Taking part in the meeting were First Deputy Prime Minister Andrei Belousov, Deputy Prime Minister Yury Borisov, Aide to the President Maxim Oreshkin, Energy Minister Alexander Novak, Minister of Economic Development Maxim Reshetnikov, Minister of Finance Anton Siluanov, heads of major fuel and energy companies, including Lukoil, Rosneft, NOVATEK, Gazprom, Gazprom Burenie, Gazprom Neft, Surgutneftegaz, Kuzbassrazrezugol, Tatneft, Inter RAO, Rosseti and Siberian Coal Energy Company, as well as the heads of Sberbank of Russia, Rosatom State Atomic Energy Corporation and Renova Group of Companies.
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President of Russia Vladimir Putin: Good afternoon, colleagues.
Today we will consider the situation in the fuel and energy sector of Russia: how coal, oil and gas, generating and network companies are operating in the current conditions, and how the standards and requirements to protect the health and safety of enterprise employees are being observed.
We all know that energy is a key sector of the national economy, which directly affects the development of the processing industry, transport, agriculture, our cities and villages, and the country’s territory as a whole, and, of course, largely determines the export capacity of Russia and the state of public finances.
I will add that the modern Russian fuel and energy sector, which, by the way, employs 2.5 million people, is a high-tech industry where unique specialists work, and projects that have no analogues in the world are implemented using the most advanced digital technology solutions, including those on the Arctic shelf and in the harsh conditions of Eastern Siberia.
Both the Russian and the entire global energy industry have gone through serious upheavals in the recent months. These problems are of a systemic nature and extend beyond national borders.
The spread of the coronavirus and forced restrictive measures have had a most unfavourable impact on the world economy, making it slow down. The global GDP is shrinking, and the demand for energy resources – both in individual countries and in the world in general – has declined. Price quotations followed suit.
Today I would like to hear your views, colleagues, the views of business people regarding the trends on energy markets. Your opinions and forecasts of how the situation will develop are very important.
I would like to point out that this is not the first time that the global energy market has faced sharp, dramatic fluctuations. True, there has never been anything like this. I have seen some of your public statements, and I agree: it has never been like this before. However, to mitigate such trends and their impact on the world economy and economic life, we need joint efforts, including such as the recent OPEC Plus agreement.
We will continue to establish effective cooperation with our foreign partners, reaching understandings on balancing out the energy market and searching for solutions that enable enterprises to implement their long-term plans, invest in development and create new jobs.
What do I want to point out in this connection? Energy is a complex and diversified industry. Each sector and each company has its own needs and approaches to overcoming the difficult situation. However, our main, common task is to provide for long-term stability in the entire Russian fuel and energy industry: from resources production to their transportation and deep processing, including small and medium-sized businesses that render services to the industry and support the production process.
I want to remind you that the leading companies of the Russian fuel and energy industry on the list of vital companies. The operation of various economic sectors depends on their rhythmic and stable work. We need to preserve the reliability of these cooperation and production ties, and by no means can we tolerate a fuel shortage on the domestic market or a limited power supply to enterprises or populated areas.
And, of course, we need to continue major infrastructural projects in the energy industry that are meaningful for Russian regions and enterprises in the real sector of the economy. We are launching new projects in, for example, healthcare – they must be connected to the grid on time. Power generation should be sufficient, and the grid facilities should meet the new objectives.
The projects that place orders with Russian construction companies, our large projects that influence machine building and manufacturers of equipment and technology – if we observe all these conditions – will undoubtedly preserve the jobs and incomes of our citizens.
In conclusion, I will say that our fuel and energy industry has always been able to respond to challenges. The industrial and technological potential as well as the human resources of our energy industry allow us to resolve the most complicated problems. I am sure that the experience and capacity of the Russian energy companies will also help them get through today’s difficulties with dignity.
Let us start discussing the proposed issues.
Mr Novak has the floor. Please.
Energy Minister Alexander Novak: Good afternoon, Mr President.
First of all, I would like to thank you for your close attention to the fuel and energy industry. As you have noted, it is truly a key industry of the Russian economy. Last year, the fuel and energy industry accounted for 25 percent of Russia’s gross domestic product, almost one-fourth of all the investment in the Russian Federation and almost 40 percent of the federal budget.
Like all other industries, today the fuel and energy industry is operating in conditions of slowing global and national economic activity due to the decisive measures countries are taking to counter the pandemic.
Let me note that the situation is in fact difficult, but not critical. The sectors continue to fully meet their commitments to clients and provide energy to people and industrial users, as well as supplying petroleum products, gas and coal to the domestic market. The export of products and all the key investment projects also continue.
I would like to briefly report on the developments in each sector.
In the oil and gas sector, the demand for oil is still very low due to the global economy downturn and a drop in the movement of people all over the world because of reduced air and car travel, among other things. We can say that we are nearing the lowest possible demand for oil: today it is about 25–30 million barrels per day compared with last year. The period of unprecedented volatility also continues at global stock exchanges.
The storage facilities for oil and petroleum products continue to fill. Uncertainty also remains around the timeline of global economic recovery. Trading in May futures can serve as a good example: recently, last week, American WTI oil saw prices dip into negative territory.
I would also like to mention an important detail. Mr President, we can see green sprouts of growing demand on the market. The demand for petroleum products in northern and central Europe fell by 10–15 percentage points, that is, from 70 percent to 55–60 percent. We also hear a number of countries talking about gradual relaxation of restrictions in May.
With this in mind, and also taking into account the fact that the OPEC+ agreement, which you mentioned, will become effective on May 1, the supply-demand imbalance should decrease in the second half of May. There is some optimism caused by improvements on the global petroleum market starting in the second half of the year.
These numbers make it possible to delay overstocking until demand begins to recover and to promote speedy market recovery in 2021. This will help keep investments in this sector at an acceptable level, increase predictability, and make it possible to preserve jobs and the industry itself.
Regarding the situation in the domestic market, I would like to note that, in April, the retail demand for petrol fell by 40–50 percent, and for diesel fuel by about 30 percent. The fall in consumption of jet fuel exceeded 50 percent.
I would also like to add that prices at the pump are stable. Petroleum prices have not changed since earlier this year, and price increases for diesel fuel are within inflation values.
The Ministry of Energy is monitoring the situation on a weekly basis. The headquarters holds meetings with oil companies every two days to discuss the market situation and any necessary measures to ensure petroleum product supplies on the domestic market. In general, the situation with fuel supplies in the regions is stable.
Mr President, in accordance with the agreements reached by the OPEC+ countries on April 12, the companies are currently preparing to cut production. In May, this reduction will be about 19 percent compared to February 2020. Based on the first four months of the year and a gradual increase in production starting in the second half of the year, production will have fallen by about 10 percent by late 2020 as compared to 2019.
This, in turn, will reduce the volume of oil shipped through the Transneft system, lower electricity consumption, and will, of course, significantly affect oilfield services.
I would like to focus specifically on the oilfield services sector. The fall in demand for oilfield services can amount to anywhere between 30 and 40 percent and, in some cases, even more. The oilfield services sector is important for the oil and gas industry. It accounts for about 1.5 trillion rubles in revenue and employs over 150,000 people. Of course, it is an important part of the oil production sector.
It is important for us to preserve this sector in order to be able to quickly restore production volumes in the future, when the global economy begins to recover. To this end, it is necessary to maintain demand in this sector. Corresponding proposals have been drafted, and sector representatives will talk about them in greater detail today. I would like to say that, among other things, they include outside-the-box approaches. We believe it is important to create proper conditions for continued drilling even when there is no need for that.
To do so, it is necessary to finance drilling wells without injecting them so that they can be quickly launched into operation in the future when the need arises. We held preliminary consultations with the development institutions, banks and companies, and they support this approach. I would like you, Mr President, to support it as well. The companies will say more about this.
In conjunction with the companies, we have developed a number of industry-specific regulatory measures, which the participants will cover in their reports.
With regard to the electric power industry, one of the key tasks today is to promptly implement the projects for the technological hookup of socially important sites that are primarily used to combat the coronavirus such as newly built hospitals and existing hospitals that have been turned into coronavirus hospitals, as well as other medical and social sites.
Rosseti and other grid companies are working in a high-alert mode and maintain a reliable energy supply to medical facilities, both existing and pre-fabricated hospitals. Rapid response teams have been reinforced. The emergency supplies are readily available, and backup energy sources are on hand. In all, 398 medical facilities in 75 regions were placed under special control.
In order to ensure uninterrupted power supply, together with the regions we monitored capacity and checked power backup sources. Currently over 50,000 diesel generator units are ready to provide power for medical institutions and ventilators, among other things. Fast response field teams, which are comprised of more than 65,000 people and 23,000 pieces of equipment, has been provided for.
Regarding the main indicators of electricity use, I would like to note that, of course, self-isolation has also affected the power industry. The decrease in electricity consumption has been about 3 percent since March 30, 2020. This is without the temperature factor, which means this is a real decrease. In this respect, several industries have reported a decrease in consumption, for example, 22 percent in engineering, 7 percent in railway transport and 3 percent in metallurgy.
We have also noted a significant decrease in areas like restaurants, shopping malls, health resorts, offices and hotels, which are the businesses whose operations are restricted as part of the measures to counter the virus.
Mr President, I would like to focus on bill payment discipline in the electricity sector.
Over the first quarter of this year, we recorded a stable situation in terms of paying utility bills, but since April, we have seen a decrease in consumer payments for energy – electricity, heat and gas – compared with the same period last year. Since the beginning of April, payment activity has been 88 percent for electricity and 80 percent for heat, from the same period last year.
The main decrease can be seen in housing maintenance and utilities, which fell as much as 63 percent from last year. Unfortunately, public sector entities have also decreased payments by approximately 10 percent.
In these conditions, declining revenue is common in the electricity industry. It is very important at this point to offer loan support, both to ensure the consistent operation of the industry and to reliably meet consumer demand; and to be able to prepare for the next autumn and winter. It is also important that public sector entities provide 100 percent of their payment for the energy used in a timely manner.
I would like to say a few words about the current situation in the coal industry. Due to the reduction in global demand and prices, as in other branches of the fuel-and-energy complex, the main production indicators have decreased compared to 2019. In April, coal production dropped by 10.3 percent compared to the same period last year. Domestic market distribution has also dropped by about 6.3 percent.
Nevertheless, all collieries intend to maintain capacity as much as possible and return to their previous output levels after the crisis. To achieve this, it is important to carry out the adopted decisions on developing the infrastructure.
Mr President, I would also like to report that all fuel-and-energy facilities are mostly working around the clock. During the threat of the coronavirus, they are operating under high alert and in strict observance of all measures on countering the epidemic.
Under the circumstances, our main job is to protect the workers in the fuel-and-energy industry. These companies are carrying out a set of measures to prevent the spread of the virus. Thus, in the electric industry about 30 percent of the personnel have been working remotely. Employees in the risk group are in self-isolation, as much as possible.
All work places are regularly disinfected. We have streamlined production processes by introducing isolated shifts and dividing operational and repair staff. The operational staff is now being tested for the coronavirus infection.
Most companies provided additional insurance for employees against the coronavirus. In order to reduce risks to their own workers, companies have some staff on reserve, and employees are also working in shifts.
Companies have made great efforts to switch to remote forms of customer interaction. It matters that during this time of self-isolation, it is possible to read meters, pay electricity bills, apply online to get connected to the grid, as well as pay contact-free for petrol at the filling stations. All public services provided by the Ministry of Energy are also provided online. The existing services make it possible to address most issues without coming down to the offices in person.
Mr President, in conclusion, I would like to note that the Ministry of Energy is conducting real-time analysis of the current situation in all areas of the fuel and energy sector – we have our finger on the pulse. The Ministry has established a monitoring group and ensured regular contact with companies.
Fuel and energy enterprises are included in the list of critical enterprises; 99 enterprises are included in the list approved by the government commission headed by Mr Andrei Belousov, where we work closely with our colleagues from other federal authorities to carry out the anti-crisis measures being implemented by the Government of the Russian Federation in line with your instructions.