Top events of Jule 2012

The National Energy Security Fund introduces top-ten events in the oil and gas industry in Jule 2012 and is ready to comment on them in detail.

1. Meeting of presidential commission for fuel and energy sector development and environmental security

   The meeting showed that we should not look for winners in struggle for control over the oil and gas industry. There will be no winners, because Vladimir Putin’s task is to ensure constant fight between competing teams. And at the first meeting of the commission Mr. Putin acted as arbiter.

2. Struggle of concepts of privatizing state assets

   The struggle of competing clans is reflected in different opinions on solving concrete problems such as privatization. This does not mean that one team stands for privatization and the other is against it. But one team is for quick privatization and the other is for a slow process. No solution to these problems has been found; the scheme of privatization has not been worked out but this topic is definitely becoming a central one.

3. Vladimir Putin says auctions, not tenders, have to be carried out on large deposits

   From one point of view this measure seems to be more liberal, but in reality this liberalization is unlikely to take place. Practically all good deposits have been sold and there is not much left. No wonder the results of last year’s tenders were miserable – we have very few strategic deposits left. And the main thing is that tenders are often staged. As far as really important assets are concerned, a decision on privatization will be made personally by Vladimir Putin, not at tenders.

4. Offshore struggle continues

   The decisions prepared by Igor Sechin when he was a deputy PM are being actively revised, which is understandable, as there is a new team in the Cabinet. In July there were debates about a new concept of the continental shelf development. This discussion will continue in August. The new government team obviously aims at liberalizing access to the shelf, but it is not yet clear what kind of liberalization it will be. Is it canceling state monopoly of Rosneft or Gazprom? Is it increasing the share of independent companies in projects? Is it giving up the idea of four tax zones? We will definitely find out later what it will lead to.

5. Rosneft offers to buy 50% in TNK-BP

   This story will give the material for speculations in the next three months, as there are too many unknown aspects here. Everything depends on many factors: will Mikhail Fridman manage to find money to offer a higher price than Rosneft did? What will BP get instead of these shares, because it is understandable that BP does not need money? How will the new company be managed by Igor Sechin together with Mikhail Fridman, who destroyed the Rosneft-BP deal some time ago? There are very many questions; the situation may change constantly. So far, the end of this story is unclear.

6. Italian PM Mario Monti visits Russia, Eni-Rosneft accord signed

   On one side, nothing new happened; on the other side, Rosneft attempts to accelerate development of activities on the shelf, to stake out a claim on this area. It is also understandable, because the new Cabinet is revising previous decisions. This can lead to reconsideration of conditions of an agreement between Rosneft and Eni; this process should start as soon as possible.

7. Embargo on Iranian oil deliveries to EU

   This decision is very dangerous for the European Union, although the EU tries to feel complacent claiming there will be enough oil for everybody. In reality the situation around the Strait of Hormuz is becoming more dramatic and tense. And the EU is seriously worsening its position. But Russia will not be able to take advantage of this embargo because we do not have free oil to replace the Iranian fuel.

8. Gazprom-E.ON contract dispute settled

   It is important that Gazprom demonstrated its reaction to market changes, although it is aggressively blamed for being inflexible and clumsy. Gazprom’s budget stipulates $8bn in retroactive payments, and here comes a new deal with E.ON – one billion is to be paid. Inflexible companies do not return one billion, do they? Thus, Gazprom understands that the rules of the game are changing. The question is how fast they will be changing and how much it will cost?

9. Sergey Mazanov appointed Gazprom Dobycha Urengoy general director

   This HR decision does not seem to be noticeable but it is very important, because this is in fact completion of replacement of the heads of major producing subsidiaries of Gazprom, i.e. this is the end of the epoch of old Soviet gas industry workers, old generals; they are substituted by new protégés of the Gazprom management.

10. Russian gov’t orders construction of Sabetta port in Yamal

    On one side the idea is old. On the other side, the government indicates that it is still ready to finance construction of infrastructure facilities of private projects. This is an interesting piece of news for those who claims that nationalization continues in Russia. It could hardly be called nationalization if the state finances the infrastructure of large private projects. There are some serious private players in Russia that receive assistance from the state – NOVATEK is one of such players. In July NOVATEK was rumored to have sealed a contract with German’s EnBV on gas supplies for a 10 year period, but later these rumors were refuted. The story is indicative; NOVATEK is definitely expanding quite aggressively proving that private companies with close ties to the country’s political authorities can grow quite well.