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Top events of April 2011

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

  1. 25th anniversary of Chernobyl disaster, Fukushima crisis continues

    Two events brought nuclear energy back in the spotlight in April. It is absolutely clear that the nuclear energy sector sustained a powerful blow and all its faults were immediately remembered. The situation is not simple for Russia because the nuclear energy sector is one of the few high-tech industries that Russia has preserved and that are in demand abroad. The space and nuclear sectors are the achievements of the Soviet Union that are still in demand. But it is anyway obvious that natural gas is becoming fuel number one in the world and the 21st century is the epoch of gas. Russia could use this but so far unfortunately some others are doing this instead of us. The World Energy Agency is going to present “A Golden Age for Natural Gas?” report on June 6. But one has to understand that Fukushima, Chernobyl and denying the nuclear energy renaissance so far provide for raising supplies of natural gas to the world market in general.

  2. Deputy PM Igor Sechin leaves Rosneft board of directors

    Dmitry Medvedev put forward initiatives that were loudly called the “dismantling of state capitalism”. However, if we look attentively the decision was actually made against one person – Igor Sechin. In other state companies boards of directors do not mean anything and solve nothing. Yet, a behind-the-scenes battle continued: Sechin found Shishin to replace him, though the Russian president seemed to say that representatives of other state companies must not work in boards of directors. In general we strongly doubt that Sechin will lose control over Rosneft. But on the other side, this story of leaving the board of directors takes much of his time preventing him from concentrating on other important administrative battles.

  3. BP-AAR-Rosneft triangle

    The Russian press still views AAR as blackmailers and quarrelers. But this situation is much more complicated. AAR demonstratively tries to break the deal clearly indicating to Vladimir Putin their simple demands: we are ready to sell even 50% in TNK-BP but, Mr. Putin, you won’t have shares in BP. It is doubtful this is a point of view of the alliance. It seems some foreign partners of the consortium asked them to interfere and explain to Putin he is not omnipotent, and not everybody on the global market is happy that shares in western majors leave for Russia.

  4. Petrol crisis

    The topic emerged at the end of the month and became a classical example of a panic capturing the minds of people just in a few days. Everything started from an article describing the situation in the Altai Region; later Kommersant posted a leading article on this topic and soon everybody got excited. It turned out the petrol crisis was spreading to other regions and interruptions of fuel supplies were allegedly expected in St. Petersburg and Moscow. The Altai story was certainly to a great extent invented and aggravated but the obvious thing is that manual control over the monopolized sector does not work. When PM Vladimir Putin ordered companies to reduce fuel prices over pre-election motives they certainly did that but stated looking for any loophole to create problems on the domestic market. Obviously, companies increased crude exports cutting supplies to refineries in addition to four refineries being under repair. Moreover, strict standards were introduced this year – the Euro 2 standard was banned. This certainly led to reduction in the refining volume at our facilities. The result was predictable. It is absolutely apparent that the government will try to solve the crisis using old means. Putin again ordered the state commission to investigate the matter, though the situation is still simple: on the monopolized market you will always have crises amid the manual control over the sector, because the monopolized market always means growing prices. In this situation the government has only one way-out – to threaten companies, to make them freeze prices especially on the eve of the elections. But firms also have no other way but to look for some intricate means intentionally or not organizing such crises.

  5. Dmitry Medvedev visits China

    Gazprom deputy CEO Alexander Medvedev had visited China before Dmitry Medvedev went there. Alexander Medvedev promised to agree on the pricing formula by the end of the summer. In China Dmitry Medvedev said the pricing formula would be ready by the end of the year. This means the talks with the PRC are getting protracted, which is a positive sign as this is not the case where we should hurry. The oil story has proved that. As you may remember in April it turned out that China absolutely freely interpreted the oil contract terms and conditions. Despite the huge debt to Transneft, the latter continues shipping oil hoping China will come to reason. So, it turns out that hasty agreements with China lead to large financial losses. This is why Gazprom is absolutely right not to hurry. The main thing is not to allow the Chinese to cheat us.

  6. Vankor loses preferences

    Vankor preferences were discussed during the whole month. Eventually, finance minister Alexey Kudrin won: preferences will be suspended. According to Igor Sechin, this is a temporary decision: if oil prices go down, preferences will be restored. But the prices seem not to drop. Moreover, regional preferences for Vankor were also canceled. Generally speaking the obvious question is how eastern deposits will be developed? However, Vankor was purposefully called an Eastern Siberian deposit, although it is not true; this is why Kudrin’s position is to a great extent justified. It is absolutely clear that we will never develop the East of the country without a wise taxation policy.

  7. Gazprom posts long-term offshore strategy

    Rosneft’s large-scale plans on developing the national shelf that have been actively discussed with non-residents lately (ÂĐ, Exxon, Chevron) prompted Gazprom, its main competitor in this sector, to declare about its own plans to invest in offshore fields. The companies have been competing in Sakhalin and the Arctic for a long time. They have accumulated a lot of offshore assets and now they are competing for foreign partners to start developing the shelf zone before the opponent.

  8. Ukrainian gas talks

    In April Ukrainian prime minister Nikolay Azarov invented some fair price of Russian gas at $200 per 1,000 cu m. It is clear that the Ukrainian manufacturing industry cannot pay above this price but the argument is very strange: sell us natural gas at $200 because we cannot pay more. But the worse thing is that Mr. Azarov decided to scientifically substantiate that. He says that gas prices on the German market are about $320 now, and, according to him, if we deduct the cost of gas transportation from Ukraine to Germany and other expenses from the German price we will get $120. But this is unreal, because the price of transportation from Ukraine to Germany is $20 maximum and even lower to Poland. How did he get those figures? Ukraine seems to have some funny calculators. Russian PM Vladimir Putin obviously should not make any concession until Ukraine hands over its gas transportation system to the joint management. Kiev has to understand that due to growth in world oil prices gas prices will be only rising. The $200 price is Azarov’s joke.

  9. LUKOIL’s alliance with Bashneft and Rosneft

    In April LUKOIL suddenly started making alliances with winners: Bashneft is a recent winner of the Trebs and Titov fields, while Rosneft received many licenses in the Nenets area. But these companies seem simply not to know what to do with their victories and they have to attract partners. Moreover, LUKOIL’s standing in the Nenets Autonomous Area is very good and the main thing is that it has a ready export scheme through Varandei that it owns. Rosneft’s task is simple: it needs to overcome difficulties with non-residents. In fact Rosneft shows them that the initiative may be given to LUKOIL. There are difficulties with Chevron on the Black Sea and LUKOIL is likely to replace it, which will be a signal to other non-residents that there are companies in Russia ready to develop such assets.

  10. Protracted war in Libya

    But for casualties, the situation could be ridiculous. The Alliance declares that Qaddafi will soon retreat, but he has been confidently defending over the past few weeks already and they cannot do anything to him. As long as there is no ground operation, the conflict will not be successfully solved. An important question for Russia is what the end will be. If some pro-western dictator replaces Qaddafi, this may become a problem for Russia. But long-term commotion in the north of Africa will play into Russia’s hands. At least April was like that with revolutions in Morocco, a revolutionary situation in Nigeria and a possible revolution in Algeria. This means that Russia’s competitors on the European market are out of the game, which certainly gives advantages to Russia.


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