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Meeting of the Commission for Strategic Development of the Fuel and Energy Sector and Environmental Security

June 4, 2014, Astrakhan

Vladimir Putin chaired a meeting of the Commission for Strategic Development of the Fuel and Energy Sector and Environmental Security.

Items on the agenda included the next steps for developing the fuel and energy sector, the outlook for implementing various energy sector investment projects in Eastern Siberia and the Far East, and price formation on the domestic gas market.

Participants in the meeting included representatives of the Presidential Executive Office, Cabinet members in charge of economic development, heads of federal services and agencies, regional governors, and representatives of Russian energy production and supply companies.

As part of his working trip, Vladimir Putin also visited the Astrakhan State Opera and Ballet Theatre. The President attended a rehearsal, spoke with performers and musicians, and toured the theatre premises.

* * *

Opening remarks at a meeting of the Commission for Strategic Development of the Fuel and Energy Sector and Environmental Security

President of Russia Vladimir Putin: Good afternoon, colleagues.

We are holding this latest meeting of the Energy Sector Commission to examine ways of boosting our energy sector’s potential in line with developments in our own economy and in the global economy.

Russian companies have been increasing production over the past years, developing new fields and improving the oil and gas transport infrastructure. The crisis signs on global markets and the volatility that goes with them mean that our task is to put in place the conditions that will guarantee Russia’s economic growth, including by using the energy sector’s potential. Above all, as we have discussed on many occasions already, we need to focus more on Eastern Siberia and the Far East and also ensure that our companies have access to the Asia-Pacific Region’s growing markets. 

The opportunities promised by our energy sector projects are a key condition for resolving this task. As a sector that has solvent demand, the energy sector must serve as the base for creating a multiplying effect by acting as the anchor customer for equipment, services, technology, and localising production. Import replacement is not a cure-all, but at the same time, we all know that it can and must help us to guarantee reliable implementation of many of our projects.

Of course, we have no plans to abandon imports and give up our work with our reliable partners and our cooperation with the rest of the world. Companies must guarantee that contracts will be reliably executed over the long term.

There is no question that increased localisation of production and increased participation by Russian companies in equipment production and service provision are things we should and will support. We must be more active in ensuring conditions for production of the best types of world-class technology and equipment here on Russian soil. This includes using tax incentives and other support measures. 

In short, I ask the Government to draft a programme of concrete measures for localising production, based on energy sector companies’ investment programmes. We need to expand the oil and gas production resource base in Siberia and the Far East. Development of new fields will play a very important part in satisfying demand on our domestic market and increasing export supplies to the growing markets in the Asia-Pacific Region.

Moving on, we long since began work to diversify our energy supply routes and have achieved some good results here. The agreements signed during the recent Russian-Chinese talks were clear evidence of this. Our priority task is thus to ensure that we have the necessary infrastructure for the energy sector’s strategic development in the east, which will bring Russian exports to the Asia-Pacific Region.

Of course this will require some reflection. We need to think about it. Is Gazprom here? Yes. I think that Gazprom will not have any objections to this. The Government and the Finance Ministry should look into the possibility of topping up Gazprom’s capitalisation to the cost of the new infrastructure’s construction. There are various possibilities here, including through raising investment, some of which could come from our partners in these projects. We have agreed on receiving a prepayment, an advance. 

But we could take the option of topping up capitalisation, all the more so as in today’s world, endlessly building up gold and currency reserves carries its own risk. It is something worth thinking about in any case, given that the contracts we are talking about here are long-term and will definitely pay for themselves. This is a solid fact and this kind of practice would enable us to cement our position as a reliable and promising energy supplier on the biggest and fastest-growing world markets.

The second item on the agenda is the principles for price formation on our domestic gas market. This is an important issue. We have discussed it on numerous occasions in the past. Representatives of other sectors in any case are saying that the price formation methods for primary energy resources in some countries put their economies in a much more advantageous position than our economy’s real sector. This is something we cannot ignore of course. It is a very important issue and it is not by chance that we agreed to work on this matter at the Commission’s first meeting.

For my part, I want to note that the gas sector is certainly one of the foundations for the entire system because gas is the energy source used in many economic sectors. The gas price influences the overall state of the economy and affects the final cost of all goods and services, and so it plays a major factor in the country’s socioeconomic development.

Russia is one of the world’s biggest gas producers. Our gas market has been growing fast over recent years, the gas transport system is expanding, and new processing facilities are starting operation, including for processing accompanying gas. Our vast gas reserves are Russia’s major asset and competitive advantage. It is crucial that price formation for gas be transparent, economically justified, exclude unnecessary middlemen, and ensure guaranteed supplies for all consumers, including households. 

At the same time, the gas price should encourage the needed modernisation and development in the gas sector itself and its production facilities, as well as the gas transport system. A competitive environment is largely already in place now in the production sector, and independent producers are working actively. Of course, we need to bring down the cost of gas transport and storage.

Of course, we must look at how all this functions under the conditions of a gas transport monopoly. I think we must agree that this is not an ordinary business, to put it lightly – if it is a business, then it is not a classical one, and this also needs to be examined carefully.

As for the ultimate price formation for consumers, whose share is quite significant – naturally, our domesticconsumers should not have to subsidise the transport of gas for export. We should look into this and consider it carefully. We must work to ensure we have a single gas transport rate in the domestic market for all users of the commongas supply system, including the owners’ group, i.e., Gazprom itself. If we assumewe should have a market price, then the main producer should not take advantage of its monopoly status in the transport market and should not abuse the fact that it also owns the gas pipeline system.

It is no less important to provide guaranteed access to the main gas pipelines through long-term contracts for all producers. We have already discussed this many, many times: although Gazprom sets such requirements for its foreign partners, it does not always act based on these principles with its partners within Russia.

We will need to continue our work to develop gas trade on the stock exchange. At the same time, gas futures purchased in the stock market should have guaranteed transport to the consumer under priority conditions. In this regard, it is imperative to develop a concept for developing a domestic gas market that will reflect all aspects and factors affecting pricing, both short-term and long-term, including taking into account processes of deepened integration and agreements with our partners in the Eurasian Economic Union.

I am confident that a competent, long-term gas policy will allow us to create new instruments for broadening the use of gas in the internal market and connecting more areas in the regions to the gas supply network, which will fundamentally change Russians’ living standards.

We should carefully monitor what is happening in the field of technological security. We need to give this the necessary attention and, certainly, ensure technological security for the gas transport infrastructure. The new document must take into account today’s realities as well – first and foremost, relating to the development of a gas pipeline system in Eastern Siberia and the Far East.

I have already said that this gas pipeline system is certain to expand following the signing of a long-term gas contract with China. Naturally, this will require serious investments. But the result will be worth it, and all of us realise that. New capacities will not only noticeably strengthen our positions in Asia Pacific Region markets. It is vitally important that they must help us supply gas to regions in Eastern Siberia and the Far East and provide powerful momentum for developing these territories.

The third issue on our agenda is closely related to resolving this challenge – namely, implementing the first major investment projects in Eastern Siberia and the Far Eastern Federal District. Today, we will look at Rosneft’s pilot projects in this region. Rosneft has long been working in eastern Russia. In 2013, its investment volume in energy projects was approximately 160 billion rubles [over $4.5 billion]. Investment volume for the company’s projects will total 1.5 trillion rubles by 2020.

In August of last year, at a meeting on Primorye Territory’s development, we discussed the project to create the Eastern Petrochemical Company, whose goal is to produce petroleum derivatives and petrochemicals for the Far East and Asia Pacific Region. Building such a large-scale company will create new jobs and have a positive effect on the region’s entire socioeconomic situation.

Another important project is the shipbuilding cluster on the basis of the Zvezda plant. It is currently being implemented with participation by a consortium of companies, including the United Shipbuilding Corporation (USC). The scale of our offshore projects will grow from year to year, and clearly, they will require a large number of marine vessels and specialised equipment. This is a good opportunity for the Russian shipbuilding industry to gain serial orders and enrich its experience working in the high-tech segment. We certainly cannot let this opportunity pass us by. We need the Far Eastern Shipbuilding Centre to become a general customer for all marine equipment for offshore projects with the goal of gradually increasing its share in ship construction and localisation to 70%.

I want to point out that the Far East Shipbuilding Centre is a company that includes participation by USC, as I already said, and many other major Russian businesses, including financial companies. We must do everything to ensure that it develops actively. We have always had great shipbuilding capacities in the Far East, and we need all this to become a global company; only then can we develop the Far Eastern Shipbuilding Centre and the USC overall.

I think these and other projects being implemented by Rosneft in the Far East must be included in corresponding federal targeted programmes. This is also true for the Fear East projects being implemented by other Russian companies, such as RusHydro, Gazprom, Transneft, Novatek, and so on, which we will look into at subsequent meetings of this Commission.

Today, we will also hold several videoconference sessions and speak with our colleagues at Rosneft’s Vankor Field, communicate with the Khabarovsk refinery, talk to Novatek’s Purovsky condensate processing plant and Sibur’s Tobolsk-Neftekhim enterprise.


June 4, 2014, Astrakhan