Top events of September 2010

The National Energy Security Fund introduces top-ten events in the oil and gas industry in September 2010 and is ready to comment on them in detail.

1. Russian President Dmitry Medvedev visits China

   The official mass media described this visit as great success: another gas accord with China was signed and an oil pipeline was launched. As far as the pipeline is concerned, the issue was decided long ago; however the gas issue is more complicated. The sides did not sign legally binding documents. Actually there was another declaration of intentions, because without a pricing formula this is not a contract. Yet, there is some definitely positive moment – there is no need to hurry in this issue, something we have many times reiterated.

2. List of bidders for Titov and Trebs fields defined

   This saga continued for the whole month: six companies submitted their applications with only two remaining in the end; Rosneft refused to participate in the auction. The list of bidders leaves no doubt that the winner was selected beforehand. The deposits seem to be awarded to Bashneft. After that a new oil holding will be formed on the basis of Bashneft, Rusneft and a new Trebs and Titov field. Sistema will surely sell it later to some major. Thus, it is absolutely evident that quite a large oil holding is being created on the basis of Bashneft. It is not ruled out that it will merge with some other firm in the future, e.g. Surgutneftegas that is rather a nominal bidder. So, in a couple of years we may witness the emergence of a new Russian oil production major that will outpace Rosneft.

3. Rosneft head replaced

   There are many rumors around Eduard Khudainatov; he is linked to different clans – from one of Timchenko to Sechin’s. In reality he is likely to be just a nominal head doing a routine job leaving decision making to deputy PM Igor Sechin. Premier Vladimir Putin is unlikely to have opted for a serious staff revolution. The status quo is likely to remain.

4. LUKOIL gets preferences on northern Caspian deposits

   It is interesting that for a long time LUKOIL could not get these preferences despite many efforts spent. But as soon as ConocoPhillips declared it was selling its stake in LUKOIL, the preferences were provided. The latest developments show there is no integral taxation policy in the oil and gas sector. The policy has failed and all decisions are now targeted: benefits are provided at personal requests of companies. The Vankor case is absolutely identical. LUKOIL is asking benefits for itself, not the whole sector. Thus, we can make a conclusion that on September 1 a common systemic policy in the oil and gas sector finished; Putin chose to provide personal benefits, which was an absolutely incorrect step, but this is our reality.

5. Fate of LUKOIL shares

   LUKOIL started buying out its shares set for sale by ConocoPhillips to prevent them from going into the red. Yet, there is a feeling that LUKOIL will have a new serious investor or a strategic partner. It is doubtful that LUKOIL will retain independence in the next few years. Everybody expected ConocoPhillips to sell the block of shares; as a result LUKOIL started receiving taxation benefits. Are Russian authorities really afraid that when non-residents leave the sector there may be a big failure or a catastrophe?

6. Gazprom decides to sell 51% in Severenergia

   The block of shares is planned to be bought by a joint venture of Gazprom Neft and NOVATEK. This is another excellent confirmation that NOVATEK is strengthening. This is a very interesting and promising project. The decision was clearly made with the PM’s involvement, who has already selected a new promising partner for Eni è Enel. Deposits owned by this JV are located in the area NOVOTEK is interested in; the latter develops rapidly, obtains new projects, tries to find investors in Yamal LNG, broadens its presence on the domestic market and feels very comfortable in general. The secret of this success is simple – this is Gennady Timchenko, an old friend of Vladimir Putin.

7. Oil production at Sakhalin 1’s Odoptu field launched

   There is a lot of struggle around the Sakhalin 1 project. The launch of a new oil project shows it has prospects to develop further but the key issue certainly concerns gas from Sakhalin 1. It is known that Gazprom is making every effort to prevent gas supplies to China. Meanwhile, Sakhalin 1’s stakeholder Rosneft on the contrary tries to ensure supplies to China due to deputy PM Igor Sechin’s political position. The battle continues. Exxon, the main operator of Sakhalin 1, has mainly commercial interests, but so far the power of Gazprom is enough to repulse Sechin’s attacks on this direction.

8. Dmitry Medvedev visits Baku, signs additional contract

   Russia tries to buy out Azeri gas, because it is the only real source for Nabucco. Moscow believes it stroke a serious blow on the competitor. But in reality Baku is not that simple: Azerbaijan promised to sell 2bn cu m of gas but it did not promise to sell the whole gas from the second phase of the Shakh Deniz project. The expected volume of exports is 12bn to 15bn cu m. Nabucco participants also want to secure better political and economic conditions. Nabucco needs this gas, which makes Moscow desire this gas too. Russia sustains losses paying a very good price for Azeri gas to be used in the south of Russia. Europe dragged us into this game. This once again testifies to the fact that our gas relations are absolutely disadvantageous both for Russia and Europe and beneficial for such states as Azerbaijan.

9. The Novorossiysk commercial seaport reports about selling controlling stake

   The stake is to be bought by Transneft and the Summa Kapital company. Given that another large block of shares in the seaport will be privatized soon and Transneft is going to be privatized too, one can make a conclusion that Transneft is a temporary owner and the seaport will have new private shareholders. Summa Kapital is a rather mysterious firm. It is absolutely obvious that the struggle for main export flows keeps brewing up in Russia. It seems there will be more news about this interesting asset, important from the point of view of oil transportation through the Black Sea.

10. Meeting of International Arctic Forum and Russian Geographical Society

    Completion of the Russia-Norway maritime boundary delimitation should be also mentioned in this regard. We have started dealing with the Arctic issue. Everybody understands nobody is going to produce hydrocarbons in this region soon. But the situation is simple: the one who marks this area first will be at least able to proceed to this activity in the future. Despite many statements made by the Russian side, Russia currently does not have enough resources to explore the Arctic seriously. We have many infrastructure projects under development – preparations for the Sochi Olympics, Sakhalin-Vladivostok, ESPO and BPS-2. The struggle for the Arctic is virtual so far, and the main task is to “mark the territory with stakes”. Arctic states have to secure their places in this zone.