years we do not expect a new technological revolution in

the energy sector (for example, the development of cheap nuclear fusion,
or of harnessing energy from gravity), but there may be major technological
breakthroughs. They are already evident in the development of unconventional
oil and gas resources and the emergence of new types of motor fuel, which
are capable of satisfying growing demand and of substantially curbing the
growth of hydrocarbons prices. Such an expansion of the resource base and
improvement of oil and gas production will lead to radical changes in the
situation in fuel markets.
New electrical technologies, which are less certain but potentially more
significant, are becoming more widespread: storage units (accumulator
batteries and super capacitors) and fuel cells (which utilize the direct
conversion of chemical energy in hydrogen compounds to electrical energy).
They will give an impetus to the mass usage of electric power in mobile
applications, and substantially improve the circumstances for using renewable
energy resources. This will shift the boundaries between centralized and
decentralized energy supply: individual vehicles will be refuelled from the
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centralized electrical system, and the latter will face strong competition
from widely distributed (including individual) power generation based on
renewable energy sources and natural gas. This technological breakthrough
will broaden the resource base through the development of commercially
viable renewable energy sources and increased efficiency of fuel generation.
It brings the prospect of changing not only the systems of electric power
supply, but the entire infrastructure, together with human settlement.
Shale Breakthrough
Even today, it can be said that the shale breakthrough is a fait accompli: oil
production from shale plays3 has increased from 8m tons in 2007 to 100m
tons produced in 2012; shale gas production, from about 40 to 250 bcm
for the same period. A detailed analysis of this phenomenon, and of the
condition, and prospects for development, of shale oil and gas production
technologies, is presented in ERI RAS studies [19, 20]. These show that there
are a number of factors limiting the further rapid expansion of oil and gas
production from shale plays:
Relatively high costs for production from shale plays located outside
North America: $80140/bbl for oil and $3,511,5 $/mmbtu for gas
production;
High rate of water consumption (it takes about 7 bbl of water to produce
1 bbl of oil from low-permeability formations);
Environmental risks related to the contamination of ground water, soil,
and air;
Untested technologies for in situ oil shale retorting.
It is most likely, that the technologies capable of overcoming these limitations

[19, 20], will be based on a low-cost waterless fracking method and modern
techniques of in situ retorting. If these can be employed on an industrial scale,
the resource base of the worlds oil and gas industry will expand significantly;
the production of shale oil will become possible in countries where oil has
never been produced, and shale plays located in areas with limited amounts
of fresh water will be unpacked, which will provide a significant increase in
production (Figures 3.2 and 3.3).
Oil found in shale plays includes all types of oil extracted from oil shale deposits which mainly consist of fine-grained sedimentary
rock rich in kerogen (clay, marl or carbonates). In particular there could be: tight oil (oil produced from low-permeability plays or other
deposits by drilling horizontal wells, followed by multistage hydrofracturing); and shale oil (thermally produced oil from shale rich in
kerogen).
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Figure 3.2. Shale oil production in 2040, Baseline and Shale Breakthrough Scenarios
2
6
_0_
0
18,5
2,4
5,5
457
560
10
65
_0_
0
8
1,1
20
_5_
12
_0_
0
20
_0_
16
_0_
7,6
_ _
_0_
7
Production in Baseline Scenario
24
2,4
5,5
mtoe,
mtoe Baseline Scenario,
Scenario 2040
mtoe, 'Shale Breakthrough', 2040
Production starts in 'Shale

Shale Breakthrough'
Breakthrough
Scenario
Source: ERI RAS
Figure 3.3. Shale gas production in 2040, Baseline and Shale Breakthrough Scenarios
Source: ERI RAS
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Thus, the Shale Breakthrough Scenario suggests the further development

of a technological impulse that already begun in the production of
unconventional hydrocarbons. It is based on the following assumptions:
By 2020, the new waterless technology for the production of oil and gas
from low-permeability formations will be fully developed. As a result,
oil and gas fields located in China, Jordan, Israel, Mongolia, and other
countries will enter into operation;
Environmental restrictions on oil and gas production from shale plays
would be lifted;
Global shale oil production costs would equal the levels of US production
costs (less than $80/bbl of oil and 4 $/mmbtu for gas);
Active development not only of low-permeability oil reservoirs, but also
of oil shale plays (kerogen), will start.
The Shale Breakthrough
Scenario does not forecast a
significant drop in the price
of oil and gas as compared to
the Baseline Scenario (mean
reduction is about $5/bbl for oil
and 1,4-1,7 $/mmbtu.
In accordance with the Shale Breakthrough Scenario, production of

unconventional oil in the world by 2040 will increase by 117m tons, and gas
by 222 bcm, in comparison with the Baseline Scenario. This could shift oil and
gas prices down (Figures 3.4 and 3.5). After 2020, however, in contrast to some
widely discussed estimates, our calculations show that this scenario will not
lead to a significant drop in oil prices (in relation to the Baseline Scenario).
Figure 3.4. Equilibrium oil prices in the Baseline and the Shale Breakthrough
Scenarios
$2010/bbl
115
110
105
100
95
90
'Shale Breakthrough'
85
Baseline Scenario
80
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
Figure 3.5. Equilibrium gas prices by region in the Baseline and the Shale
Breakthrough Scenarios
$2010/mmbtu
14
12
10
8
6
4
2
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
Baseline Scenario
USA (Henry Hub)
Source: ERI RAS
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Such a price response is explained by the fact that quite significant volumes
of oil and gas production from shale plays have already been included in the
Baseline Scenario, and without them, the prices of these energy resources
would be much higher (see the next section). The bottom line is that, in
accordance with the Shale Breakthrough Scenario, the oil and gas supply
curves are considerably expanded and become flatter, which implies an
increase in the supply of oil and gas in the mid-price range (additional longer
steps appear in the central part of the curve). This makes a sharp decline in
equilibrium prices impossible (Figures 3.6 and 3.7).
Figure 3.6. Oil supply curve (production costs), the Shale Breakthrough Scenario
$2010/bbl
160
2011
140
Demand
120
100
Conventional oil
Oil sands
80
Shale and tight oil
60
Heavy oil
40
20
$2010/bbl
160
4108
3834
3561
3288
3013
2738
2465
2192
1917
1643
1369
1096
821
547
274
0
mtoe
Growth
2040
140
Demand
120
100
80
60
40
20
5479
5204
4930
4657
4383
4108
3834
3561
3288
3013
2738
2465
2192
1917
1643
1369
1096
821
547
274
0
mtoe
Source: ERI RAS
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Figure 3.7. Gas supply curve (production costs), the Shale Breakthrough Scenario
2010
$2010/mmbtu
4
3,5
Demand
Conventional gas
Shale gas
2,5
2
1,5
1
0,5
1
152
305
456
609
762
912
1 065
1 216
1 369
1 521
1 674
1 827
1 978
2 131
2 282
2 435
2 588
2 738
2 891
3 043
3 196
3 347
bcm
2040
$2010/mmbtu
8
7
6
Growth
5
4
3
Demand
2
1
6 027
5 753
5 480
5 205
4 931
4 658
4 384
4 109
3 835
3 562
3 289
3 014
2 739
2 466
2 193
1 918
1 644
1 370
1 097
822
548
275
bcm
Source: ERI RAS
However, the absence of a sharp fall in prices does not mean that this
scenario is safe for the producers. The analysis shows that, while the oil and
gas markets are well-balanced, there are significant changes to the balance
of power between the leading participants in these markets in this scenario.
Some global players will have additional opportunities for influence, while
for others a loss of position is implied. Generally, in terms of positions of the
main players in the oil and gas markets, the scenario actually results in a
strengthening of the trends defined in the Baseline Scenario.
The beneficiaries of the Shale Breakthrough Scenario are:
The USA due to the domestic production of oil (70m tons more than in
the Baseline Scenario) and gas (a little less than defined in the Baseline
Scenario due to lower exports, as the volume of the global gas trade
will decline in general, mostly due to the increase in Chinas domestic
production) will become the largest producer of hydrocarbons in the
world. This fact, given the overall geopolitical significance of the USA, will
actually turn it into the most influential player in the global hydrocarbon
market;
China will reduce the volume of imports relative to the Baseline Scenario,
due to the development of its own shale deposits after 2020.
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The losers in this scenario are:

The developed European countries at lower levels of oil prices
(compared to the Baseline Scenario) even greater volumes of European
oil will be displaced from the market; North Sea shelf projects will not
be put into operation; the attractiveness of renewable energy will be
reduced in relation to hydrocarbon fuels; and energy dependence on
suppliers will grow;
The Shale Breakthrough
Scenario significantly alters the
power balance of key players in
the global hydrocarbon market,
and the CIS turns out to be the
most vulnerable.
OPEC countries will almost inevitably face a decline in production and

a reduction of their market share in 202535. The shale breakthrough
will apparently force the cartel to tighten control over production
costs, reduce the tax burden on the industry (which may destabilize the
economic and political situation in some countries), and create a shortage
of supply by introducing quotas. However, even in the Extreme Scenario,
coherence of actions by OPEC members can hardly be expected, because
of the difference in oil price levels which these countries need, and the
potential destabilization of a number of oil-dependent economies. This
means that the shale breakthrough is likely to weaken OPEC further.
By the end of the forecast period, OPECs market niche will stabilize
somewhat, but if the Shale Breakthrough Scenario is realized, it would
practically deprive the cartel of any possibility of influencing the world
price of oil in the middle of the forecast period;
The CIS countries and Russia the CIS would be forced to cut a
substantial part of its oil exports in this scenario. Russias production
by 2020 would be 50m tons lower than in the Baseline Scenario, and its
exports would decline by the same amount, due to its narrowed niche in
the Asian market (Figure 3.8). Russian gas exports in this scenario would
be 70 bcm lower than in the Baseline Scenario (Figure 3.9). Results show
that during the forecast period the CIS would be more sensitive than any
other country to this scenario.
Figure 3.8. Changes of oil net export and import volumes in 2040 relative to 2010, Baseline and Shale
mtoe
400
100
Baseline Scenario
Baseline Scenario
300
50
0
-50
Imports
mtoe
Exports
150
South and
Central
America
CIS
Middle East North America
200
100
-100
-150
-200
0
Europe
Asia
-100
-250
Source: ERI RAS
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Figure 3.9. Changes of gas net export and import volumes in 2040 relative to 2010, Baseline and Shale
bcm
350
Exports
Baseline Scenario
bcm
Imports
600
300
Baseline Scenario
500
250
400
200
300
150
200
100
100
50
0
CIS
South and
Central
America
Africa
North America
Middle East
Europe
Asia
-100
-200
Source: ERI RAS
Shale Failure
For a balanced view of the shale perspective, it should be noted that
development of oil and gas production from shale plays is associated with
large uncertainties:
Estimates for commercially recoverable reserves vary significantly. As of
today, the best explored low-permeability formation, where oil is already
actively produced, is the Bakken oil shale play in the USA. In many other
fields, a detailed estimate of reserves has not yet been made. The problem
of determining an exact figure for proven reserves is aggravated by issues
related to estimating oil reserves extracted from dry shale by retorting.
The prospects for development
of oil and gas shale plays are
associated with considerable
uncertainties relating to the
exact assessment of proven
reserves, estimates of real
environmental impacts, and
most importantly, an adequate
assessment of the cost of a
complete cycle of well operation,
given rapidly declining well
productivity.
Current low production costs are associated not only with the technical
improvement of production methods, but also with low barriers to market
entry. It is worth noting that in all North American states (except California)
where shale play resources are located, there are no current environmental
prohibitions or restrictions on the production of this oil. Given the above,
the actual impact on the environment during shale oil production has not
yet been evaluated;
The main reason for doubt relates to the specifics of hydrocarbon
extraction from shale plays, with its maximum first year production
rate and sharp drop in productivity the following year that necessitates
constant drilling of new wells to maintain production levels. At the
moment, drilling is performed only in the most attractive areas in
terms of production (sweet spots) those with high rates of estimated
ultimate oil and gas recovery (EUR) and estimated shale recovery. With
the depletion of highly productive plays, production from less productive
areas may become less attractive, leading to a decline in production
volumes. Therefore, there is reason to believe that the majority of shale
deposits, due to the specifics of their occurrence and production, can
ERI RAS ACRF
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support high production rates in the initial stages of development, but

can sustain these only for a short period of time as compared to the life
cycle of traditional fields.
The Shale Failure Scenario contains a set of assumptions which imply

reduced production volumes of oil and gas from shale plays:
Significant cost increase for new production projects;
No confirmation of large resource base;
Introduction of strict environmental constraints;
New waterless and heat extraction technologies for shale oil and gas
production are inappropriate, for economic and/or environmental reasons;
Starting from 2020, shale oil and gas production in the USA begins to
decline rapidly, and practically stops by 2025;
Production of shale oil and gas continues only in countries where it has
already commenced and rapidly reduces to zero.
In the Shale Failure Scenario,

the equilibrium price of oil by
2040 will reach $130/bbl (2010
prices). Similarly, the weighted
average price of gas will be
1,25 $/mmbtu m3 higher than
that in the Baseline Scenario.
According to estimates for this scenario, the equilibrium oil price level is
much higher than in either the Baseline Scenario or, in particular, the Shale
Breakthrough Scenario by 2040, it will reach $130/bbl (2010 prices) (Figure
3.10). Similarly, average gas prices are higher by 1,25 $/mmbtu: amounting to
10,5 $/mmbtu in Europe; 12,5 $/mmbtu in Japan; and 13,5 $/mmbtu in China.
The spot price of gas in the USA will reach 12,0 $/mmbtu (Figure 3.11).
Figure 3.10. Equilibrium oil prices in the three scenarios

$2010/bbl
140
'Shale Failure'
Baseline Scenario
130
120
110
100
90
80
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
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Figure 3.11. Equilibrium gas prices in the three scenarios

Baseline Scenario
$2010/mmbtu
'Shale Breakthrough' Scenario
$2010/mmbtu
14
14
12
12
10
10
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
2000
2005
2010
2015
2020
2025
2030
2035
2040
'Shale Failure' Scenario
$2010/mmbtu
14
12
10
USA (Henry
(H
H
Hub)
b)
2
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
In the Shale Failure Scenario, not only is the current balance of power in
the global oil and gas market sustained, but the positions of the countries,
which appear to be unsuccessful in the Baseline and Shale Breakthrough
Scenarios, will be significantly strengthened:
Given higher world prices, Russia may significantly increase its oil and
gas production (up to 535m tons and 980 bcm, respectively, by 2040) and
remain the largest hydrocarbon producer in the world. High oil prices will
enable it to develop costly fields in Eastern Siberia and the Arctic shelf.
The export niche for Russian oil will also broaden this will be achieved
by loading European refining capacities, and by the lack of North American
exports to the AsiaPacific region (Figure 3.12). The export of Russian
gas will also increase owing to the growth of North American natural gas
imports (Figure 3.13);
The USA, a major player in the oil market, will lose significantly from
shale failure. The countrys oil and gas production in this scenario will fall
sharply after 2020 against the background of the low growth rate of crude
oil imports, due to the fact that without its own resource base, US refining
becomes ineffective. The largest energy producer (according to the other
two scenarios) is converted into an energy-dependent region which can
affect hydrocarbon markets only by non-market mechanisms. The USA will
have to increase LNG imports again, which provides an additional impetus
to the development of this segment of the gas business in the world (Figure
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3.14). The return of the USA to the pool of countries importing natural gas
will radically alter global trade flows. Thus, North American LNG import
demand will reach 170 bcm, while the price of gas in the USA will be
12 $/mmbtu, which will be around the mid-point of the price range set
in Europe and the AsiaPacific region. The growth of prices in the USA
will also lead to some reduction in net imports to Europe and the Asia
Pacific region, relative to the Baseline Scenario; part of the gas from the
tightening global gas market will be directed to North America; all the
worlds gas producers and exporters will work at peak capacity;
If oil prices rise, Europe may increase the use of renewable energy sources
and the volumes of indigenous production. It is also significant that,
according to this scenario, the reduced domestic resource base of US
refineries will increase opportunities in the global market for oil products,
which will increase oil refining in Europe and its demand for both imported
and its own crude oil.
The Shale Failure Scenario will

have a positive effect on the
production of conventional oil
and gas from high-cost fields,
the position of the CIS countries
and OPEC, and on the producers
of alternative liquid fuels, while
Russia becomes the largest
hydrocarbon producer in the
world.
OPEC will export an additional 220m tons, compared to the Baseline

Scenario, in the event of high oil prices and the expansion of market niches.
OPEC will significantly (by $2030/bbl) influence the price of oil, with less
spare capacity than in the Baseline Scenario;
High oil prices will enable the growth of production in the AsiaPacific
region, where commercially viable conditions for deepwater offshore
projects may develop;
Chinas policy on the supply of its own market with oil and gas from the
expansion of its national companies abroad will probably be strengthened.
This will give China the opportunity to retain its position on the world
stage, even without the use of its own shale resources.
Figure 3.12. Change of crude oil net import and export volumes in 2040 relative to 2010, in Baseline and
Shale Failure Scenarios
Exports
mtoe
250
Baseline Scenario
200
300
150
250
100
200
50
150
0
-50
CIS
-100
Africa
South and
Central
America
Imports
mtoe
350
Middle East
100
50
0
-150
-50
-200
-100
Europe
North America
Asia
-250
Source: ERI RAS
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Figure 3.13. Change of natural gas net import and export volumes in 2040 relative to 2010, in Baseline
and Shale Failure Scenarios
Exports
bcm
400
Imports
bcm
600
Baseline Scenario
500
300
400
300
200
200
100
100
0
0
CIS
South and Latin

America
Africa
North America
Middle East
Europe
Asia
-100
-200
Source: ERI RAS
Figure 3.14. Volumes of natural gas in inter-regional trade in 2040 in the

three scenarios
bcm
1 400
61%
1 200
60%
1 000
59%
800
58%
600
57%
400
56%
200
55%
54%
Baseline Scenario
'Shale Breakthrough''Shale Failure'
LNG
Pipeline gas
Share of LNG
Source: ERI RAS
When compared to the Baseline Scenario, the Shale Failure Scenario forecasts
a significant change in the nature of the liquid fuels market. Demand will still
be largely met by unconventional sources not just by Canadian tar sands
and heavy oils, but also by non-oil fuels. In the case of high oil prices, the
latter will become economically attractive and will take 10 per cent of the oil
market by 2040 (Figure 3.15).
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Figure 3.15. Consumption growth of oil fuel substitutes, the Shale Failure Scenario
mtoe
600
500
CTL
400
Electricity
GTL
300
Gas fuel
200
Biofuels
100
0
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
In addition to the technology related to the development of shale plays,

other technologies in the liquid fuels market may affect the balance of supply
and demand. These are listed below in the order of their importance in the
market for liquid fuels, and by the likelihood of a fundamental breakthrough:
Use of natural gas as motor fuel;
Development and implementation of other biotechnologies;
Development of electric transport.
Gas Use in Transportation

The use of gas for transportation in 2010 amounted to 29 bcm [21], which is
less than 1 per cent of total transport energy consumption. Of this amount,
more than 90 per cent was used by passenger cars running on compressed
natural gas (CNG).
We can distinguish two categories of countries that are of the most interest
to gas transport:
Countries which have significant reserves of natural gas and/or are net
importers of oil and oil products (Iran, Korea, India, etc.);
Countries which are diversifying fuels for transport (the USA, Brazil, and
Italy).
Practically, today there is no opportunity for competition, on the same basis,
between oil and gas in the transportation sector. Compressed natural gas
requires conversion of vehicles and a network of special gas filling stations
(GFS), which are not yet common in the world. Thus, despite the economic
attractiveness of natural gas for a number of countries (Figure 3.16), the main
limiting factor is the availability of infrastructure.
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Figure 3.16. Marginal gas prices ensuring gas motor fuel efficiency for private transport, oil price at
$110/ bbl.*
$2010/mmbtu
12
10
8
6
4
2
0
Russia
Europe
North
America
China
India
Japan
Gas price needed to switch to gas fuel

Natural gas price in 2010
Gas price needed to switch to gas fuel without retting of cars
Natural gas price in 2040
* The areas in the oval are the countries, where, due to the mass production of cars powered by gas, a potential and effective
competition between oil and natural gas motor fuels is feasible.
Source: ERI RAS
Synthetic Liquid Fuels Obtained from Gas

Direct competition between natural gas and oil in transport is possible with the use of gas to liquid technology
(GTL), which produces gasoline and diesel fuel, similar in quality to the fuels made from oil. Today, however, the
cost of production of synthetic fuels from gas amounts to $110140/bbl, assuming a gas price not higher than
2,1 $/mmbtu, implying that the projected price of oil and gas makes these projects uneconomic.
Prospects for the use of gas in the transport sector will depend directly on:
The environmental policies of countries (for example, the use of LNG for
fuelling will depend on tightening the regulations on sulphur content in fuel);
Development of infrastructure for CNG;
Reducing the costs of synthetic fuels produced from gas.
Gas use in transportation is a
promising prospect for some
regions, but it requires the
support of government and
business interested in it.
In the forecast period, at relatively low oil prices, the competitiveness of gas
transport is low. However, if consumers do not have to re-equip their cars
with gas equipment, and this is done by the car industry, the market for gas
fuel could greatly expand. In the Baseline Scenario, gas consumption in the
transport sector will reach 8085 bcm by 2040, and if the above measures
are implemented, it will increase to 110 bcm (Figure 3.17).
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Figure 3.17. Forecasted consumption of natural gas in transport and its stimulated growth, Baseline
Scenario
bcm
120
Growth potential
100
Africa
Middle East
80
60
CIS
40
Asia
20
Europe
North America
0
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
Liquid Biofuels
Figure 3.18. Raw materials used for the production of different types of biofuel
First generation
Mass production, low technology level
BIODIESEL
PLANT OIL
Test stage production, high technology level, high costs
BIOETHANOL
Jatropha
Rapeseed
Sunflower
Soybean
Palm
Coconut
Cotton
Castor
DMF
HTU
Potato peelings
BIOMETHANOL
L
Waste
liquor
Animal fats
Sugarcane
bagasse
Beet pulp
Maize
Manure
Wheat
Residential organic
waste
Sugar beet
BIODIESEL
Sludge
OILGAE
Wood chips
JET FUEL
Maize stover
Industrial biodegradable
waste
BIOGAS
Advanced
Advanced
Near-commercial production, high technology level
Algae
F-T
BIODIESEL
L
Wheat stalks
BIODME
Miscanthus
Sugarcane
Potato
BIOHYDROGEN
BIOETHANOL
Cassava
Sorghum
BIOETHANOL
HVO
Any Biodiesel
feedstocks
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Source: UNEP, Assessing biofuels, 2009;

UN-Energy, Sustainable Bioenergy.
Framework for Decision Makers; 2007;
EPA, Renewable Fuels Standard Program
Regulatory Impact Analysis, 2010; Refuel.
eu, Biofuel Magazine press review, SAE
International Hydrotreated Vegetable Oil
(HVO) as a Renewable Diesel Fuel, 2008
79
It is widely believed that biofuels can play a significant role in meeting the
demand for fuel reducing pollution and greenhouse gas emissions. Figure
3.18 illustrates various raw materials that can be converted into biofuels for
transportation, and technologies used for this.
According to our estimates, liquid biofuels could only, realistically, meet less
than 10 per cent of the growing demand in the transport sector, and they
remain a complex and controversial issue. In recent years, debates about the
impact of biofuels on the food market, and their potential for adverse effects
on environmental biodiversity, soil, and water have intensified.
Today, industrial-scale production is only possible for first-generation biofuels
from agricultural crops, but the availability of cultivated land and increasing
competition from food manufacturers directly limit their production.
Moreover, biofuels have twice been partly responsible for food crises.
The European Union has set a target to increase the share of biofuels in the
transport sector to 10 per cent by 2020, but a bill is pending, based on studies
made in 2012, which limits the use of biofuels extracted from crops to 5 per
cent. As an alternative, the European Commission is trying to accelerate the
spread of electric vehicles by passing regulations on the mandatory number
of available specialized charging stations.
The growth potential for liquid
biofuels is strictly limited by the
food market and the availability
of arable land.
For now, biofuels are competitive only in regions with tropical and subtropical
climates (where crops are harvested several times each year) at oil prices of
$100110/bbl. In other regions, their cost rises to $120140/bbl which, given
oil prices in the Baseline Scenario (which will not exceed $110/bbl by the end
of the period), would require a special incentive for bioethanol and biodiesel
producers.
Electric vehicles
The technological breakthrough that could change energy use in the
transportation sector, and thus the energy balance, is a large-scale
penetration of electric vehicles.
Today, OECD countries are actively developing electric mobility technologies.
In electric vehicles, lithium ion batteries are mainly used with 100200
Wh/kg power capacity, capable of 10003000 chargedischarge cycles
considerably higher than that of conventional leadacid and alkali accumulator
batteries. Such fully charged batteries provide an average range of 120160
km; full charging requires 48 hours or more. The cost of batteries (together
with peripheral equipment and a control system) is $600900/kWh (2010
prices), depending on their characteristics. Their cost thus accounts for 65 per
cent of the total cost of the electric vehicle. The performance of affordable
batteries limits their usability, in consumers terms, meaning that electric
vehicles cannot yet compete with conventional cars.
Electric transport has two development paths the use of accumulator
batteries and fuel cells. However, neither of these technologies has, so far,
been able to compete with the conventional internal combustion engine and
both require significant modernization in certain areas (Figure 3.19).
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Figure 3.19. Technological changes necessary to ensure competitiveness of electric vehicles relative to ICE
Electric drive and
battery weight
decrease 3 times
Increase of power
reserve up to
t 300
km
k
Reduce the time of

charge from usual
grid
g 6-8 times
Batteryy cost
decrease by 50%
Provision of electric
charging
g g
infrastructure
Lithium ion and Sodium

Lithium-ion
Nickel-Chloride
Ni k l Chl id battery
b tt
development
d
l
t
Centralized generation
Distributed generation
Fuel cells development
Fuel cells cost

decrease 6.5 times
Weight
g decrease 710 times
The use of
hydrogen as a fuel
E
Ensuring
i th
the
safety of the
hydrogen transport
Source: ERI RAS
In the meantime, the lithium ion and sodium nickel chloride batteries mainly
used in advanced electric cars are inferior to traditional internal combustion
engines in their cost, mileage, and weight, but have significant potential for
improvement.
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Prospects for the Development of Electrochemical Batteries

Results of intensive global research and development suggest that the power capacity of accumulator batteries
will multiply, and that by 2020 their cost will drop to $400/kWh, and by 2030 to $200/kWh. In the longer
perspective, it may be possible to reduce battery cost to $100/kWh. It should be noted that the US Department
of Energy (DOE) has set a target that by 2025 the cost of batteries should decrease to $250/kWh, and charging
time should be reduced to 610 minutes, making it comparable with the time of fuelling a conventional
vehicle. If these requirements are met, electric cars will become cost-competitive with vehicles equipped with
internal combustion engines.
Lithium ion batteries have improved more rapidly than any others. The search for substances to be used
for electrodes and electrolyte, and for new technologies used in their manufacture, is under way. The most
promising approach is considered to be the use of nanostructured high-porosity composite materials: in
particular nanocomposites based on lithium and iron phosphate or lithium sulphite and carbon used for the
manufacture of cathodes; and nanostructured silicon instead of graphite for anodes, etc. This should increase
battery power several times, expand the per charge mileage up to 600800 km, reduce charging time to 10
minutes or less, and extend battery service life to 810 years.
Promising prospects can be expected from the development of lithium air batteries. Their theoretical energy
output is 810 times higher than that of lithium ion ones. The cruising range of electric vehicles on a single
charge could reach 8001000 km. These batteries are being developed by many organizations, one of which
is the consortium of companies which includes Americas IBM and Japans Asahi Kasei and Central Glass
companies, supported scientifically by a number of US national laboratories (primarily by the Argonne National
Laboratory) in the ambitious Battery 500 Project. This battery would meet all future DOE requirements, and its
power output is expected to reach 1700 Wh/kg. It is likely to appear on the market in 810 years.
Active research for the creation of even more efficient batteries is in progress. For instance, at Stanford
University scientists are considering potassium ions as charge carriers instead of lithium and make electrodes
from nanomaterials based on iron and copper, which would increase the number of battery chargedischarge
cycles to 40 000. At the University of Massachusetts, an air vanadium boride element (vanadium boride air
cell) has been developed which will be able to surpass the energy intensity of gasoline and diesel fuel. The
theoretical energy capacity of this element is 27 kWh/kg. However, researchers estimated a practicable
achievable energy capacity of 5 kWh/kg, while the energy capacity of gasoline is 12.1 kWh/kg and diesel fuel
is 11.8 kWh/kg. Taking into account motor efficiency (3040 per cent), these values amount to 3.64.7 kWh/
kg. One of the major problems related to this accumulator, however, is severe corrosion of the element leading
to the rapid loss of its capacity and release of hydrogen, which makes the battery explosive. The research team
hopes to resolve this issue quickly, by stabilizing the vanadium boride anode by coating it with a thin layer of
zirconium dioxide.
Scientists from the universities of Miami, Tokyo, and Tohoku have discovered the phenomenon of generation
of an electromotive force (EMF) in a static magnetic field. EMF has a spin origin, which is created by the
spin-dependent effects in a specially prepared nanostructure consisting of quantum nanomagnets of specific
composition. The technical implementation of this phenomenon may open the way for the creation of socalled spin batteries accumulators with fantastic energy capacity and power, which would store quanta of
energy. However, the implementation of spin batteries by 2040 is not expected.
The improvement of control systems can bring about further upgrades of accumulator batteries. This is
achieved by new methods and technical tools for monitoring the condition of electrochemical cells, and
efficient algorithms to optimise charging strategies and subsequent battery usage, depending on the physical
condition of the cells. The implementation of this project by the University of California, in conjunction with
the companies Bosch and Cobasys, supported by the Advanced Research Projects Agency-Energy (ARPA-E) of
the USA with a 9.6m dollar grant, is expected to reduce the cost of lithium ion batteries by 25 per cent and
halve the time of charging.
In parallel with the development of accumulator batteries, the improvement of electrical equipment in the
electric car, which would reduce its power consumption per km, is also in progress. For example, Yasa Motors
has unveiled an ultra-light and powerful electric motor the DD500 developed at the University of Oxford.
The motor size is 50 per cent smaller than conventional traction motors, its specific peak torque is twice as
large (30 Nm/kg), and Yasa Motors intends to increase it to 40 Nm/kg.
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The prospects for fuel cell vehicles based on hydrogen or hydrogencontaining fuel natural gas, ammonia, methanol, or gasoline, are still vague.
All tested versions of fuel cell vehicles run on hydrogen; some prototypes
use methanol, but this technology has not yet been approved. The main
problem of existing hydrogen cars is the high level of fire and explosion
hazard (hydrogen molecules can penetrate the cars metal body or fuel tank
and leak outside the vehicle, which can lead to detonation). Therefore, in
scenarios for energy change in transport, the most promising perspective for
the period to 2040 is expected to be in battery improvement; the use of fuel
cells is likely to be postponed to a more distant future.
The objectives of individual countries for promotion of electric vehicles and methods for their stimulation
Already today, many countries have government support in place for the development of electric vehicles; their
owners are directly subsidized or get tax benefits. For example, in the UK and the USA, buyers of electric cars
are compensated from the state budget for 2550 per cent of the cars value, with a top limit of US$7500. Japan,
Belgium, Italy, China, and Canada have developed a system of tax credits and deductions, with other benefits (free
registration plates in China, infrastructure financing, subsidies for producers), saving the customer up to a third of
the electric vehicles cost.
The Chinese government plans to increase the production of electric and hybrid cars to 2 million per year by 2020.
The USA wants to increase the number of electric vehicles to one million by 2015.
Implementation of the Electric

Vehicles Scenario requires full
state support, or electric cars
will not be able to compete with
conventional vehicles.
The share taken by electric vehicles in total energy consumption in the road
transport sector may reach 5 per cent by 2030 (the equivalent of 293m tons
of motor fuel); by 2040, it could reach 10 per cent (600m tons), provided:
1) OECD countries and China continue to support green transport and
subsidize electric vehicles up to 2025;
2) Improvement of battery technology will provide:
up to 300 km cruising range on one charge,
reduction in battery cost by 50 per cent (from 20 to 10 thousand dollars
in 2010 prices),
battery life of at least 7 years,
threefold reduction in weight (to100 kg),
reduction of time (to 3040 minutes) for full battery charge from 220V
supply;
3) Governments, energy companies, and automakers will finance the
development of infrastructure, which will make electric cars available
to all.
If this electric transportation breakthrough is implemented by the end of the
forecast period, the size of the oil market will fall by up to 600m tons of oil,
and the price of oil will drop to $102/bbl. This will reduce production and
export of oil in a number of regions with high costs of production, particularly
in Europe and the CIS countries (Figure 3.20).
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83
Figure 3.20.
7 Oil and gas export and import volume in 2040 relative to 2010 in Baseline and Electric
Vehicles Scenarios
mtoe
100
Exports
Baseline Scenario
Prospective electric cars
50
0
CIS
South and Middle East

Central
America
mtoe
400
Africa
-50
-100
Imports
200
-150
-200
200
-200
-250
Asia
Europe
North
America
-400
400
Source: ERI RAS
The development of electric transport will increase electric power generation

by 4 per cent compared to the Baseline Scenario (which is a challenging
task); in OECD countries a doubling of electrical power production will be
required (Figure 3.21).
TWh
25000
20000
15000
Base scenario
10000
5000
0
OECD
non-OECD
Figure 3.21. Electricity production increment 201040 in Baseline and

Electric Vehicles Scenarios
Source: ERI RAS
Analysis of the generation structure required in this scenario shows that the
demand for gas, compared to the Baseline Scenario, will increase by 8090
bcm, and coal by 120130m tons. At the same time, prices in the gas market
will increase significantly, contributing to a switch to alternative fuels,
including nuclear and renewable energy (Figures 3.22 and 3.23). However,
against the backdrop of rising prices for the electric power sector and falling
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oil prices (due to lower demand), the competitiveness of the traditional

internal combustion engine will increase.
Figure 3.22. Impact of the additional demand for gas on energy prices in Baseline and Electric Vehicles
Scenario
bcm
5450
MeetingMeeting
natural natural
gas demand
gas demand
in 2040inby2040
scenario
by scenario
bcm
5450
$/mmbtu$/mmbtu
Natural Natural
gas prices
gasinprices
2040inby2040
scenario
by scenario
14
14
12
12
5300
10
10
5250
5250
5200
5200
5150
5150
5100
5100
5050
5050
5000
5000
0
Base scenario
Base scenarioProspective
Prospective
electric cars
electric cars
5400
5400
5350
5350
5300
Base scenario
Base scenario Prospective
Prospective
electric cars
electric cars
N
Natural
l gas
N production
Natural
dl gasi production
d i Swithching
S i h hi Swithching
S to
i halternative
lhi toi alternative
l fuels
f l i fuels
f l
Europe (average
Europe (average
weighted)weighted)
China (average
China (average
weighted)weighted)
Source: ERI RAS
Japan (average
Japan (average
weighted)weighted)
USA (Henry
USA
Hub)
(Henry Hub)
Figure 3.23. Required electricity generation in Baseline and Electric Vehicles Scenarios
mtoe
4000
3500
3000
2500
2010
2000
Base scenario
1500
1000
500
0
Coal
Natural gas
Nuclear
Other
renewables
Bioenergy
Hydro
Oil
Source: ERI RAS
To ensure the competitiveness of electric vehicles throughout the forecast

period, the price of electricity should not exceed 45 cents per kWh, provided
all of the prerequisites mentioned above are met. However, given the
inevitable rise in the price of fuel for electricity generation, this task is quite
challenging without substantial government support.
Gas Hydrates
One of the most promising energy sources is gas hydrates gas molecules
enclosed within a shell of water molecules. Gas hydrate resources are
concentrated in marine sediments and in permafrost regions. According to
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85
preliminary estimates, gas hydrate reserves roughly amount to 5254 per

cent of all gas reserves on the planet.
Japan is engaged in the most active research into the development of gas
hydrate deposits, and the country has already started pilot production.
Russia launched this research in the Soviet era, and it is now also carried out
by the USA, Canada, China, Norway, Germany, France, India, and South Korea.
Gas importers have hopes that development of these methane reserves will
release them from energy dependence. However, hydrates are stable only
at depth, under high pressure. During drilling, methane separates from the
hydrate complex and escapes into the atmosphere. Nonetheless, safe and
effective extraction of gas hydrates will be a new technological breakthrough
in the global energy industry.
During the forecast period up to 2040, it had not been expected that costeffective industrial production technology for gas hydrates would emerge.
But, since Japan Oil, Gas and Metals National Corporation (Jogmec) declared
in 2013 that it had started pilot development of an underwater gas hydrate
deposit, aiming at extracting gas from it, and that it planned to obtain
technology suitable for industrial use by 2018, we have assumed it would be
useful to evaluate a range of cost-effectiveness of this technology.
The estimated cost of methane production from gas hydrates, declared by
the developers, amounts to 50/m3 (about 15 $/mmbtu). According to our
estimates, this technology would only be economically competitive if the
cost of production did not exceed 11 $/mmbtu.
Biogas
Biogas is produced from biomass using a biological decomposition process,
in which organic matter is converted to methane and carbon dioxide by
being composted in an oxygen-free environment. By composition (methane:
5070 per cent; carbon dioxide: 5030 per cent), biogas is close to natural
gas and is used for the same purposes; if purified, it becomes a green gas,
or biomethane, which can be injected into the natural gas transportation
system. It is quite commonly used in the Netherlands, Sweden, and Germany.
There are four main ways of utilizing biogas in the energy sector (Figure 3.24).
Figure 3.24. Biogas utilization
BIOGAS
Heat and steam

generation
Power
generation/
cogeneration
Fuel
cells
Fuel for the

transport
sector
Most commonly, biogas is used for the generation of heat and electrical
power from gas turbines having a capacity ranging from 800 kW to tens
ERI RAS ACRF
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of MW. It has also been used successfully to fuel micro-turbines (25 to 100
kW). This technology is particularly suitable for rural areas, agro-industries,
and for specific purposes in urban and metropolitan areas. But above all, it
is effective in agriculture, because it can be implemented into a complete
ecological cycle.
In developed markets, levelized costs for electricity generated in biogas
plants currently vary from $85 to $210 per MWh (Figure 3.25).
Figure 3.25 Levelized costs of electricity by energy type
Biomass gasification - biogas

Onshore wind
Landfill gas
Large hydro
N l
Nuclear
Coal
CCGT
$/MWh
0
The main factors contributing

to development of biogas usage
are: subsidies for renewable
energy, relatively short
payback period, environmental
friendliness, suitability for use as
power supply in remote areas.
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200
300
In some cases (depending on the country and location of its use) biogas
electric power generation is quite competitive with electricity produced from
natural gas, coal, or nuclear energy.
Today, the volume of biogas production in the European market exceeds 10
bcm per year. China is one of the worlds leading producers it produces
about 15 bcm of biofuel annually.
87
The Impact of Global Energy Markets

on Russias Economy and Energy Sector
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4. THE IMPACT OF GLOBAL ENERGY MARKETS ON RUSSIAS

ECONOMY AND ENERGY SECTOR
The Initial Scenario for the Development of the Russian Economy and Energy Sector
The Outlook-2013 Initial Scenario for Russia (and the input parameters for
the optimization models of the worlds energy markets) uses development
indicators which, for the period up to 2030, are consistent with the Innovation
Scenario of the long-term forecast of the Ministry of Economic Development
of the Russian Federation, issued in early 2013. Outlook-2013 then retains
the above trends for the whole period of the forecast.
According to this official scenario, the countrys population will rise slightly,
to 144m people by 2020, after which there will be an accelerated decline,
to 138m people by 2040. Russias GDP will increase 3.2 times by 2040 (an
average of 3.4 per cent per year) and per capita income will increase by 3.3
times. Up to 2030, Russia will hold sixth place in GDP ratings among the
countries of the world and, by 2040, it will overtake Japan and rise to fifth
place in the world, which would strengthen Russias geopolitical position.
Figure 4.1 shows the dynamics and components of GDP for this Initial
Scenario of Russias economic and energy development (bars labelled 1).
Such dynamics, when applied to the population and economy, correspond
to a 39 per cent growth in domestic energy demand by 2040, 40 per cent of
which is produced by electric power stations. Half of this demand is covered
by natural gas (Figure 4.2, bars labelled 1).
This scenario assumes that the energy intensity of Russias GDP will decline
by 57 per cent by 2040 a faster rate than the world average. However,
despite the high rate of this decline, the energy intensity of the Russian
economy will still remain 75 per cent higher than the world average (in 2010,
it exceeded the world average by 90 per cent).
The Initial Scenario predicts a slight increase in energy exports by 2020,
followed by stagnation and decline in total export volumes. The volume of oil
and petroleum product exports will fall, while gas exports (especially LNG)
will rise, (Figure 4.3, bars labelled 1). Moreover, according to this scenario,
even in 30 years time, Russia will be not only the worlds largest exporter of
oil and gas, but also the largest producer.
Such a position of internal and external demand corresponds to an increase
in the production of primary energy by 20 per cent; this is mainly represented
by gas, renewables, and nuclear energy production, while the share of oil will
fall and the share of coal will stay unchanged (Figure 4.4, bars labelled 1).
Gas production, according to the Initial Scenario, will exceed 900 bcm per
year, which is comparable only with US production. By 2030, oil production
will stabilize at close to current volumes 500m tons per year comparable
with Saudi Arabia and the USA.
The parameters of the Initial Scenario namely: the dynamics of consumption
and energy resource production in Russia; the costs of production, processing,
and transport of oil and gas; the existing current export duties; and the
taxation system in these industries were extrapolated using optimization
models of world energy markets. This was done for:
(a) a feasibility analysis of these Initial Scenario parameters under severe
restrictions on the demand side, and competing suppliers in global energy
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89
markets;
(b) the identification of possible consequences (which could have an impact
on Russia) of different outcomes of world energy development.
Russian resources in world energy markets: external constraints

Estimates of conditions in external
markets show a decrease of 2530
per cent in forecast volumes
of Russian exports of oil and
petroleum products after 2015,
relative to the Initial Scenario,
resulting in a loss of $100150bn
of GDP per year.
This modelling showed a significant decrease in Russian hydrocarbon

export volumes to external markets, in comparison with Initial Scenario
indicators.
In the Baseline Scenario forecast of volumes and prices in world markets,
Russian oil was valued according to the costs of field and transport
development (according to Goldman Sachs and oil companies estimates),
and with applicable taxes taken into account. According to the results of the
simulation, Russia turned out to be among the most expensive suppliers in
the world market, being left with underutilized potential production (Figure
2.11). As a result, and taking into account the external market situation,
Russian exports of oil and petroleum products will decline by 2530 per
cent after 2015 according to the Baseline Scenario, compared to the Initial
Scenario, with a loss of $100150bn of GDP per year (Figure 4.5, bars
labelled 2).
If oil export duties were to be lowered by 35 per cent (to $255/t), then
the production and export of Russian oil would almost correspond to that
in the Initial Scenario. However, the contribution of the oil sector to GDP
would be reduced even further than if it operated tax free (Figure 4.5, bars
labelled 3). Thus, the preservation of the volume of Russian oil exports
would not compensate for the loss in GDP caused by the necessary
reduction in the export duty.
The country will lose another $2025bn of GDP each year from decreased
oil prices in the Shale Breakthrough Scenario (Figure 4.5, bars labelled 4).
In Baseline Scenario figures for volumes and prices on world markets, Russian
gas was valued according to corporate publications on the cost of major
investment projects, with applicable taxes taken into account. According to
the results of global gas market modelling, Russia was among the suppliers
that were lagging the furthest, and facing underutilization of potential
production, in European and Asian regional markets (Figure 2.25). Taking into
account the difficult situation in external markets, together with increased
competition from other gas suppliers, after 2015 Russian gas exports will
decline by 1520 per cent more than estimated in the Initial variant of the
Baseline Scenario. This implies a loss of $4050bn of GDP per year (Figure
4.5, bars labelled 2).
If Russia abolishes the current export duty for pipeline gas (30 per cent),
the production and export of Russian gas will increase, but would not reach
the levels seen in the Initial Scenario. In this case, as seen above in the case
for oil, the gas sectors contribution to GDP would be reduced by even more
than if exports were tax free (Figure 4.5, bars labelled 3), that is, the results
of a fiscal stimulus of Russian gas exports would not compensate for the
abolishment of the export duty.
GDP will be reduced by another $2025bn per year as a result of lower gas
prices in the Shale Breakthrough Scenario (Figure 4.5, bars labelled 4).
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It is interesting to note that even taking into account its possible new
impetus the negative consequences of the shale revolution will have
their greatest impact on Russia during the next 1015 years, and they will
gradually weaken by 2040.
Figure 4.1. Dynamics of Russian GDP
$2010 bln
5 000
4 500
4 000
1
3 500
1
3 000
1
2 500
1
2 000
2
Services
Infrastructure
Processing
Raw, excl. energy

sector
1 500
1 - Initial Scenario
2 - Baseline Scenario
1 000
500
0
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS based on the RF MED Innovation Scenario and own estimates
Figure 4.2. Primary energy consumption in Russia by fuel type

mtce
1 600
1 400
1 200
Others
Hydro
1 000
Nuclear
800
Solid fuels
Gaseous fuels
600
Liquids
400
200
0
2010
2015
2020
2025
2030
2035
2040
Source: ERI RAS
Figure 4.3. Energy Resources Exported from Russia by Fuel Type
ERI RAS ACRF
91
mtce
1000
900
800
700
Coal, electricity
600
LNG
500
Pipeline gas
400
Oil products
300
Oil
200
100
0
2010
mtce
mtce
1
1 000
000
2015
2015
2015
2020
2025
2020
2020
2030
2025
2025
2035
2030
2030
2040
2035
2035
2040
2040
Source: ERI RAS
left
left axis
axis
800
Figure 4.4. Primary Energy Production in Russia by Fuel Type
800
400
400
mtce
600
600
2 500
400
400
2 000
200
200
300
300
200
200
0
0
-400
-400
1 000
-600
-600
-800
-800
100
100
Others
0
0
Hydro
1 500
-200
-200
Nuclear
2
2
1
1
3
3
-100
-100
Coal
4
4
1
1
2
2
3
3
4
4
2
2
1
1
3
3
4
4
1
1
2
2
3
3
2
2
1
1
4
4
3
3
Natural gas
2
2
1
1
Oil
4
4
3
3
4
4
1InitialScenario
1InitialScenario
2015
2020
2BaselineScenario
2BaselineScenario
2010
$2010
$2010 bln
bln
Natural
Natural gas
gas
3BaselineScenariowithnoexportduty
2030
2035
2040
4'ShaleBreakthrough'withnoexportduty
2025
Source: ERI RAS
Figure 4.5. Energy Export Volumes (Top) and Decrease of Its Contribution to Russias GDP (bottom) in the
Different Scenarios of Outlook-2013
mtce
1 000
800
2015
2020
2025
2030
2035
2040
500
left axis
400
600
300
400
200
200
100
0
-200
-400
-600
-800
0
1
-100
1
Oil, oil products
1InitialScenario
2BaselineScenario
Natural gas
-200
-300
right axis
$2010 bln
-200
-200
-300
-300
right axis
500 right axis
Oil,
Oil, oil
oil products
products
500
500
-400
Source: ERI RAS
ERI RAS ACRF
-400
-400
92
Figure 4.6. Investments in the Russian Fuel and Energy Complex

$2010 bln
800
1
700
1
600
500
Energy savings
Heat supply
Other renewables
Hydro
400
Nuclear
300
Thermal power plants
and networks
Outlook-2013 has revealed
200 risks for the Russian
serious
economy
and
energy
2 - Baseline
B
li Scenario
S
i
100
sector resulting from the
0
transformation
of global energy
2006-20102011-2015
2021-2025
2026-2030
2031-2035
2036-2040
markets: declining oil and gas 2016-2020
Source: ERI RAS
exports and export revenues,
relative to planned performance
The
Forecast Scenario of Russias Economy and Energy Sector Development
indicators; slowing GDP growth;
deterioration of all the main
Outlook-2013 has revealed serious potential threats to the Russian economy
parameters of the Russian energy and its energy sector, resulting from the profound transformation of global
sector.
energy markets that is expected. The Baseline Scenario obtained by modelling
falls short of the official Initial Scenario, in terms of all the major indicators:
In the Baseline Scenario, over the next 1015 years, Russian exports of oil
and gas will fall by 20 per cent or even more, and will then stabilize (Figure
4.3, bars labelled 2), although Russia will remain the worlds largest
supplier of fuel to world markets.
The decrease in revenues from gas exports and even more, those
from oil exports will reduce the contribution of hydrocarbon exports
to GDP by a third. Strong multiplier effects peculiar to these industries,
and a decrease in the flow of foreign capital, will significantly enhance the
impact of this decrease in export earnings, and reduce the development
of the economy by one per cent per year (Figure 4.1 and Table 4.1.). In this
case the dynamics of Russias GDP, instead of being slightly higher than the
global average for GDP growth (as described in the Initial Scenario) will lag
behind it, and Russias GDP will not rise above its current sixth place in the
world. This of course will, to some extent, weaken the geopolitical position
of the country.
The slowdown in GDP growth will lead to a deterioration of the main
parameters of the Russian energy sector the volume of investments
(including investments in energy saving), energy consumption, and energy
production. With a moderate reduction in domestic demand (Figure 4.2,
bars labelled 2), total energy production (Figure 4.4, bars labelled 2) will
decrease by more than the countrys exports, although Russia will retain its
current position as the third largest producer in the world.
There are two main options for

improving
theRole
competitiveness
Table
4.1.
of the fuel and energy complex in Russias economy, %
of Russian hydrocarbon exports
in global markets: reduction of
2015
2020
2025
2010
state seizures and a reduction of
1
2
1
2
1
2
companies costs throughout the
GDPofgrowth
4,3
4,5
4 4,3 3,3 4,2 3,2
chain
supply. rates
ERI RAS ACRF
2030
2035
2040
3,8
2,8
3,7
2,7
3,5
2,5
93
2010
The share of the energy sector
in the GDP
Investments in the energy
sector as a share of GDP
The share of the energy sector
investments in the total
investments
28,5
4,6
2015
1
2020
1
2025
1
2030
1
2035
1
2040
25,6 25,5 22,9 23,1 20,0 20,4 18,4 18,8 17,0 17,3 15,6 15,9
5,2
6,4
4,3
3,9
3,9
3,8
3,5
3,5
3,2
3,2
2,8
2,8
22,6
23,8 23,5 17,4 15,1 15,0 12,3 13,4 13,4 12,5 12,5 11,2 11,2
*In the 5-year average

1 - Initial Scenario 2 - Baseline Scenario
Source: ERI RAS
The main goal should be a

radical reduction in the cost
of investment projects it is
advisable to rank investment
projects, declining or postponing
the implementation of inefficient
plans.
At first sight, in order to counteract these threats, it would appear useful to

reduce or even eliminate the duties on exports of hydrocarbons, especially
since other major market players do not use them and they are not approved
by the WTO. Waiver of duties, of course, would increase the international
competitiveness of Russian hydrocarbons and increase the volume of exports,
but it has two negative aspects. First, as mentioned above, the contribution
of exports to GDP will be reduced because the rate of export growth
would be less than the loss incurred due to the decrease of duties imposed
on the entire export volume. Second, it would lead to an increase in domestic
prices for gas and oil products, which would curb economic development and
reduce the added value of most types of economic activities, which in turn
would further slow down the countrys economy.
A truly effective means of countering external challenges would be a dramatic
increase in both the investment efficiency of the Russian energy sector and
in the energy efficiency of the economy as a whole. Russia has a number
of unique potentialities in respect of both these courses of action. Indeed,
the Russian energy sector has already undertaken huge capital investments
and it will grow, in accordance with approved plans for the development of
energy industries, to reach an unprecedented 67 per cent of GDP (Table 4.1)
(the global average is about 1.31.5 per cent of GDP).
However, Russias national economy has one of the worlds lowest indicators
of GDP production per unit of consumed energy (three times less than the
global average), and by 2040, according to this Outlook, this gap will hardly
have been reduced.
The elimination of such wastage would require two concerted groups of
measures innovative-technological and economic-organizational. The first
one is strategic and requires long-term, continuous application. The second
group of measures could produce quite rapid and efficient results which
are required for the expected global turbulence.
The first goal of the Russian energy industrys economic and organizational
measures should be a radical reduction in the cost of investment projects,
together with a thorough evaluation of their cost-effectiveness and potential
risks. It is advisable to rank investment projects including those aimed at
the diversification of routes, products, and markets and reject or postpone
the implementation of inefficient ones. This is confirmed by the results
of work done by foreign and Russian experts, who analysed the cost of
domestic energy projects, showing that they were typically several times
ERI RAS ACRF
94
more expensive compared to existing analogous projects found elsewhere4,

while those projects that were completed were underutilized for years5.
The second necessary, but not sufficient, prerequisite for improving the
efficiency and reducing the risks of investment projects is extensive study of
the prospects for foreign and domestic energy markets. The new publication
of this research demonstrates possible approaches, enhanced instruments,
and new results, but it is still insufficient to fully assess the economic and,
especially, commercial viability of certain projects. Russia certainly needs
a mechanism for continuous monitoring and alignment of export policies
(followed by precise tactical actions), and the creation of a Russian system
4
For instance, the costs of Russian gas investment projects used in our estimates (taken from corporate publications), exceed twofold their
international assessment simulated by the NEXANT gas model.
For instance, the Blue Stream gas pipeline, intended for the supply of natural gas across the Black Sea to Turkey, has operated at less
than 50 per cent of its throughput capacity for 10 years.
ERI RAS ACRF
95
Appendixes
ERI RAS ACRF
96
for forecasting the prospects of energy market developments, armed with

the ability to analyse their sensitivity to a variety of factors, including the
behaviour of the main market players, would be a great step forward.
Nevertheless, the main condition for increasing the competitiveness of the
Russian fuel and energy complex is a radical improvement in the quality
of public, and especially corporate, governance. The latter can play an
important role in attracting foreign partners into the consortia engaged
in resource development (this refers especially to the eastern part of the
country, the coastal shelf, and deposits of unconventional hydrocarbons). If
properly managed, it would enable the country to:
attract foreign investment and apply advanced technology;
develop types of business activities with potential, under new conditions;
ensure tight control over costs and other business results;
obtain additional assurances for product sales; and
facilitate access to logistics and adapt to the rules of international markets.
Preliminary estimates show that if such measures are taken in a timely manner,
it will be possible to compensate for the negative effects of the forthcoming
transformations of global energy markets, and return the Russian economy
and energy sector to the ambitious indicators of the Initial Scenario.
APPENDIXES
Appendix 1. Methodology
Calculation is conducted for

each country (node). The
resource modules are more
detailed.
ERI RAS ACRF
The world energy model incorporated in the SCANER modelling and

information complex consists of a group of interconnected modules that
enable the performance of a consistent computation of indicators on the
basis of optimization, econometric analysis, and balance approach.
The calculation base is very detailed: it contains 12 CIS countries, 37 European
countries in total 192 nodes. The world forecast is linked with a detailed
prognosis for the Russian fuel and energy complex, which makes it possible
to assess the risks and prospects for the functioning of the Russian energy
sector in the global context.
The basis of the retrospective information on the majority of energy indicators
is International Energy Agency (IEA) data.
The demand for primary energy, electricity, and liquid fuels (oil products, etc.)
is calculated based on the forecasted indicators of economic development
(GDP) and demography (Figure P1). The resulting demand for electrical power
is transferred to the electric power generation module, where it is combined
with appropriate fuel types, and with a factor relating to energy efficiency.
The results are directed then to the balance module, whose task is to find a
rational option for supplying existing energy demand.
Energy policy has a significant impact on the future development of renewable
energy (for generation) and the use of nuclear energy. Therefore, these
indicators are calculated in separate modules. These include the structure
of existing, under construction, and planned capacities, and assumptions for
economic efficiency and energy policies of individual countries.
The main objective of all the resource modules is to find solutions to the
optimization objective of minimizing the total costs of meeting energy
demand, taking into account the economic feasibility of fuel substitutions.
The volumes and economic parameters of the potential substitution of
liquid and gaseous fuels are set out in threshold volumes for each node. The
competitive potential of natural gas is estimated in relation to coal, nuclear
Nuclear Power Module

Econometric calculation of
nuclear power production /
consumption, with a
measure for the efficiency
of nuclear units
Analysis of nuclear
power plants
(operating, under
construction,
planned) by block,
energypolicy
analysis
GDP and energy

consumption
retrospective
Volumes of nuclear and RES in

electricity generation
Forecast for the demand for petroleum products,

gaseous, and solid fuels
Adjusted demand
Balance Module
Formation of the balance for meeting energy demand
Analysis of consumption trends and competition between gas and coal
Calculation of CO2 emissions
Indicators used for Russia are verified with the results of Russian models
Volumes of fuel use in

electricity generation
Forecast for
consumption
of RES
Electric Power Generation Module

Econometric analysis and estimate for meeting the demand for electricity by fuel
type, based on the efficiency of energy resource use in electricity generation
Forecast for electricity demand
Population forecast
Production volumes, the final demand forecast; prices, trade in oil and oil products, natural gas and coal, demand
in production capacities, transportation, processing (refinery), the structure of electric power generation
Analysis of existing,
under construction
and planned RES
capacities,
economic indicators,
energy policies
Renewable Energy Module

Econometric estimation of
production / consumption of
renewable energy sources
Demographic
retrospective
Resource modules: oil (liquid fuels), gas (gaseous fuels), coal (solid fuels)
Solution of optimization objectives, to minimize the total costs of meeting demand, taking into account the economic feasibility
of fuel substitution
The gas model also takes into account the structure of, and the change in, pricing mechanisms
The oil model is based on the optimization of the entire supply chain of both the crude oil market and the liquid fuels market (oil
products, biofuels, GTL, CNG, CTL)
Forecast for
nuclear power
consumption
Forecast for
the
consumption
of primary
energy and
liquid fuels
Population-GDP-Energy consumption-Electricity consumption-Liquid Fuel Consumption Model

Econometric analysis of the dependencies between the population and GDP, the GDP forecast;
Econometric analysis of the dependencies between the population, GDP, and energy consumption, the
energy consumption forecast;
Econometric analysis of the dependencies between the population, GDP, and electricity consumption, the
consumption of liquid fuels (oil products, etc.);
Analysis of changes in the structure of the demand for liquid fuels, changes by consumption sector
Figure P1 Modelling Methodology
97
ERI RAS ACRF
98
energy, and renewable energy in electricity production; the competitiveness

of oil fuels is compared with biofuels, natural gas, and coal (GTL, CNG, CTL),
and with electricity (transition to electric vehicles).
The model of the liquid fuels market, based on the results of the optimization,
determines: demand for oil and other alternative fuels by node; the volume of
capacities involved in production, transportation, and processing; and the total
specific costs required for meeting the demand (balance prices). Oil production
is displayed in accordance with the type of oil (conventional, shale, etc.); oil
products are divided into six types. The model contains more than 2000 routes
of pipeline, rail, and sea transportation, as well as data on 872 refineries.
The gas model encompasses the market for all gas fuels. The model, based
on the results of optimization, determines: how much gas and other fuels, in
accordance with the nodes, will be in demand; gas production volumes; the
rate of utilization of transport capacities and prices (spot, and associated with
long-term oil-linked contracts). The model contains 393 gas transportation
corridors connecting the nodes in all regions of the world, and 1916 routes
of LNG delivered by tankers.
The coal model covers the entire market of solid fuels. The model determines
the required amounts of fuel production in accordance with the nodes, their
prices, and supply routes.
For large countries, the resource modules integrate several nodes.
After determining the consumption amounts for each type of fuel, CO2
emissions are estimated.
Appendix 2. Regional Balances
Figure P2. Structure and dynamics of primary energy consumption in the world
2,3%
5,6%
18000
14000
27,6%
12000
21,4%
10000
9,9%
8000
3,9%
6000
2,9%
6,6%
2000
32,2%
2010 .
16000
4000
10,0%
0,9%
mtoe
20000
...
25,6%
2000
Oil
ERI RAS ACRF
2005
Natural gas
2010
2015
Coal
2020
2025
Nuclear
2030
2035
Hydro
2040
Other renewables
26,6%
2040 .
24,6%
Bioenergy
40
56
88
26
75
02
33
08
39
040
8,95
476
781
503
225
408
226
1,15
99
Figure P3. Structure and dynamics of primary energy consumption in OECD countries
4,7%
2,1%
mtoe
7000
10,7%
38,3%
6000
2010 .
19,5%
5000
4000
23,6%
3000
2,6%
2000
8,9%
30,2%
10,3%
1000
2040 .
14,3%
0
2000
Oil
,
5,3%
2005
2010
Natural gas
2015
Coal
2020
2025
Nuclear
2030
2035
Hydro
28,4%
2040
Other renewables
Bioenergy
Figure P4. Structure and dynamics of primary energy consumption in non-OECD countries
mtoe
14000
14,1%
2,5%
1,7%
12000
2010 .
10000
33,8%
19,7%
8000
6000
3,2% 10,3%
3,0%
4000
24,9%
4,8%
2040 .
2000
0
31,0%
2000
Oil
27,4%
2005
Natural gas
2010
2015
Coal
2020
2025
Nuclear
2030
2035
Hydro
22,7%
2040
Other renewables
Bioenergy
ERI RAS ACRF
100
Figure P5. Structure and dynamics of primary energy consumption in North America
4,1%
2,1%
mtoe
3500
9,0%
38,6%
3000
19,8%
2010 .
2500
2000
25,5%
1500
4,5% 8,7%
2,5%
1000
8 8%
8,8%
500
31,8%
2040 .
14,5%
0
2000
Oil
2005
Natural gas
2010
2015
Coal
2020
2025
Nuclear
2030
2035
Hydro
2040
Other renewables
29,2%
Bioenergy
Figure P6. Structure and dynamics of primary energy consumption in South and Central America
ERI RAS ACRF
0
3
9
9
4
6
5
5
7
2040
3,865
9 213
9,213
,9529
,2316
81722
,5738
,7647
8,418
,
101
mtoe
1200
18,9%
9,4%
1000
45,9%
2010 .
4 0%
4,0%
800
20,4%
600
18,7%
400
,
2,4%
200
35,9%
2040 .
10,5%
0
2000
Oil
2005
2010
Natural gas
2015
Coal
2020
2025
Nuclear
2030
2035
Hydro
2040
2,2%
4,5%
25,7%
Other renewables
Bioenergy
Figure P7. Structure and dynamics of primary energy consumption in Europe

mtoe
2500
2,7%
7,0%
12,2%
36,3%
2010 .
2000
16,3%
1500
24,1%
1000
5,8%
3,2%
500
11,5%
0
2000
Oil
11,9%
2005
Natural gas
2010
2015
Coal
2020
2025
Nuclear
2030
2035
Hydro
2040
27 4%
27,4%
2040 .
11,4%
Other renewables
28,7%
Bioenergy
Figure P8. Structure and dynamics of primary energy consumption in the CIS
ERI RAS ACRF
102
2,0%
mtoe
1600
6,6%
1,0%
,
19,4%
18,2%
1400
2010 .
1200
1000
800
52,7%
2,7%
2,2%
600
19,4%
11,6%
00
400
11,1%
200
2040 .
0
2000
Oil
2005
2010
N t l gas
Natural
2015
C l
Coal
2020
2025
N l
Nuclear
2030
2035
H d
Hydro
51,8%
2040
Oth renewables
Other
bl
Bi
Bioenergy
Figure P9. Structure and dynamics of primary energy consumption in OECD Asia
,
1,2% 1,9%
mtoe
1000
12,4%
900
800
26,3%
700
600
2010 .
40,6%
16,9%
3,4%
500
1,4% 6,5%
400
300
14,1%
200
29 7%
29,7%
2040 .
100
0
20,8%
2000
Oil
ERI RAS ACRF
2005
N t l gas
Natural
2010
2015
C l
Coal
2020
2025
N l
Nuclear
2030
2035
H d
Hydro
2040
Oth renewables
Other
bl
24,1%
Bi
Bioenergy
103
Figure P10. Structure and dynamics of primary energy consumption in non-OECD Asia
mtoe
8000
13,5%
2,1%
7000
2010 .
6000
5000
7,9%
50,9%
4000
3000
4,3%
2,7%
000
2000
4,9%
8,2%
22,3%
2040 .
1000
0
2000
Oil
23,8%
2005
N t l gas
Natural
2010
2015
C l
Coal
2020
2025
N l
Nuclear
2030
2035
H d
Hydro
2040
14,6%
43,1%
Oth renewables
Other
bl
Bi
Bioenergy
Figure P11. Structure and dynamics of primary energy consumption in the Middle East
ERI RAS ACRF
104
mtoe
1200
1000
2010 .
47,6%
50,4%
800
600
2,3% 1,3%
400
200
52,7%
0
2000
Oil
2005
2010
Natural gas
2015
Coal
2020
2025
2030
Nuclear
2035
Hydro
42,9%
2040 .
2040
Other renewables
Bioenergy
Figure P12. Structure and dynamics of primary energy consumption in Africa

mtoe
1400
22,5%
,
1200
47,4%
2010 .
12,5%
1000
15,7%
800
600
23,4%
400
34,2%
2040 .
200
0
2000
Oil
2005
Natural gas
2010
2015
Coal
2020
2025
2030
Nuclear
2035
Hydro
2040
2,4%
2,0%
Other renewables
12,9%
24,1%
Bioenergy
Appendix 3. Comparison with Other Forecasts

Figure P13. Comparison with other forecasts for primary energy consumption by region in 2030,
2035, and 2040
ERI RAS ACRF
105
mtoe
20 000
18 000
18 000
16 000
16 000
14 000
14 000
12 000
12 000
10 000
10 000
8 000
8 000
South and
Central America
South and Central
America
6 000
6 000
Asia
Developing Developing
Asia
4 000
4 000
2 000
2 000
Developed Asia
Developed Asia
2010
Africa
Africa
2010
2030
2030
2035
2035
2040
ExxonMobil 2013
ERIRAS-ACP 2013
EIA DOE 2011

ExxonMobil 2013
IEA 2012 CP
ERIRAS-ACP 2013
IEA 2012 NP
EIA DOE 2011
ERIRAS-ACP 2013
IEA 2012 CP
EIA DOE 2011

IEA 2012 NP
2013
ERIRAS-ACP 2013
IEA 2012 CP
EIA DOE 2011
IEA 2012 NP
2013
ERIRAS-ACP 2013
IEA 2012 CP
Middle EastMiddle East
IEA 2012 NP
ERIRAS-ACP 2013
mtoe
20 000
CIS
CIS
Europe
Europe
North America
North America
2040
Source: ERI RAS
Figure P14. Comparison with other forecasts for energy consumption by fuel type in 2030, 2035,
and 2040
mtoe
20 000
18 000
16 000
Renewables
14 000
12 000
Nuclear
10 000
Coal
8 000
6 000
Natural gas
4 000
Oil
2 000
2010
2030
2035
ExxonMobil 2013
ERIRAS-ACP 2013
EIA DOE 2011
IEA 2012 CP
IEA 2012 NP
ERIRAS-ACP 2013
EIA DOE 2011
2013
IEA 2012 CP
IEA 2012 NP
ERIRAS-ACP 2013
2040
ERI RAS ACRF
106
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ERI RAS ACRF
107
Energy Research Institute of the Russian Academy of Sciences (ERI RAS) is

Russias leading independent research centre in the field of integrated energy
research.
The institute was established in 1985 for the provision of fundamental
research within the framework of the development and implementation
of the countrys energy policy. The Institute combines the advantages of
academic science in-depth study of tasks and rigorous methodological
apparatus with a dynamic and customer-oriented approach.
During more than 25 years of operation, the Institute has obtained extensive
practical experience, developed powerful mathematical tools, and has
accumulated unique databases on world energy, the energy industries of the
world, CIS countries, Russia, and its regions.
The main scientific objective of the Institute is the development of the theory
and methodology of systems research and energy development forecasting.
The main objectives of applied research are: the fuel and energy industries
of the world, countries and regions; Russias Unified Gas Supply System and
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scientific and technical progress of its energy sector; and the energy industry
in CIS countries.
Analytical Centre of the Government of the Russian Federation (ACRF)

is a multifunctional expert and analytical agency working in the field of
operational analytics and advanced research, organizing training using
management by objectives (MBO).
The Centre was established in accordance with a Resolution of the
Government of the Russian Federation as of 20 December 2005. The purpose
of its activity is to provide reliable and timely information that provides
anticipatory warnings to the Government of the Russian Federation relating
to material circumstances that help or hinder the achievement of final results
identified as being the primary focus of government programs under
development or implementation, and projects for the countrys social and
economic development.
The task of the Analytical Centre is the improvement of data quality used for
analysis and forecasting of socioeconomic phenomena and processes, the
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and deepening of cooperation with think tanks, expert groups, and individuals
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given to cooperation with Russian regions, international organizations, and
research centres, with the goal of achieving best practice in operational and
strategic monitoring of socioeconomic development.
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ISBN 978-5-91438-013-4

Global and Russian Energy Outlook Up To 2040

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The Energy Research Institute of the Russian Academy of Sciences

AnalyticaI Center for the Govemment of the Russian Federation

GLOBAL AND RUSSIAN ENERGY

THE OUTLOOK WAS PREPARED BY:

CORPOR ATE AUTHORS:

The Role of Technologies in the Development of the Energy Sector . . . 63

4. The Impact of Global Energy Markets on Russias Economy

GLOBAL AND RUSSIAN ENERGY OUTLOOK UP TO 2040

ERI RAS ACRF

GLOBAL AND RUSSIAN ENERGY OUTLOOK UP TO 2040

ERI RAS ACRF

GLOBAL AND RUSSIAN ENERGY OUTLOOK UP TO 2040

ERI RAS ACRF

GLOBAL AND RUSSIAN ENERGY OUTLOOK UP TO 2040

Russia is a leading force in world energy and a major participant in

ERI RAS ACRF

GLOBAL AND RUSSIAN ENERGY OUTLOOK UP TO 2040

transportation and power sectors are described with reference to 86

ERI RAS ACRF

GLOBAL AND RUSSIAN ENERGY OUTLOOK UP TO 2040

there will be no excessively high, or excessively low, deviations in

ERI RAS ACRF

GLOBAL AND RUSSIAN ENERGY OUTLOOK UP TO 2040

ERI RAS ACRF

GLOBAL AND RUSSIAN ENERGY OUTLOOK UP TO 2040

1. BA SELINE SCENARIO ENERGY CONSUMPTION

Transition to the next stage

Figure 1.1. Stages of world energy development

Shares of fuels in primary energy production

Growth of 1.6 times

Growth of 4.8 times

ERI RAS ACRF

GLOBAL AND RUSSIAN ENERGY OUTLOOK UP TO 2040

Our approach combines the

Our approach combines demographic and economic projections of energy

The Methodology of Forecasting Energy Demand

GDP per capita

Source: ERI RAS

World Population Prospects, the 2010 Revision, UN Population Division.

ERI RAS ACRF

GLOBAL AND RUSSIAN ENERGY OUTLOOK UP TO 2040

By 2040, the demographic

Figure 1.3. The worlds demographic transition

ERI RAS ACRF

GLOBAL AND RUSSIAN ENERGY OUTLOOK UP TO 2040

By 2040, 73 per cent of the

Figure 1.4. Population by region, billions

Figure 1.5. Population growth, GDP, and energy consumption by region

South and Central America

Source: ERI RAS

ERI RAS ACRF

GLOBAL AND RUSSIAN ENERGY OUTLOOK UP TO 2040

Impact of Demographic Factors on GDP and Energy Consumption

non-OECD, excl. China

OECD, excl. USA

Source: World Bank

OECD, excl. USA

Source: UN, ERI RAS

ERI RAS ACRF

GLOBAL AND RUSSIAN ENERGY OUTLOOK UP TO 2040

Forecasts of economic growth in developed countries are mainly based on

The future of the Chinese

ERI RAS ACRF