Gennady Shmal: Key "Western" problem of our energy sector is lack of cheap long money

Gennady Shmal: Key "Western" problem of our energy sector is lack of cheap long money

Discriminatory policy of the US and its allies, "green energy", excessive financial burden on fuel and energy sector and decline in quality of new fields are key threats to the Russian energy security, highlighted by the Energy Ministry experts in the new Energy Security Doctrine. President of the Union of Oil and Gas Producers Gennady Shmal discussed magnitude of risks created by these threats to the Russian oil and gas industry in an interview with Vestnik Kavkaza.

- How serious is the threat from the West today?

- Basically, our energy industry in general and oil and gas complex in particular don't really depend on foreign companies, despite sanctions that will last 4 years in March. Our oil and gas complex works steadily, even with certain growth in production. Of course, we remain at the same level as in 2016 because of last year's OPEC+ agreement, but in all previous years we had increase in oil production, as well as in gas production. By the way, recently we can see that nature is obviously on our side: both last year's and this year's winter in Europe is quite tough, demand for gas is high there, and that's why Europeans realized that they can't live without the Russian gas. That's why last year we had record for gas export to Europe - 193 billion cubic meters, and this year the winter period set a new record. All those politicians who constantly oppose Russia and the Russian gas, as soon as they felt the cold, immediately lifted restrictions on the OPAL gas pipeline - if previously Gazprom was allowed to load only 50% of the pipe, now it's allowed to load 90%. Cold made these people make not only political, but also social and economic decisions. I belive that situation will remain approximately the same, Europe will still need our gas.

- What inconvenience does the Russian energy industry feel today due to limited contacts with the West?

- First of all, lack of access to technologies related to extraction of hard-to-recover reserves on the shelf. Right now our production on the shelf is quite low, and there's still no urgent need for it, but nevertheless, it's necessary to engage explore more fields, and sanctions prevent us from doing so. But the key problem is lack of access to relatively cheap and long money of European banks. Current situation doesn't worry us, it doesn't affect us yet, but we can't see sources of long money in the long term. Even during our best years, when oil and gas dollars basically fell from the sky, unfortunately, we couldn't create normally functioning, good banking system. Now Russian banks offer loans to our organizations for 2-3 years at 15% interest, but it's very expensive.

Industry needs cheap, long money, and their absence due to the Western sanctions means that right now we don't drill oil and gas fields that will be profitable in a few years. You can't sit idly by, you have to look for ways out of this situation and find investments. We're doing it, and many foreign companies understand our interest and are looking for ways to pass sanctions by. Everyone's working on it, and I believe that it's not even an issue. Current problem is that finances are not efficiently managed in the country: financing of many facilities is delayed or goes wrong, and many issues are resolved very slowly and badly - when something can be resolved in a month, Russia resolves it for years. The State Duma adopts absolutely unreasonable laws, and this often hinders our work more than any foreign opponents.

- How can "green energy" harm the Russian energy security?

- I can see only one threat - sudden interest in new, expensive and untested "green" technologies, and abandonment of traditional ones. So far these exotic types of energy are very expensive, and only rich countries like Germany and the US can afford to spend 1.5-2 times more on them than on energy from coal and gas. I belive that gas, oil and coal will be the main sources of energy until the end of the 21th century, and "green energy" will reach a share of 12-15%. Hydropower and nuclear energy, of course, will still develop, but oil and gas will remain in demand, and demand for them will continue to grow.

When we talk about where should we invest money, we recognize that it's necessary to work on "green energy", it has some prospects, but doing it at the expense of traditional sources of energy is wrong. We recently discussed issues related to thermal energy in the Chamber of Commerce and Industry, and came to the conclusion that if we can't solve issues related to reconstruction of our heating networks, then Russia's thermal power engineering can face certain problems. Fans of exotic things can work on wind and sun energy, but right now it's necessary to work on more important problems on the all-Russian scale.


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