LIFE AFTER OIL
In the framework of SPIEF 2016, Sberbank held a Business Breakfast. The event was attended by major business representatives and moderated by the Bank President Herman Gref.
The oil super-cycle that enabled crude exporting countries to considerably improve their living standards and accumulate reserves, has come to an end. And this cycle most likely was the last one. Oil capacity of the global GDP is incessantly shrinking. Renewable sources have become the key trend in global power industry. Electric cars and hybrids are attacking the main oil consumer – the automotive industry. In the circumstances of potentially enduring period of low oil prices, it becomes clear that Russian economy will have to change, as its growth potential has gone down to 1.5-2% per year. Stimulating innovations is no longer an option but a necessity.
The event moderator Herman Gref pointed out that the topic of this discussion is a cornerstone. The key questions are “Where is oil?”, “Where are we?” and “What would we do?”.
More than 25% of the Russian GDP comes from oil. There are currently two prevailing points of view regarding the situation on the oil market: oil will live forever; alternative technology will emerge by 2030 and replace oil.
How ready is Russia for various scenarios of energy sector development? What should be done in order to secure economic development of the country in these circumstances?
China plans switching 50% of its municipal public transport to electricity by 2050, while we are trying to hold back the outgoing oil age.
The Minister of Energy of Russia Alexander Novak holds that the hydrocarbons economy will be playing a key role in the global energy consumption through 2040. There are 1.3 billion cars in the world today, and only 0.08 % of them are electric.
We acknowledge all these problems and provide for respective solutions in our strategies. Nothing especially new has happened in batteries usage in the last years.
In the opinion of the CEO of Royal Dutch Shell Ben van Beurden, we will be still living with oil even after 2050 and use natural gas at the same time. That said, natural gas is growing twice faster compared to oil, and liquefied natural gas is growing twice faster than natural gas. It is necessary to invest in renewable energy sources (biofuel, solar energy, wind energy), but natural gas will play a key role anyway. We shall continue investing in Russia, however with due consideration of economic rationality. The renewables share in the total balance is 4%, including 3% for hydro and 1% for solar and wind energy. The entire global energy sector requires USD 1.0 trillion of annual investments.
The CEO of French oil and gas major Total Patrick Pouyanné stressed that we do consider the renewable energy sources in our value chains and investment in batteries development and manufacture. We also invest around USD 1.5 billion in solar energy. It is only through a hybrid mix that we are going to be able to move to a new energy pattern.
Deputy Chairman of the Russian Government Arkady Dvorkovich reckons that we should wait for new cheaper technologies to emerge. This would be a more rational approach.
In the course of the discussion, the Russian Minister of Finance Anton Siluanov called for stopping the attempts to guess the oil price. By doing so, we are creating problems for ourselves. And this is our mistake that we depend so much on the oil price. We should use the USD 40–50 price as a base case and pursue a tough financial policy bearing in mind the oil lifting cost and stimulating oil producers to investment in adjacent segments (chemicals, petrochemicals). We need to secure the Russian economy against oil price fluctuations.
Alexey Ulyukaev, the Minister of Economic Development of the Russian Federation proposed building up a proper high-quality state administration system and living by a correct and approved budget instead of a “Budget Rule”. We should stop tax oscillations and ensure stable operation of the oil and banking sectors. “Wasteland ….is in the minds. We invest in the projects that increase debt instead of revenue,” he concluded.
Gennady Zyuganov, Chairman of the Russian Federation Communist Party faction stated the key threats for Russia. The first one is the ongoing global system crisis. Such crises usually end up in wars. The second threat is a profound social stratification. 72% of the population lives on RUR 15.0 thousand per month and less. The third threat is the environmental situation. The quality of life is not improving, while RUR 35.0 trillion is kept in funds without any pay-off.
Advisor to the President of the Russian Federation Sergey Glazyev pointed out that we live in the times of major structural changes and transition to a new technological order. Our national economy is going through a difficult period of transition and leadership change. All sorts of risks get multiplied. The task of macro-regulators is to ensure stability in the economy. Central Bank should keep us harmless from currency exchange rate fluctuations resulting from changing oil prices. Speculators take advantage of this situation. We can’t wait for new technology to arrive. If we don’t see its relevance for ourselves now, we might have no chance to enter this sector afterwards because the entry price is continuously growing. The recipe for technological success is to find growth points at the initial stage of a new technological order emergence and invest in those points. This will yield super-profits thanks to advanced development of the sector. Alternative and renewable energy sources are going to gradually increase their share in the power consumption balance. The recipe for a successful economic policy is to make sure that the state always seeks to create incentives for investments and development by means of efficient cash and credit policies with low rates.
At this event, a new format was used: for the first time in the history of Sberbank business breakfasts renowned businessmen, governors and politicians were split into “teams”. In a short period of time they had to come up with an agreed common answer for an urgent question. Each of the 14 round tables had its own moderator who organized the table discussion that took three minutes.
The question that the brainstorm participants had to answer was: “What is the main hazard of inertial scenario for Russia in a 10–20 years perspective?” Most of the Business Breakfast attendees chose the following answer: “increasing of the gap (including technological) versus the leading countries”.