Announcement of a series of analytical reports «The fuel and energy complex of Russia» - 2020

The National Energy Security Fund announces its traditional series of analysis reports dedicated to the central issues of Russian fuel and energy sector development.

Subscribers are presented with a detailed picture of the state of affairs in the fuel and energy sector, the industry’s most urgent problems, the system of government regulation of the oil and gas industry, and scenarios of its development in the medium term.

The year 2020 promises to be complicated and intriguing.

It is a year when the OPEC+ deal must be reset, which must also reveal the government’s ideas about the future of the oil industry. These are manifested primarily in taxation decisions. It is a period when the operation of the new system of Russian gas transport to the EU will be tested for reliability. It is a period of new talks with China. It is a time when an understanding must be reached of how the climate agenda will be implemented in Russian energy policy and what strategic effect Russia’s participation in the Paris Agreement will have on the Russian oil and gas sector. It is a time for new disputes on the fate of the domestic gas market.

Finally, it is preparation for political transition in the government, which inevitably exacerbates the fight for property in the oil and gas industry.

The sources we use include our own information, industry statistics, information published by oil and gas companies, laws and bills, information published by federal and regional media outlets, and material made available at conferences and round table discussions.

The series consists of eight reports to be posted in March 2020 to January 2021.

1. Fate of OPEC+ and Future of Oil Business in Russia

(June 22, 2020)

A decision will have to be made at the end of the first quarter on whether Russia will extend its participation in the OPEC+ deal. It ceases to be tactical in fact and becomes strategic. Companies not only have simply to stop investing in greenfield projects, but to cut production from those already launched. Vertically integrated oil companies more and more actively demand that the international restrictions on production should be cancelled.

This is a hard dilemma for the Russian government. On the one hand, cheap oil is a colossal risk to the state budget. Meanwhile, the elections to the Duma are already on the horizon. On the other, we voluntarily give the market away to the Americans – and in a situation when they tighten sanctions against the Russian fuel and energy sector and politically limit the opportunities of our other competitors such as Iran and Venezuela.

As a result, different scenarios are considered, even a price war. It is especially so because the Finance Ministry more and more actively speaks about monetising reserves, which means active production until the “oil era” is over.

So what is the industry to do: produce as much as it can or restrain itself and wait for the prices to grow?

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2. Druzhba Pipeline Accident: Key Implications

(August 24, 2020)

The Druzhba oil pipeline accident became the main “hit” in the Russian oil industry in 2019. A year has passed, but no satisfactory answer about what did in fact happen has been given to date.

However, the accident may have very serious implications. These include but are not limited to Russia’s position as an oil supplier to the European market. The incident became a serious test to the new system of government control of the industry that went into operation in spring 2018.

Two state-controlled companies literally started a war on each other because of the affair. Will the thing have structural implications for Transneft? How will the state regulation of the industry in general and export by pipeline in particular change? Will a system appear to control the oil quality and will there be a change of the plans to develop the transport infrastructure?

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3. Energy Transition and ‘Green Agenda’ in Russia: Fashion or Hard Reality?

(September 30, 2020)

Matters of climate, giving up hydrocarbons, and energy transition seemed a European whim just a while ago that is unlikely to get to Russia in the era of “sovereign democracy”. However, the situation is changing.

In spite of a bitter conflict with the West, Russia has joined the Paris Agreement and officially accepted its values. The environment has become one of government priorities.

The Energy Ministry is ready to finance rapid development of renewable energy in Russia. The Economic Development Ministry openly discusses a hydrocarbon duty. What really awaits oil and gas companies? After all, threats to their business are becoming more and more real. It is not only discrimination against them in foreign markets and costlier loans.

In the report, we will describe in detail the position of Russian regulators and show the main lobbyists for the “green agenda” in Russia.

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4. Arctic: New Government Priority

(December 29, 2020)

The Arctic mania is gaining momentum in Russia. The Arctic is not just becoming a geographical development priority overshadowing the Far East whose fate it was customary to meditate on just a few years ago. It has turned into the core of a new Keynesian policy that is being relied on in the economy. Without the Arctic the Cabinet no longer understands how economic growth can be secured.

Arctic projects receive tax benefits and infrastructural support. But how real are economic breakthroughs in the region? Will the Arctic thing not turn into state resources buried in permafrost?

But, most important of all, who will get them in the first place? It is the bureaucratic fight for the distribution of Arctic finance that we will pay special attention to in the report, as giant subsidies have not left indifferent any of the influential clans that have clashed violently over the Arctic pie. ?

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5. Import Substitution in Sector: Myths and Reality

(December 3, 2020)

Import substitution has long since become one of the main priorities of government policy on the fuel and energy sector. /p>

For over a decade it has been said that Russia lags behind in a number of important areas such as offshore production or liquefied gas. The period of sanctions (which does not really seem to have an end) appears to have intensified the agenda.

Yet what has been done in fact? Do the schemes the government has proposed work? Are statements of success more a fake than a reality today? Has not import substitution turned into the substitution of Chinese suppliers for Western ones?

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6. Tax Treatment of Oil and Gas Sector: Choice of Priorities

(January 18, 2021)

Taxes are still among the most sensitive subjects for the oil and gas industry. Two diametrically opposite positions are expressed especially strongly today.

The Finance Ministry believes that stability of the state budget underlies tax treatment and that the total amount of tax revenue must at least not diminish. The most popular phrase with the Finance Ministry is “lost revenue”. If companies get some new benefits, this money must be compensated for somewhere else.

The “creativity” of the Finance Ministry already concerns not only acceleration of the tax manoeuvre, but the appearance of new charges such as taxation on associated gas.

Oil companies point out that the tax system must stimulate development: the oil industry has entered a period when the cost of oil extraction is on the rise; greenfield projects must be launched, while brownfield ones need rehabilitation.

Taxation on refining and regulation of the price of motor fuel in the domestic market is a habitual sensitive issue.

Gas taxes are a separate subject where Gazprom was to get equal conditions with independent companies, but this has not happened so far.

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7. Gazprom: Life after Major Construction Projects

(February 4, 2021)

Gazprom has put its grandiose transport and production plans into practice. TurkStream and Nord Stream 2 have been launched and Power of Siberia is in operation. The exploitation of gas reserves on the Yamal Peninsula develops successfully. Yet definitely they cannot rest on their laurels.

On the contrary, pressure on the company increases. Talk has again intensified about the need to develop and implement a new model of the domestic gas market. Independent producers again insist on liberalisation of gas export.

Government officials are infected with the idea that LNG is the future of the global gas market, and Gazprom does not quite fit into this world view.

The end of 2020 will bring an understanding of how viable the new scheme for gas export to Europe is and allow of an assessment of the co-operation with China. Besides, it will then be possible to sum up the first results of the operation of the company’s new procurement model and new management structure.

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8. Regulation of Oil and Gas Sector in 2020 and Prospects for 2021

(January 31, 2021)

It is our tradition to finish the year with a concluding report that sums up the main events and trends of the year.

In it, we will analyse preliminary production results, the key government decisions concerning the industry, the fight for property, and changes in export policy; and of course, you will find in it a forecast for the industry’s development in the medium term.

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