Forecasting of Russian economy Energy sector model Alexandria September, 2014
Energy Sector in Russian Economy Energy sector of Russian economy Produces 14,2% of GDP Forms 66,5% of Russian exports (33% - oil,12,8% natural gas, 20,7%-petroleum products) Makes 25,8% of total investments Provides 27,4% of government budget income Provides 4,5% of employment Has a high multiplier effect (1.65 on gross output, 1.05 on GDP,0.57 on budget income) 2
Russian Economy Model Russian economy model Input-Output models (CONTO, RIM) World economy growth scenario Foreign trade submodel Input-output table Oil sector model Governmental budget Population incomes and expenses Investment and capital funds Energy balance Models of regional economy Region 1 Region 2 Region N Model of petroleum products demand Region 1 Region 2 Region N 3
Model of oil sector Forecast of Russian economy growth The required level of budget expenditures Taxation parameters : Levels of mineral extraction tax and export duties OIL EXTRACTION Structure of oil processing and directions of shipments Domestic demand for petroleum PETROLEUM REFINING 4
Model of oil sector PETROLEUM REFINING Depletion of reserves Structure of reserves Capital intensity Domestic oil consumption OIL EXTRACTION Input of new wells World Oil Prices Oil exports Operational costs Investment Domestic oil Prices Revenues Tax Rates Tax Payments Profits 5
Forecast of capital intensity in oil sector The methodolody of Capital intensity curve composition Capital intensity estimation in 2007 and 2014, in $(2007)/tonn 100 90 80 70 60 50 40 30 20 0 10 20 30 6 More rapid growth of oil extraction led to faster increase in capital intensity. On the other side low rate of implementation of the new technologies has led to an additional increase in capital expenditures for the development of the most complex, in particular offshore, oil fields Capital Intensity(2007)$/tn Capital Intensity(2014) $/tn
Investment in oil sector (RIM Model) Investment in oil sector depends more on current financial results (rouble cost of oil barrel and gross profits), rather than on the accumulated size of credit debt r capinv2 = credloanjur2/def, brent*rateusdm,prof_2 Variable name Reg-Coef Mexval Elas NorRes Mean Beta 0 capinv2 - - - - - - - - - - - - - - - - - 744.19 - - - 1 intercept 230.26458 64.5 0.31 16.12 1.00 2 credloanjur2/def -213.44379 44.1-0.10 12.14 0.35-0.532 3 brent*rateusdm 0.22211 50.7 0.49 1.74 1639.73 0.650 4 prof_2 0.46230 32.0 0.30 1.00 483.78 0.714 7
Structure of oil extraction 600 500 400 300 200 Oil extraction depends on support of production on the old, already developed fields and input in operation of the new fields. 100 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 Old wells on old fields New wells on old fields Production support New wells on new fields Total amount of oil extraction is divided into following categories: output of the old wells, output from production support, output of the new wells on old fields and new wells on new field. About half of all extracted oil in 2030 will be produced on the new fields (put in operation after year 2014) 8
Model of petroleum refining World oil prices Export duty on crude oil Domestic oil prices Operational costs Domestic demand PETROLEUM REFINING Revenues Profits Export of petroleum Production capacities Investments Export of crude oil Yield Ratio between export of oil and export of light petroleum Ratio between light and heavy petroleum Domestic prices Tax Rates (export duties and excises on petroleum) 9
Eff _ inc = ShareLight * IncLight + (1 ShareLight ) * IncMazut Oil distribution Domestic demand for petroleum Required amount of oil for refining Oil surplus Oil extraction Yield ratio Tax Rates Export of oil Export of heavy petroleum Production ratio between light and heavy petroleum Export of light petroleum Export of gasoline Export of diesel 10
Forecast of petroleum refining Current and expected structure of Russian petroleum refining Domestic consumption Export Domestic consumption Export Export of crude oil Export of light petroleum Tax rates Currently, heavy petroleum products form about 70% of petroleum export. Due to increasing the depth of oil refining in 2030 production of heavy petroleum will decline. This will create a choice between export of crude oil and export light petroleum products 11
Demand for petroleum Population income index Number of passenger cars HOUSEHOLDS DEMAND Decomposition of the demand for petroleum Retail trade turnover index Number of trucks and freight cars BUSINESS DEMAND Industrial Production Index Agricultural production index Index of production in mining Index of construction AGRICULTURE DEMAND DEMAND OF QUARRY VEHICLES The main results of model calculations is the forecast of different consumers demand for gasoline and diesel fuel. Model provides forecast for Russian Federation as well as for Federal Districts and particular regions 12
Influence of oil sector on Russian economy Oil extraction in 2030, mln tonn 420-20% 525 0% 630 20% 2030/ 2013 Average growth rates 2030/ 2013 Average growth rates 2030/ 2013 Average growth rates Gross output 150% 2,4% 157% 2,7% 164% 3,0% Manufacture 139% 2,0% 149% 2,4% 158% 2,7% Construction 178% 3,5% 185% 3,7% 192% 3,9% Transport 195% 4,0% 202% 4,2% 209% 4,4% Services 227% 4,9% 237% 5,2% 247% 5,5% GDP 164% 2,9% 173% 3,3% 181% 3,5% Household consumption 179% 3,5% 187% 3,8% 196% 4,0% 13 Government expenditures 116% 0,9% 119% 1,0% 121% 1,1% Investment 187% 3,8% 198% 4,1% 208% 4,4% Exports 141% 2,0% 152% 2,5% 161% 2,8% Imports 156% 2,6% 162% 2,9% 168% 3,1%
Influence of oil sector on Russian economy Oil extraction in 2030, mln tonn 420-20% 472,5-10% 630 20% 2030 к 2013 Average growth rates 2030 к 2013 Average growth rates 2030 к 2013 Average growth rates Gross output -7,5% -0,3% -3,8% -0,1% 7,0% 0,3% Manufacture -10,0% -0,4% -5,1% -0,2% 8,8% 0,3% Construction -6,9% -0,2% -3,5% -0,1% 6,8% 0,2% Transport -7,3% -0,2% -3,7% -0,1% 7,1% 0,2% Services -10,0% -0,3% -5,0% -0,1% 10,3% 0,3% GDP -9,0% -0,3% -4,6% -0,2% 8,2% 0,3% Household consumption -8,1% -0,3% -4,1% -0,1% 8,4% 0,3% 14 Government expenditures -3,0% -0,2% -1,5% -0,1% 2,6% 0,1% Investment -10,2% -0,3% -5,2% -0,2% 10,1% 0,3% Exports -11,1% -0,5% -5,7% -0,2% 8,7% 0,3% Imports -6,1% -0,2% -3,1% -0,1% 6,3% 0,2%
Tax maneuver in oil sector 560 550 540 530 520 510 500 Oil extraction, mln. tonn 2015 2016 2017 2018 2019 base scenario tax maneuver Tax maneuver consists of: Increase of mineral extraction tax by 1.6 times Reduction of export duties on oil from 60% to 30%, gasoline from 90% to 30%, diesel from 65% to 30% 50% reduction of excises on light petroleum Tax maneuver may result in: Growth of domestic prices on petroleum up to 10% Increase of CPI by 0,5 percentage point Possible decline of GDP growth rates in 2015-2016 by 0,2 percentage point Significant degrease in amount of petroleum refining in favor of crude oil exports Improvement of petroleum refining structure due to disposal facilities with a high proportion of heavy petroleum products 15
Tax maneuver in conditions of high oil prices(120$/br) Cash flow distribution, bln $ Oil export, mln. tonn 50 300 40 280 30 20 10 0-10 -20 1.1 7.8 17.0 18.5 18.5 10.2 12.0 14.3 17.2 19.8 2015-10.1 2016 2017 2018 2019-16.5-25.3-26.7-28.0 260 240 220 280 2015 2016 2017 2018 2019 base scenario tax maneuver Petroleum refining, mln. tonn -30-40 260-50 16 Operational costs Effect of investment Belarus expenses Population expenses Oil companies income Government budget income 240 220 2015 2016 2017 2018 2019 base scenario tax maneuver
Tax maneuver in conditions of high oil prices(80$/br) Cash flow distribution, bln $ Oil export, mln. tonn 25 300 20 280 15 10 5 0-5 -10 1.0 7.2 8.0 8.8 6.4 6.4 7.7 9.2 10.7 2015-1.8 2016 2017 2018 2019-5.5-3.9-11.6-12.4-13.3 260 240 220 280 2015 2016 2017 2018 2019 base scenario tax maneuver Petroleum refining, mln. tonn -15-20 260-25 17 Operational costs Effect of investment Belarus expenses Population expenses Oil companies income Government budget income 240 220 2015 2016 2017 2018 2019 base scenario tax maneuver
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Appendix: Model complex Tax revenues Input Output model Population s income & expenses Operational costs Price model Energy balance Cars and vehicles Profits Capital intensity Chemistry and petrochemistry Turnover of passengers & goods Investment Production capacity Domestic demand of petroleum Revenues Domestic prices Oil Extraction Petroleum refining World prices Crude oil export The yield ratio between export of crude oil and petroleum Exchange rate Petroleum export Tax rate (mineral extraction tax and export duties) 19