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Top events of September 2012

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

  1. Rosneftegaz dividend controversy

    The main tendency of the oil and gas sector development is obviously struggle of the two camps – a government one and a presidential one. One of the most important directions of this struggle is the issue of Rosneftegaz dividends: Igor Sechin wanted to use these dividends to acquire energy assets and put them on Rosneftegaz’s balance, while the government wants to make everything possible to prevent this. The sad thing is that the dispute is in fact not about a strategy of the electrical energy sector development but about a proprietor of this or that asset. It seems that few players are concerned about the future of the industry, and this is the saddest story of September.

  2. European Commission launches antimonopoly investigation against Gazprom

    There is a feeling that this came totally unexpected, although those who are very well familiar with the procedure were not surprised. The EC last year began investigation, and in line with the procedures a year later it was either to appeal to court or refuse such an action. So, either thing was to occur in September 2012. The European Commission proved to be consistent towards Gazprom as it keeps fighting long-term contracts and supports diversification, spot trading, the common European market and other things incorporated in the notion of the European gas policy and, certainly, the third energy package. However, the European Commission hides its own problems and mistakes behind this suit. All accusations against Gazprom can be well addressed to the European Union itself. For instance, the idea of linking gas prices to oil prices, which the Russian company is accused of, was invented by European countries and is called the Groningen system after the name of a Dutch deposit. The company is accused of using separate markets. But who impedes uniting these markets? Gazprom was ready to invest in settling this question but the third energy package does not provide for such a possibility. So, why accusing Gazprom? In this regard, the European Commission certainly has to thoroughly analyze its own actions. However, this suit brings nothing positive for Gazprom; moreover, all accusations are politically motivated.

  3. Vladimir Putin tells APEC summit Russia to refocus its energy interests from Europe onto Asia

    So far Russia has one response to actions orchestrated by Brussels: “If you do not want our energy sources, we will give everything to Asia”. The Vladivostok summit that took place after the European Commission had declared about the beginning of the investigation was certainly a nice occasion to voice this position. But questions remain, because we are strongly attached to the European market. All gas supplies and major oil flows run there. It will not be easy to redirect supplies of these energy sources from the European market to Asia. A normal business model is required, supplies should be linked to concrete deposits; finally it is necessary to develop fields in the east of the country. Unfortunately, this is not being done. We have huge difficulties in the production segment in the east. If we want to channel our supplies to Asia, we, probably, first of all, have to develop deposits in the east of the country.

  4. Government decides to soften fiscal burden on oil sector

    The decision, especially concerning Eastern Siberia, looks logical: if we want to trade with Asia, we need to develop eastern projects and, therefore, to alter the taxation regime accordingly. So, this decision of the government can be welcomed – this is a significant step in reducing the fiscal burden, especially on eastern projects. However, the government does not want to admit the need for not simply easing the procedures but fundamentally changing its approach to taxation. The question is not just about high tax rates. The matter is that the philosophy of taxation (revenues, not profits of companies are taxed) is absolutely wrong. If we follow the path of constant exceptions, it will be like mending a blanket that needs to be completely replaced.

  5. Finance ministry decides to soften pace of gas production tax indexation until 2015

    There is a widespread opinion that the tax burden on the oil sector is higher than on the gas industry. This assumption provides for making certain conclusions. The most popular conclusion is that it is necessary to raise the tax burden on gas producers. However, the true thing is that the tax burden on oil producers is too high and they hardly sustain it – the matter is that it should be reduced. As far as the gas industry is concerned, it has many nuances. For instance, nobody takes into account the fact that transporting gas is several folds more expensive than pumping oil. Profitability of domestic gas supplies is substantially lower than the return on sales of oil products on the domestic market. Thus, we often treat the gas sector emotionally, and after Gazprom has bought another football player for FC Zenit St. Petersburg we make simple conclusions about the necessity to raise taxes. This question requires serious analysis.

  6. Gazprom suspends gas purchases from independent producers

    One of the current myths is based on the assumption that Putin likes Gazprom very much and does not like all others. In reality, there are more claims against Gazprom than against some independent gas producers, e.g. NOVATEK. The former has much comfortable conditions of operation on the Russian market. Gazprom was refused a possibility to increase domestic gas prices; it is being ‘bitten’ by Europe, and the finance ministry once suggested that taxes on Gazprom should be sharply increased. The company needed to draw attention to this situation and it made a short demarche that stirred an emotional reaction in the press. The attention of the president and the executive power in general was attracted to developments in the gas industry. This was a unique case of the finance ministry, in a two day period, having fully altered its position on the gas production tax and agreed that it should not be increased sharply. It may have been Vladimir Putin’s interference that played its role.

  7. Bidders for 50% in TNK-BP outline their positions and arguments

    The whole month two potential buyers, Rosneft and AAR, were producing their trump cards. Rosneft explained that part of payment would be made in Rosneft shares, which means BP will remain in the Russian business. AAR declared it was negotiating with American firms. So, there is big war. This confrontation is likely to be the top event in our October rating, because a decision on BP’s stake is to be made on October 17.

  8. Gunvor loses Urals oil sale tenders

    The breaking news about Gunvor having been defeated comes from distorted understanding of political realities in Russia. Journalists claim that Timchenko is the ‘king of everything’, and if Timchenko loses, it means the end and Timchenko is not here any longer. The political palette is very diverse, there are not enough carrots for everybody; this is why even such business monsters as Timchenko are defeated sometimes. But it does not mean he has lost the war: conditionally speaking, he lost on Monday but will win on Tuesday.

  9. Expansion of oil cooperation between Moscow and Caracas

    Rosneft head Igor Sechin visited Venezuela, first oil was produced. However, there are questions: does Russia really need to invest in such countries as Venezuela, amid the necessity to stimulate domestic production and reduce taxes in Russia? We pay huge money not even for a stake but for the right to produce. By the way, the reaction of companies is also indicative: Surgutneftegaz withdrew from the Hunin 6 project, TNK-BP declared about such possibility. It is understandable that when Igor Sechin was a Cabinet member, everybody obeyed him, but when he became the Rosneft head some reversed their decisions, demonstrating that investments in Venezuela were not voluntary.

  10. Ukraine urges Russia, EU to consider idea of tripartite gas transportation consortium

    The saying “it's no use locking the stable door after the horse has bolted” fits well this situation. When Ukraine realized that construction of two lines of South Stream would start in December, it had a brain wave: Kiev again returns to the idea of a tripartite consortium, it spreads rumors about preparation of a new agreement on the Black Sea linked to natural gas supplies, assigns the status of the second state language to Russian and hints at some gas related bonus for that. But where were Ukrainian authorities earlier? Is it possible to get back to cooperation? Well, South Stream is obviously not the best project, but if we sit on a volcano called Ukraine what other option do we have? When construction of South Stream begins, what will be the topic for negotiations? Why would we need the consortium if we understand that after South Stream has been laid, there will be no necessity in the transportation capacities. There is such notion in the energy sector as political risk that often outweighs economic benefits.

 


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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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