Ivan Grachev on “unassailable factors” of Russia’s energy superiority
24.01.2015 12:29

Q.: Today, energy problems are closely intertwined with geopolitics, geoeconomics and geophilosophy and are viewed only in the context of factors of sustainable development. Experts are speaking about the emergence of a new energy civilization. What do you think?

A.: I don’t think that a new “energy civilization” is going to emerge, but philosophical thoughts about it confirm that there is a certain shift in the global mind. Today, we are witnessing a return to the normal understanding of things: there cannot be progress without an increase in energy supply. Throughout the entire history, existence of the humankind was dependent on energy demand. Progress will always be proportionate to energy consumption – this is the truth, both philosophic and practical.

Overall, progress is measured by accumulation of three forms of property – things, information and energy. They are partially interchangeable, but the thing is that the structure of relations between these forms of property has for a long time been changing in favor of information: there was talk about an information society, the goal of which was to explain the newest phenomena created by scientific and technological progress, computer and information revolutions. This view forced Western countries to give up the economy and to develop virtual markets, apart from purely information technologies, and at a certain point led them to think that progress was possible without an increase in energy consumption.

It was believed that the share of energy property was going to drop in the long run. These views are more than utopian. The latest crises have shown that the share of information in the information society has certain limits and cannot take up more than 50% to 60%. Today we are witnessing a return to the reality, and the regular pattern is back: progress on average is proportionate to the amount of generated energy. So the classic formula “energy – progress – civilization” remains unshakable.

Q.: What can you say about Russia’s current energy policy? What are its general goals?

A.: Inertia drives us along the path of commodities supplying countries. The reason is of course the fact that on the global scale, our biggest advantage is energy. It is not only because of our rich hydrocarbon reserves, but also because of the huge, scarcely populated territory. Ecological restrictions are not limited only to CO2 emissions, which is actually disputable, and I can talk about this topic separately, because I am a physicist and I have professionally studied the influence of solar radiation on the atmosphere.

Ecological restrictions are also related to energy production per area unit. Such restrictions are thermodynamic: you cannot significantly exceed the index of solar energy flow fluctuation per area unit. If you are coming really close to this threshold and produce a critical amount of energy, negative consequences are inevitable. If we don’t want to stir the nature – locally and globally – we should assimilate with the natural background so that the level of energy production is insignificant in terms of solar energy flow fluctuations.

Following the same logic, the European Union or Japan have quite limited reserves for energy growth, because their territories are fairly small and densely populated, while energy consumption is high. Russia, which spreads from the Baltic to the Pacific and has a small population compared to its territory, can increase its energy production manifold. This natural, huge, unassailable advantage is, of course, taken into account in the adequate, well-considered strategy. It states that energy will be industry No.1 in Russia under all scenarios, including the innovative one. Everything else is added to this backbone: what should be done and how, in order to have lots of jobs, a high knowledge level, high intellectual potential, etc.

Q.: So, the unassailable factor of Russia’s energy advantage is comprised of available resources, gigantic area and modest, compared to the territory, population. But will this trump card be used properly?

A.: There is no doubt that this advantage will be needed, it is a guarantee of the country’s economic prosperity. Russian hydrocarbons and other countries’ interest in them are logically connected. For example, I am positive that China will make use of Russia’s energy possibilities, regardless of what is being said today. The country is being gradually poisoned with coal it burns in huge amounts, and very soon it will need sources of clean energy and ask for them, and the closest ones are near at hand, in Siberia.

Q.: Having become the economy’s field marshal, the energy sector has also turned into a two-edged policy tool: it is often used against us, and we use it, too. The question is old, but needs a fresh answer: what is the current state of our long energy dialog with Europe? You are directly involved in it, so tell us, do you manage to “separate myths from facts”?

A.: The situation here is similar to the one with the energy philosophy that we have discussed, i.e. we can say there is a shift. Anyway, the dialog is at a mutually acceptable level and we can see a furcation: some of our partners have a real understanding of the global situation, not tarnished by any myths. When it is well established and enters the stage of practical cooperation, we will definitely use European technology and European money to develop the Far East and Siberia, which will guarantee us and them energy security and security in general. There is, indeed, a note of mythologizing, but we are moving on with important and interesting work within the dialog in order to build a realistic frame of reference for our European partners.

Q.: Isn’t this Sisyphean labor? Is there a hope of reaching the European mentality with our point of view?

A.: My main task is to try to make the European parliament more rational in this respect, via the inter-parliamentary group, which was set up on our initiative and comprises mainly energy experts, so they can take in our arguments without any Russophobia and we can reach a common point of view. Of course, it is not always ours, more often it is a compromise, but Russia’s opinion is still taken into account, because it is usually rational, realistic and pragmatic.

Our inter-parliamentary group, set up on Russia’s initiative, is already working actively and making decisions. For example, we have recorded such important approaches as the impossibility for the demand to abide by the Energy Charter, the Third Energy Package and also Russian legislation, so mutually acceptable solutions need to be found. We have also reached an understanding in assessing the possibilities of solar and slate gas power generation, in approaches to other globally important ways of power generation.

Our positions on the “pipe problem” have also grown closer. For example, we achieved an understanding of the absurdity of the situation when you lay a pipe and then it is given to someone else – such a move has been deemed irrational and impossible. The next step will depend on the stand of the European Parliament’s energy committee. We are interested in higher formalization of inter-parliamentary group’s decisions and will try to win a majority of votes in the parliament.

Q.: To what extent do such psychological phenomena as the residual “Soviet” mistrust of us, rejection of our way of life and our mentality hinder building of relations with the Europeans?

A.: Let me give you an example that partially illustrates the situation. An Italian MP, a young man from Milan, contacted our inter-parliamentary group and said he was immensely interested in Russia’s South Stream coming to North Italy. His arguments were clear: in this case, the highly industrialized part of the country will receive guaranteed supply of gas at moderate prices. By the way, the spot price of 1,000 cubic meters of gas for them is over ˆ1,000, which is, of course, expensive. So the Italian was guided by pure pragmatism, nothing more. This representative of the younger generation must not know a thing about the former confrontation of the two systems, about the Cold war, he was just amicably and interestedly discussing a project beneficial for Italy.

Another partner, from Germany, was obviously biased and spoke in the tough language of complaints: you are inflating prices, etc… And he absolutely refused to hear our arguments. But we had a chance to play a “nasty trick” on him: we offered him to join a group of European experts going to Yamal, where gas, the price of which the German considered inflated, was produced.

It was winter, and the frost was severe. And we showed them the solid production infrastructure built in these extreme conditions. Our guest was shocked to see the hard labor needed to produce gas that comes to Europe across Eurasia, the cost of the specialized equipment, the pipeline system, ensuring gas workers’ normal living conditions. Upon return to Moscow, this critic said something completely different, “I now understand how difficult it is for Russia to produce this gas, why the price is such…” So people are different and most of them don’t know much about Russia’s specifics, and we need to enlighten them, to tell them about ourselves and explain things they are doubtful about.

Q.: There will be a meeting with the European Parliament’s deputies in Strasbourg in early December. What ideas will the Russian part of the working group bring to it?

A.: We have agreed that the main stages of coordination are over. It is quite possible that in December or, perhaps, next year, we will start discussing specific issues. For example, there are border electricity-related issues, our oil companies have discrimination-related problems, and they have complaints about us. The package for discussion is being coordinated. Our main goal is to start tackling more specific and practical problems.

Q.: The energy sector, just like our dear two-headed eagle, looks not only to the West, but also to the East, which also lures it with numerous opportunities. Where does Russia have more chances? Where can it expect to find good returns, productive cooperation and amity?..

A.: The East has huge opportunities, indeed. But this question is complicated. I believe integration as it is fully formulated – “Pan-Eurasian energy space” – is an ambitious thing, but it is the right one. Our partners have engineering and technological advantages, say, Germany has always been way ahead in terms of implementation of advantages.

Russia, in its turn, is strong with intellectual outbursts of discoveries, tends towards fundamental sciences. In order to integrate in the Pan-Eurasian energy space, we need to be attractive as a country that ensures its partners’ energy security. Movement of interests should be mutual and balanced, because believes are good, but people also need to see their own profit and practical sense… Of course, we should cooperate with both Japan, China and Korea. I believe their appetites will be even better than that of the European Union, and their aggregate demand can be even higher.

Let’s take Japan. Even before the Fukushima tragedy, I said that it would turn down its nuclear reactors sooner or later, but I was always told that it was “propaganda.” But if you think of it, you should not build nuclear plants on the land that is constantly shaken from within and attacked by tsunamis from the ocean. The Japanese are now shutting down their nuclear plants one after another, and nuclear power generation can be replaced with either gas or electricity. Obviously, the country will buy resources from different countries, but only Russia will be able to supply this developed high-tech country the amount of energy it needs, which is about 70 GW. So this is objectively a huge market for Russia.

We, in our turn, are interested in innovative Japanese technologies, notably, cryogenic and helium ones. Helium is an important component of natural gas. We have plenty of fields rich in helium, first of all in East Siberia and Yakutia, so we are extremely interested in the gas chemical industry, the prospects of which, with the presence of own resources, are truly big.

Japan asks us to sell our gas to it cheaper. But how can you sell something cheaper in a market economy? In response, I suggest that they join development of new fields, with technology and money, which is mutually beneficial. This is a brilliant solution: they will have gas and we will develop a new area in gas chemistry.

Q.: I would suppose that the prospects related to China, the world’s second biggest economy, are also good. What is the present level of the Russian-Chinese energy dialog?

A.: China has a huge demand for energy. According to my estimates, it will have to take about 100 billion cu m from Russia. At present, few people agree with my estimates, to be honest, but we’ll wait and see. China vests big hopes in slate gas. As part of a Russian delegation, I met our Chinese colleagues and told them that they should not expect cheap slate gas, because it simply doesn’t exist. There is a fundamental physical explanation: if there is no flow, there will be no cheap gas. Slate gas production envisages constant water blasting, which is not cheap. The Americans are now very enthusiastic about slate gas, but I believe that soon they will see a rise in prices.

We live in the active phase of inflated virtual markets, where excessive resources flow and therefore cause them to collapse. But these virtual markets exist with certain anchors of real markets that are exaggerated and, due to absence of bans, inflated to unbelievable dimensions. Earlier, a similar thing happened to real estate; now, slate gas is in the center of this process. It is accompanied by a hype in the media, and some people get caught into it.

Q.: At the Caspian Forum in Aktau in September, you once again emphasized that it is impossible to stake on alternative sources as being able to meet the civilization’s energy needs. But the world is hypnotized with the possibilities of non-traditional energy sources…

A.: Alternative power generation is also a candidate for virtual market bubbles, this is why it is being promoted. There is another consideration: there have always been inventors of the “eternal engine.” In the past, ten or fifteen years ago, when I said that mass solar power generation is utopian, that it is expensive and it wouldn’t be possible to start mass generation, people argued with me and said that it was theory and hoped that in practice they would do it cheap and in huge amounts. Time has passed, and how much does a kilowatt/hour of solar power cost today? Let’s take a solar power station in Germany, for example. First of all, it functions only 900 hours a year, i.e. 10%, so for 90% of the time you need to supplement it with something, most probably, a thermal power plant that uses coal. Calculations show that 1 kWh of power generated from solar batteries costs ˆ0.22. To compare: thermal power plants generate power that costs ˆ0.03 per kWh. This is numbers. It does not mean that German engineers are bad, it is just that they were optimistic when working on this task and hoped to make the cost of solar power competitive. However, there are objective physical limitations: incoming flow of solar power is very small and scattered, it is, for example, incomparable to the power of water flows going through a dam of a hydropower plant. It has been analyzed by Russian physicists, notably, academician Pyotr Kapitsa.

But this does not mean that it is necessary to shut down work related to alternative energy sources – solar, wind, tidal power, etc. As a development of the engineering thought, a new technology such stations have the right to exist and improve. But their importance is not total and requires sensible positioning. For example, there are a lot of winds and sunny days in Yakutia and on Chukotka, so alternative sources can be used there.

Q.: My next question is: what headache especially worries your stately head?

A.: De-Chubais-ization of the energy sector. The thing is that reforms were conducted that caused our power generation deteriorate drastically on almost all parameters. Labor productivity plunged two times, reliability dropped, depreciation of the equipment and the system in general increased. How can we combat it? We should convince the authorities of this country that they should be guided by real practices, not myths. We don’t allow anyone to share Gazprom’s functions, and this is correct. But why should the power generation structure be split? We have the task of dealing with mediators, deciding where they are needed and where not. We need to organize normal management of state-owned property. In this connection, it is very important to cooperate with the legislative and executives branches of power. We have reached an understanding with leaders of the Energy Ministry, but it is not complete. Still, overall work progresses normally, interestingly and effectively.