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Top events of February 2011

The National Energy Security Fund introduces top-ten events in the oil and gas industry in February 2011 and is ready to comment on them in detail.

  1. Revolution in Libya, situation in the Arab world

    On one side, Libya accounts for 1.8% of the world oil output, so there will be no serious consequences if its exports drop. Saudi Arabia will offset them. The question is whether such developments will spread outside Libya, e.g. onto Algeria, Yemen and Bahrain. This would create risks both for the production and transportation segments. And what will happen if revolutionary activities reach Saudi Arabia? It will be impossible to replace this country on this market. Thus, it is not Libya but the domino principle is dangerous. In fact, this is direct repetition of the year 1991 when not only the Soviet Union but the whole geopolitical bloc of states collapsed. Now there is the same process of breakup in the Arab world. Growth in oil prices is beneficial for Russia but if it turns into a global chaos, the worst scenario will be that there may be no one to sell oil and there will be no one to benefit from this scenario.

  2. Putin visits Brussels

    Putin’s visit was formally devoted to the enactment of the Third Energy Package. Now the agenda in our relations with the EU has changed. Previously it seemed that Russia was forced out of this market and Europe would be fine. The Europeans expected the competition among gas producers to last for several years. But now there are problems with the gas supply and the emergence of new gas on the EU market. And the Third Package looks different now: it is good when there is competition and much gas, but when the gas supply is not that big, the new procedures are not so miraculous for buyers.

  3. Gov’t meeting on 2010 results in the oil and gas sector and current problems

    There were two important issues at that meeting: discussing the situation on the domestic fuel market and the idea of liberalizing access to the gas transportation system. There was nothing new said about the liberalization. Back in October 2010 the government issued a decree on disclosing information on availability of free capacities in the gas transportation system, i.e. the issue was raised quite long ago. Vladimir Putin was consistent on that problem. This is clearly to the benefit of independent gas producers such as NOVATEK and Rosneft that have always had problems with access to the GTS. But the critical rhetoric against Gazprom voiced at the meeting should not be considered as demonstration of distrust in Gazprom.

  4. FAS actively fights cartels on domestic fuel market

    As soon as FAS feels Putin’s support, it immediately attacks our companies. But the mountain usually brings forth a mouse. For instance last year Igor Artemyev also promised to initiate the Russian version of the Standard Oil case, but no Russian case followed as everything led to out-of-court settlements and fines amounting to 1% of sales. This means FAS does not know how to fight down cartel deals; prices are fixed following direct orders by Putin, but later they again go up. This issue may be regulated somehow until the elections, but later the situation will be the same anyway – prices will be surging. As long as there is no independent oil processing, nothing will change on the domestic oil market.

  5. Discussion of new taxation system continues

    Discussion of the 60-66 concept continued throughout the whole February. This program stipulates decline in the export duty, first of all on crude exports. Oil firms link high petrol prices to high taxes on them, and they suggest decreasing their tax burden so that they could do something on the domestic market. If the export duty (the main tax) is cut, it will mean that the idea to develop the oil refining segment has been completely given up. Thus, we again focus on crude supplies actually refusing oil refining on the domestic market. It is no coincidence that Russian companies are actively buying oil processing assets in Europe although they used to declare the necessity to develop the domestic oil processing segment. This issue has been removed from the agenda.

  6. Rosneft declares creation of Swiss-based oil trader

    This story once again shows that main revenues are received from oil trading. We usually pay the main attention to production assets, while there are very serious developments in the sales segment. It is no secret that Gunvor owner Gennady Timchenko and deputy PM Igor Sechin, who has very strong influence on Rosneft, belong to absolutely different administrative clans. It is clear that Rosneft’s task is to remove Gunvor from this system. There are official statements that Gunvor will not be affected as Rosneft will be selling oil to its new refineries in Germany; this is not quite so since Rosneft does not have the amount of oil required to raise exports to Europe by 10m tons. There is nowhere to take this oil from, given Rosneft’s commitments to increase crude deliveries to China. Thus, we witness another stage of administrative war for oil trading and it is not the last one.

  7. AAR requests termination of BP-Rosneft deal at London court

    Russian shareholders unexpectedly intervened in this deal. Now everybody wonders why Russian shareholders of AAR decided to wreck the deal that Putin obviously needs. There are two variants: either they are so tough that they are not afraid of Putin or there are some more delicate interests involved. By the way, latest initiatives provide for the supposition that AAR was used also by Russian state authorities to wring more shares from BP. Judging by the latest information, TNK-BP suggests buying out another 5% in BP and then exchange these shares for Rosneft securities. Thus, BP is offered to give another 5% to the Russian side. This is possibly the reason for such an aggressive behavior of AAR.

  8. Alexei Miller suggests selling gas to Ukraine’s industrial consumers at Russian domestic prices if Gazprom and Naftogaz merge

    This is quite a new proposal. Previously Gazprom suggested selling gas at Russian domestic prices to the Ukrainian population and now to industrial enterprises. There are more and more carrots offered to Ukraine but Kiev still resists counting on an LNG terminal, offshore projects and attempting to engage US partners. They seem to understand they will have to hand over the gas transportation system but they delay this process trying to throw a spanner in the works. Ukraine has no way out. The issue is likely to be settled to the benefit of Russia by the end of the year.

  9. Sergey Shmatko says Russia may withdraw from Burgas-Alexandropoulos

    This project is the victim of our new friendship with Turkey. Earlier we tried to fully or partially avoid Turkey when transporting our oil from the Black Sea to the Mediterranean Sea, but now we have decided to build an oil pipeline on its territory. So, the Samsun-Ceyhan project connecting Turkey’s Black Sea shore and its Mediterranean shore is to be implemented. The idea is certainly politically dangerous, especially considering the current political processes in Turkey – this is a Muslim country and we should bear this in mind.

  10. LUKOIL declares about prospects of sharp production growth in Iraq

    This confirms the tendency that LUKOIL has in fact given up development of Russian projects looking for new projects abroad. This tactics is strange due to two reasons: who will take care of Russia? Why investing abroad having large reserves in the country? The second issue is that the money is invested in politically risky countries. The deal on Gazprom’s participation in Libya’s Elephant oil project signed shortly before the beginning of the civil war in this country was considered outstanding; now the project will be definitely postponed. It is not clear why we get into politically instable countries. LUKOIL purposefully pursues this policy.


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Analytical series “The Fuel and Energy Complex of Russia”:

State regulation of the oil and gas sector in 2023, 2024 outlook
Gazprom in the period of expulsion from the European market. Possible evolution of the Russian gas market amid impediments to exports
New Logistics of Russian Oil Business
Russia’s New Energy Strategy: on Paper and in Fact
Outlook for Russian LNG Industry

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