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Top events of Jule 2011

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

  1. Meeting on fuel and energy sector in Kirishi

    This event is on top of our rating not because of some important decisions made (by the way, this did not happen) but rather because the meeting was the second in a row (following a session in Yekaterinburg on June 30) where prime minister Vladimir Putin declared we had reached a comfortable level of production of hydrocarbons. So, it means the opinion that we have approached the limit in oil production is already an official ideology, which completely changes the picture of the world. Previously all energy strategies until 2020 or 2030 had absolutely different objectives. Now the prime minister casually mentions that we produce as much as we need and we are not going to produce more. This certainly raises some questions: why setting targets, why working out all these strategies? Finally, is that true that we produce as much as we need considering the situation on the petrol market, which demonstrates inter alia the deficit of crude oil extracted in the country?

  2. New problems on domestic fuel market

    The fuel topic was one of the most urgent in July. The situation on the market was surrealistic, because what authorities preached and what they did was sometimes absolutely different; even the measures that earlier had been aimed at liberalizing the fuel market were implemented in a distorted manner. They say there is collision of large producers; large vertically integrated companies are behind the fuel crisis; it is necessary to increase competition; independent filling stations do not have enough fuel. In reality, there is an accord between the government and twelve fuel companies, which enables them to produce low quality Euro-2 petrol. In reality there is refusal to trade petrol on the exchange, although we have many times pointed out that as long as there is vertical integration of oil processing and oil marketing assets, the exchange trade is pointless. Discussion of a new fuel standard is postponed giving oil companies a possibility to continue producing poor quality, low octane petrol. All these measures in July demonstrate that in reality the government does not make any moves to de-monopolize the fuel market. And it also seems to be unable to apply such measures.

  3. Signing of memorandum on partnership between Gazprom and RWE

    A decision of Gazprom and RWE to establish a joint venture on electric energy production came rather unexpected. Europe seems to be impeding Gazprom’s attempts to buy assets in the EU. The Third Package was aimed at warding off Gazprom from the European gas market. But Gazprom’s strategic move was very elegant: it was not let into the gas business but it entered the electrical energy business not violating the Third Package provisions. It is, of course, interesting how this deal will be closed, as we have been presented just a declaration of intentions – after all, the interests of Gazprom and RWE slightly differ. Gazprom needs to enter electrical energy assets, while RWE needs to sell shares just because it has very serious economic problems and it simply wants money. So far it is not clear what it will lead to.

  4. Dmitry Medvedev visits Germany, Angela Merkel refuses Nord Stream’s third line

    In our relations with the EU there seems to be a pendulum element. Currently there is a period of optimism that enables Putin to make such proposals. All experts realize that the demand for natural gas will be rising in Germany. But at the same time nobody ventures to contract additional gas because there is no understanding what terms and conditions should be applied. Thus, Gazprom is also nervous because without contacts it is not clear whether it should invest in very expensive Yamal projects. Moreover, some German companies, e.g. Ĺ.ON, are currently toughly negotiating revision of contract conditions. Merkel’s position is politically motivated rather than economically. Let’s see what will be the end of this story and who will be right.

  5. Granting minerals production tax preferences to offshore projects in the Black Sea, the Sea of Okhotsk and to Yamal oil and gas deposits

    Our government acts rather spontaneously. On one side, they say we will not manage without taxes on the oil and gas sector and the finance ministry suggests raising taxes. On the other side, there are some carrots for loyal companies. These days production of hydrocarbons in Russia is shifting northwards and eastwards where the economy will be different. The decision to allocate preferences is a right move because operators will not manage without a new taxation procedure. But there should be some consistency in actions. For instance, there are questions on low production deposits and introduction of some single taxation procedures for the whole sector if possible. What will happen to the famous 60-66 concept that should have been passed long ago because the next year is round the corner? There are many questions but it does not belittle reasonableness of the decision made, because without taxation preferences we will not have additional production capacities.

  6. Total secures right to get stake in Yamal LNG

    Total kept its promise and after buying a stake in NOVATEK it is entering the Yamal LNG project. It is clear that the French firm was actively lured by taxation preferences and promises of the state to take part in financing infrastructure development. It is not yet clear whether Total has entered this project to put reserves of its resource base on the company’s balance or it really believes this project may be implemented.

  7. Energy assets of Gazprom and KES Holding merge

    Viktor Vekselberg is to transfer his assets to Gazprom to receive a 25% stake in a new company. Two questions are important in this case. Firstly, everything looks as if reforms of RAO UES of Russia are canceled. Previously they said assets should be split up to create competition; but the new company of Gazprom and KES will in fact control one fourth or one third of generating assets. Taking into account Inter RAO’s investment program, it turns out that nothing has changed. The question is why it was necessary to break up the whole system to assemble it again later? There is another strange moment related directly to Mr. Vekselberg. He seems to be an active participant of AAR that ruined the Rosneft-BP deal. Vladimir Putin should be unhappy about it Gazprom is entering into such important deal with him, which means that the PM has sanctioned it. This again sends us back to the topic of BP-Rosneft cooperation. It is not ruled out that Mr. Vekselberg will keep selling his assets, which may also affect the structure of the TNK-BP shareholder capital. In its turn, the latter circumstance may breathe life into the buried deal of BP and Rosneft.

  8. Debates on privatization of state companies

    NESF has long been contending that privatization of state property in the oil and gas sector is not far off. The matter is just in forms of privatization. It is obvious that inter-clan struggle for assets will be fierce. In particular, it is reflected in discussions on the pace and forms of privatization. Different ideas emerge, such as establishing a special body for sale, introducing golden shares. This process will be obviously launched before the presidential elections, but state property is unlikely to be put into different pockets without conflicts. The topic of privatization of state companies is likely to appear in our ratings in the future.

  9. Nursultan Nazarbayev taken into German hospital

    There are things that happen sooner or later. Nursultan Nazarbayev is 71, his health is not very good and anything can be expected. What will happen to Kazakhstan in this case? There is no plan of succession, no plan of life without Mr. Nazarbayev in Kazakhstan. Meanwhile, Kazakhstan is the zone of interests of very serious players such as Russia, China, the USA and the EU. The change of power in Kazakhstan is an absolutely new geopolitical game. According to the law, information about Nursultan Nazarbayev’s health is a state secret; we cannot find out what is really happening but the fact of hospitalization is alarming.

  10. Iran-Iraq-Syria pipeline project

    This project once again shows that there are many funny things developing in the oil and gas sector. These states are likely to have decided to remind the world of their existence and readiness to accept investments, because currently it is very problematic to seriously consider a variant of laying a pipeline from Iran to Syria and Lebanon. Even the project organizers cannot clearly explain what they want. At first, they mentioned supplies to Syria and other neighboring states. But it is clear that neither Syria nor Lebanon needs a large volume of gas. As far as supplies to Europe are concerned, what European will invest in building a gas pipeline from Iran? And if we want to make the idea of this pipeline absurd, it is necessary to suggest laying a pipeline from Iran to Israel via Syria. This would be a wonderful project.

 


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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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