19 march 2011

Prime Minister Vladimir Putin holds a meeting on the comprehensive development of the fuel and energy industry in Eastern Siberia and the Far East

Vladimir Putin

At a meeting on the comprehensive development of the fuel and energy industry in Eastern Siberia and the Far East

“It is specifically the high-tech fuel and energy industry that can become an important area of support for the region's development and its integration into the Russian and global economy space, while helping to eliminate the existing infrastructure constraints to general development.”

Vladimir Putin's opening remarks:

Good evening, colleagues.

Today, here in Sakhalin, I suggest we hold a comprehensive discussion on the development issues in the fuel and energy industry of the Far East and Eastern Siberia. The development of these vast territories is of course an objective of national importance. We are talking about creating new industrial centres, the construction of transport corridors, the improvement of cities and towns and creating comfortable and attractive environments for the people, with more jobs and modern public infrastructure.

We can assert with full confidence that it is specifically the high-tech fuel and energy industry that can become an important area of support for the region's development and its effective integration into the Russian and global economy, while helping to eliminate the existing infrastructure constraints to general development.

Experience in the Sakhalin Region shows the kind of results successful energy projects can yield. This includes surpluses in the regional budget and the attraction of major investment. The main thing is to properly and carefully use the natural competitive advantages of East Siberian and the Far Eastern regions, which are rich in natural resources, have a favourable geographic location and, of course, we must also exploit our major achievements.

In recent years we have actually created a new energy base in East Siberia and the Far East. The first stage of the Eastern Siberia-Pacific Ocean (ESPO) pipeline system is on stream and the Russian-Chinese Skovorodino-Daqing oil pipeline is operational. The second phase of ESPO construction is to be completed by 2014. In total, there will be about 700 billion roubles of investment in ESPO alone. A new oil and gas hub has been established in Sakhalin, and the international Sakhalin-1 and Sakhalin-2 projects are in progress. In 2009, Russia opened its first liquefied natural gas plant, with an annual capacity of 9.6 million tonnes of LNG. Our eastern oil province is developing quickly. In 2010, for the first time Russia reached 505 million tonnes of oil extraction per year. At the same time, I want to point out that the increase in oil production was achieved entirely by bringing major oil fields on-line in Eastern Siberia – including Vankor, Talakan and Verkhnechonsk.

But for us it is important that, aside from crude oil or gas extraction, facilities for deep processing are also created – a modern oil and gas and gas-chemical industry. I therefore ask you to expedite the adoption of all resolutions to initiate the construction of petrochemical companies in the Primorye Territory. And the performance of such companies is well-known – up to 10 million tonnes per year.

In addition, we need to rapidly develop infrastructure for the production and use of natural gas as motor fuel. This is a good market for Gazprom and independent producers. Of course, it is possible and viable to increase the use of natural gas as a motor fuel, using the gas that is produced here. Then the region would be spared from having to rely on supplies of expensive diesel fuel.

Next, we are interested in having Russian companies, while maintaining current markets, enter new export markets, primarily in the Asia-Pacific region. Consequently, due to the launch the first stage of the ESPO oil pipeline in 2010, we were able to increase oil exports to the Asia-Pacific region by 45% almost immediately.

The Kozmino oil port, built from scratch in the Primorye Territory, has a capacity of 15 million tonnes per year. A terminal to ship liquefied natural gas was also built at Sakhalin. The DeKastri port is under development. Our port infrastructure capacities will of course need to be expanded further.

Now for the Eastern Gas Programme. If in 2006, a total of eight billion cubic metres of gas was extracted in the eastern regions of the country, then in 2010, already more than 20 billion cubic metres was extracted, and by 2020, total extraction will be from 70 to 100 billion cubic meters per year.

I want to stress that the priority for gas distribution from Eastern Siberia and the Far East is the domestic market. Gas should become a resource base for the creation of high-tech industries, to upgrade the energy industry and utilities, as well as reduce environmental risks.

In 2010, the transition to natural gas fuel has already begun in the largest cities in Kamchatka – Petropavlovsk-Kamchatsky and Yelizovo. Today we attended the launch of the first generating unit of the South Sakhalin combined heating and power station, which converted from coal to gas. And this is really important for Yuzhno-Sakhalinsk, keeping in mind the environmental impact on the city. In the future, we will continue the gasification of other regions in the Far East.

And of course, along with the region – along with this and others that will be gasified – we need to resolve the problem of bringing gas to the end user, to the public and to industry.

However, we must take into account the experience gained, to effectively respond  to new challenges and the overall dynamics in the industry. Therefore, I instruct the Energy Ministry, Environment Ministry and other concerned departments, Gazprom, and Russia's regions to prepare proposals for revising the Eastern Gas Programme.

I would like you to focus on this. First of all, we need a clear and long-term pricing policy. The price of energy resources, of natural gas must not undermine the competitiveness of the region or generate an additional burden for local budgets, businesses or the public. By the way, we have already decided to lower gas prices for Kamchatka, as well as to allocate subsidies from the federal budget for gas supplies via the Sakhalin-Khabarovsk-Vladivostok gas pipeline, which will reduce the price for the end user.

I'm waiting, colleagues – and you know who I’m talking to – I'm waiting for suggestions to solve a similar problem here, on Sakhalin Island, because the originally proposed price of gas for Sakhalin is unacceptable for the region.

Next, we have a lot of promising fields in Eastern Siberia, the Far East, on the Far East shelf. However, the companies granted licenses for these areas do not always meet their investment commitments – they drag their feet when it comes to prospecting and the start of commercial production. I ask the Environment Ministry, Energy Ministry and Federal Agency for Subsoil Usage (Rosnedra) to see how well licensing agreements are being observed and report the results of this review to the government.

Third, we need to analyse and determine the best options for gas transportation in the eastern regions of the country. For example, gas transportation routes linked with the existing ESPO pipeline could provide significant savings. I want to stress that the less it will cost to build the infrastructure, the more affordable gas and other energy sources will be for consumers.

Fourth, we need to work hard to increase the production of liquefied natural gas and to develop acceptable export terminals, which will allow us to seriously diversify our export market for hydrocarbon resources.  Developing the capacity for the construction of the tanker fleet should be shored for this task.

I ask you to report separately today on how things are going with the new shipyards being built in the Far East. There are two of them, as you know: the Vostok-Raffles (specialisation – offshore oil and gas platforms and large transport ships, in partnership with a Singapore company) and the Zvezda-DSME (specialisation – oil and gas tankers in partnership with Daewoo Shipbuilding).

Along with the development of the oil and gas industry, we must give new impetus to the coal industry, so this year, we should start full-scale development of the Elga deposit in South Yakutia. We will implement a project to create a modern export infrastructure for Sakhalin coal. Incidentally, we discussed this idea in detail at a regional conference held in Khabarovsk last December.

There are enough projects to take advantage of our mine prospects and reserves. We should support them and will certainly do this, especially as demand for coal is high on both the domestic and global market.

In this regard, we must also engage in the development of port facilities, to expand the capability of the transport infrastructure, and first of all, we need to significantly increase the capacity of the Baikal-Amur Mainline. A key project here is of course the Kuznetsovsky Tunnel. Solving all of its problems will remove restrictions on the movement of goods to Vanino and Sovetskaya Gavan. Total investment here will be 59.5 billion roubles.

One of the major hurdles hindering the development of the Far East for many years has been a shortage of generating capacities. In 2009, we launched the Bureiskaya Hydroelectric Power Station. The problem of power shortages in the Amur Region and the adjacent regions is now resolved for the decades ahead. Work is under way on the electrification of the first stage of ESPO and power supply facilities for the APEC summit in Vladivostok.

The next step is the construction of major generating facilities, such as the Sakhalin-2 Power Station, the Ust-Srednekanskaya Hydroelectric Power Station, the Lower Bureya Hydroelectric Power Station, the combined heating and power station in the town of Sovetskaya Gavan and the first stage of Yakutsk State District Power Station. We need to coordinate and synchronise this work. Therefore, I instruct the Energy Ministry, Regional Development Ministry and Economic Development Ministry jointly with Russian Federation entities to prepare and submit a proposal to the government for a comprehensive programme for the development of the power industry of the Far Eastern federal district.

And there's one more topic I want to raise, today especially. Just now my colleagues and I – and some of you were present at the previous meeting – addressed the issue; we talked about the possible implications for the Russian territories from the disaster that occurred in Japan. Thank God, our experts do not foresee any adverse consequences within our borders. And I'm going on the assumption that this is the way it will be. But the consequences for Japan's economy are very serious. People have suffered.

Russian rescue teams are now working in the affected areas. The Emergencies Ministries, the Russian Hydro-meteorology and Environmental Monitoring Agency (Rosgidromet) and other agencies continuously monitor the environment and the radiation levels in the Russian Far East. Monitoring shows that it’s normal, but as I said at the previous meeting, close monitoring cannot be relaxed, and in no event shall we let up.

Regarding the economic component, it is clear that because of the disaster at the nuclear power plant, considerable generating capacity from nuclear power has been knocked out, and of course it must be replaced. The Russian Federation is ready to provide the necessary assistance to our partners. Probably, our colleagues will have to make adjustments in their energy mix, and we are here to provide the necessary assistance, including ensuring a reliable supply of energy – gas, coal, oil, and we must also work out a way to transfer electricity from Sakhalin. Such a project was envisioned before, back in the old days, meaning the possible use of a cable.

We intend to set up a direct constructive dialogue with our Japanese partners. For example, we will offer Japanese companies a chance to invest in our major energy projects in the Far East and Eastern Siberia, meaning the development of large deposits. But all this will take time. If our partners require immediate response and immediate assistance, we can also offer this, and it could be coordinated with our primarily European partners.

What do I mean? In order to quickly stabilise the energy supply in Japan and close all the gaps in the energy balance, Russia is ready to find a way to increase the supply of natural gas to Japan. Today, Gazprom can increase supplies of natural gas to Europe through pipelines by 60 million cubic metres, which is roughly equivalent to 40,000 tonnes of liquefied natural gas per day. The unencumbered volume of LNG can be sent to Japan.

Is this clear? We can increase the supply of gas via pipeline to Europe, but those gas tankers that are headed to Europe, turn them around and send them to Japan. This would be possible only through a coordinated approach with our European partners and, of course, only if our Japanese friends are interested. But this can be done immediately, almost instantly.

Such large-scale exchange operations of Russia and the EU can provide real emergency energy aid to Japan, providing delivery within a month of more than one million tonnes of liquefied natural gas. And in 100 days, we, in turn, can supply up to six billion cubic metres of pipeline gas to Europe for further exchange. Accordingly, Japan will receive an additional four million tonnes of liquefied natural gas. I repeat, we can start doing this right now. We are ready for it.

Let's start the discussion.