Top events of December 2012

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

1. ESPO-2

   The importance of ESPO-2 is explicable: it will provide for increase in exports to Asian markets. The main problem, certainly, is that exports to Asian markets can be implemented by partially reducing exports to Europe. But this depends on our production. If there are no activities on expanding domestic production, the rise in deliveries in one direction will apparently reduce supplies in the other direction.

2. Gov’t meeting on offshore development not held

   This crucial meeting was expected throughout the whole month but it did not happen. An important question is still unsolved. Positions of state companies and private firms are completely different. So, the state has to decide. However, this story is not surprising, given that there are different decision-making centers, which is dangerous for the sector.

3. Auctions on strategic deposits

   TNK-BP took Lodochnoe, LUKOIL received Imilor and Surgutneftegas won the Shpilman deposit. Lodochnoe had been expected to be handed over to Rosneft. But it was clear that Rosneft needed money. Given that Rosneft considers TNK-BP to be almost its property, the latter is to buy the deposit and then it will be acquired together with Lodochnoe. Surgutneftegas and LUKOIL already conducted geological prospecting at Shpilman and Imilor, so the auction results were logical. It is interesting that TNK-BP, i.e. Rosneft, won the auction immediately, while LUKOIL and Surgutneftegas had to struggle. So, it turns out that state companies receive everything at lower prices, compared to private firms that have to pay a lot to receive assets. The actual payment exceeded the starting price by several fold. Actually, the record was first set at the Shpilman deposit auction and then at Imilor.

4. South Stream construction launched

   Although no ecological permit has been given and not all licensing procedures have been implemented, it is clear that South Stream will be built. The size of this project still can be revised, but, on the whole, it is obvious that in 2012 we finally acknowledged that we cannot agree with Ukraine. In several years Ukraine will cease to be a transit state.

5. NOVATEK seals contract on gas supplies to Mosenergo

   It is interesting that while everybody is complaining about Gazprom oppressing poor independent producers, the latter are biting off domestic market shares from Gazprom more actively. NOVATEK seals contracts one after another. There is also Rosneft with fantastic ambitions and quite strong positions expected in the future.

6. Gazprom approves 2013 investment program

   On one side, this is an important document. It shows that Gazprom has to reduce investments. On the other side, although Gazprom is criticized for excessive investments, under the current conditions they are necessary. Anyway, this investment program is likely to be revised many times and expanded in 2013.

7. Rosneft collects money to buy TNK-BP

   Rosneft obviously had had an idea of where it would take money from. But it is interesting that the company finally did not ask the Chinese who were surely ready to loan the money. It means this was part of negotiations with the Americans who took quite an active part in the decision to give TNK-BP to Rosneft. Actually, if the Americans wanted, they could have sponsored AAR so that they could buy out the other 50%. This did not happen, and obviously they have to be thanked for that. The money was loaned from American banks and contracts on future supplies were pledged.

8. New phase of tension in gas relations between Moscow and Kiev

   There are fewer and fewer reasons for Russia to make steps towards its neighbor. With its unconstructive position Kiev lost time having deliberately protracting the talks. Within the program on reducing dependence on imports of Russian natural gas Kiev, in addition to doubtful initiatives aimed at raising its domestic production and expand gas cooperation with other gas suppliers, plunged into adventures. The latest case concerned construction of an LNG receiving terminal near Odessa of up to 10bn cu m capacity per year jointly with foreign participants. This story turned out to be a great scandal. The Russian-Ukrainian gas dialogue can be considered to have passed the point of no return. Gazprom practically has no motivation to grant a gas price discount to Kiev. Since the Russian concern is successfully implementing gas export routes bypassing the Ukrainian GTS, Russia is already no longer interested in it as much as previously. It means a new gas war becomes practically inevitable.

9. New scandals between two commissions for FES

   Conflicts around Irkutskenergo emerged again. There are complains about failures to implement Vladimir Putin’s decisions. From the point of view of the sector’s interests, this is a sad story. Conflicts between the two commissions do not facilitate solution of strategic tasks.

10. Vladimir Putin visits Turkey, decision on gas cooperation with Ankara

    Energy policies of Turkey are directly opposite to the European course. Gas consumption in Europe is dropping, while in Turkey it is growing. In this regard, Turkey is a very important client for Russia; we do not have special problems with it. However, there are political problems: this is first of all Syria and Turkey’s general desire to become a gas hub on the way of Central Asian and Caspian gas to this region. Certainly, this is not beneficial for us, and this is our strategic contradiction.