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Russia Running on Empty

Russia may be the world’s number one oil producer, but it is running out of gasoline. The domestic petrol shortage in several regions prompted the government of Russian Prime Minister Vladimir Putin to ban exports of refined petroleum products late last month, especially as the country gears up for State Duma elections in December and Presidential elections in the spring of 2011. This is a political issue for Russia. “People can’t understand simple logic. If oil prices are going up, gasoline must also be more expensive - even in Russia,” Konstantin Simonov, Director of the National Energy Security Fund in Moscow, told New Europe by phone on 5 May. A few hours earlier at a government presidium, the premier ordered his Deputy, Igor Sechin, and the anti-monopoly service to look into the possibility of price-fixing among oil majors.

While gasoline prices in Europe and the United States have surged, Russians think that because Russia is a world oil-producing country, gasoline must be very cheap on the domestic market. But they cannot understand that oil producing companies are business units so they must increase their profit, Simonov said, adding that due to upcoming elections, “Putin must be a populist” and so has begun to blame oil companies. Putin accused the oil groups of agreeing among themselves to put just a small quantity on the market.

Shortages have been building since Putin told oil firms in February to restrain retail prices. As a result, Russian oil companies increased export of crude oil and decreased the refinery of crude oil in the domestic refineries. That resulted in a shortage of gasoline and increase in prices. “If you want to decrease export of crude oil you need to increase export duties on crude oil but it is impossible because export duties are extremely high already and the average level of our export duties is approximately 65 percent,” Simonov said.

If anything, the government might lighten the tax burden on crude oil exports, reducing the duty to 60 from 65 percent now from the beginning of next year. “We have a strong need in investment in our green fields. If you increase export duties the oil companies would have no money to invest in East Siberian shelf projects,” Simonov said, noting that there was a small decline in production from the first quarter of this year. “I think it can be the beginning of a serious trend of decline of our oil production. That is why we have a very serious need to invest money to green fields. But if you want to invest money you must find it and in this case decrease export duties. I’m absolutely sure that there will be no increasing of export duties on crude oil,” Simonov said, adding that crude oil exports are unlikely to be affected.

In Russia there are several major vertically-integrated companies involved in the production of crude oil, refining and petrol stations. “It is one chain and we have no independent refineries. We have independent petrol stations, but they have no opportunity to find fuel because when Putin said: ‘We must limit the prices,’ companies said: ‘Okay we will limit the prices, but we will increase the export of crude oil.’ That is why there is no fuel for independent petrol stations,” Simonov said. “Our government must think about the development of independent refineries,” he said.

Russia’s decision to ban exports of refined petroleum products on 28 April took its toll on neighboring Kazakhstan where, during my trip to Astana two weeks ago, I witnessed gasoline prices spike at the pump. “Now we have one Custom Union with Kazakhstan so it’s possible to buy some oil products in Kazakhstan and export them to Russia. That is why we see the increasing of consumption of oil products from Kazakhstan and they increased prices.”

By Kostis Geropoulos 

New Europe, 8 May, 2011


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