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Top events of January 2013

The National Energy Security Fund introduces top-ten events in the oil and gas industry in January 2013 and is ready to comment on them in detail.

  1. Gov’t meeting on prospects of offshore development

    This meeting was awaited for several weeks, as it was many times postponed. A lot was written about preparation for this event. They said there would be a scandal, a battle, natural resources minister Sergey Donskoy was expected to speak for private companies. As a result nothing happened; no defenders of private firms emerged. State companies easily preserved their monopoly on shelf projects. Arguments of private companies are quite understandable. Providing them with access to the shelf would accelerate geological prospecting and promote shelf projects. But this reasoning was not heard; state companies were very rigidly defending their monopoly. However, the most important question remained unanswered: if privatization of Rosneft is an official course, it means Rosneft will also become a private firm in the future. What will have to be done then? Isn’t it time now to start thinking about how the law will look like in several years, unless the government is not going to make Rosneft a private company.

  2. Discussion of prospects of canceling Gazprom’s export monopoly

    The state mainly supports private companies, first of all NOVATEK, in this issue, although there is no logic in lifting the export monopoly at all. As far as the shelf is concerned, arguments of private companies are clear. But speaking about abolishment of the monopoly on gas exports, there are no arguments; this is why consequences of canceling the monopoly are unclear. Besides, Russian gas exporters will be competing against each other on the European market, which will bring prices down. It is absolutely incomprehensible why we need this. Actually, if we want to preserve our share on the market, it can be done easily: we can simply reduce prices. But there is a question why? Do we need this or not? There is an argument that export monopoly prevents selling gas from the Yamal LNG project, but this is not quite correct. In reality, Yamal LNG has a contract with Gazprom Export, according to which Gazprom Export is in fact responsible only for customs clearance of the Yamal LNG gas returning it to its owners that can sell this gas independently. A corresponding agreement on this project was reached long ago. The other thing is that this gas will be rather expensive, and nobody wants to contract it. But this is an absolutely different case that cannot be fixed by lifting the export monopoly.

  3. Terrorists seize gas facility in Algeria

    This important event attracted inconsiderable attention of the world press. At least, this attention absolutely cannot be compared to that around a military operation in Syria. Despite success of a French operation in Mali, we see how fragile peace can be in Algeria that seemed to be the island of stability among neighboring countries in Northern Africa. Terrorists in Mali, despite their seeming defeat, are quickly spreading their influence on neighboring states. In this regard, it turns out that Algeria can be subject to a serious terrorist attack at any moment. The consequences could have been much worse at the facility if a gas pipeline had been exploded. The Algerian special forces and the Algerian army acted quite toughly. However, why do western states produce no claims against Algeria? Because if they acknowledge that gas supplies from Algeria are in the zone of serious political risks, this will also mean acknowledging that the European Union’s energy strategy that can be simply described as “buy from anyone but not from Russia” is very questionable. In reality, all major energy partners of the EU are Islamic states. And the desire of these Islamic states to use gas as means of political pressure is obviously very high. Thus, political risks are much larger. This explains why western states swallowed the Algerian terrorist attack case and the fact that European citizens were among those hostages who died as a result of the rescue operation. In fact the EU shuts its eyes to instability in Northern Africa that poses serious risks of terrorist attacks. From the political point of view, Islamic gas is much more dangerous for the Europeans than Russian natural gas.

  4. Gazprom sues Ukraine

    Some hotheads call it a new gas war. So far there is no gas war, if we mean risks of shutting down gas transit. This should be prevented by all means. As far as the formal side is concerned, Gazprom actually has some reasons for this suit. We certainly can ask ourselves a question why the Russian gas giant was not filing suits after the contract was signed over three years ago and has done it only recently, despite analogue claims in the past. It seems that Vladimir Putin is fed up with Ukrainian authorities that do not want to listen to rational arguments and keep repeating that the gas pipeline system is Ukraine’s sovereignty. There is probably an instruction to raise the pressure and not to ‘take captives’ and make compromises. The main thing is to prevent suspension of supplies. It is not ruled out that the case will go to the Stockholm arbitration court. This may be even useful, if the sides start settling their problems not by employing political instruments but by judicial means in the more independent environment.

  5. Gazprom, NOVATEK sign memorandum on creating JV on LNG production in Yamal

    There is a desire to build another liquefied natural gas production plant in Yamal in addition to NOVATEK’s project. On one side, these plans are fully in line with the philosophy they promote in Russia – to pay more attention to LNG. On the other side, problems of Russian LNG are obvious: our main deposits are far away from the sea water area, while those that are close, like in Yamal, are located unfortunately not in the warm seas like those in Africa and the Middle East. This is why icebreaker services are required. This will certainly make the gas more expensive and require complicated technical solutions. We have to understand that Yamal LNG is a very ambitious and difficult project.

  6. Belene NPP referendum

    This concerns not only the fate of this nuclear power plant. The question is interesting in terms of democratic procedures and energy projects. If the EU follows democratic norms and the opinion of its population, it will be very difficult to implement some projects. As far as the Belene NPP is concerned, Bulgarian authorities are known to be fundamentally against this project. The project was approved at the referendum. Well, the voter turnout was not high and the referendum results were not recognized, but the majority of those who cast their vote supported development of nuclear energy in Bulgaria. Similar problems may arise with shale gas production. Thus, thinking that shale gas will facilitate removing dependence from Russia is just the opinion of European elites. The opinion of the population that live on the territories where huge trucks will drive, where roads will be ruined and where land plots will be allocated for horizontal drilling may be absolutely different. In this regard, democratic procedures may halt a number of significant energy projects in Europe and change the EU energy map, e.g. Germany rejected development of nuclear energy due to demands of its population. This is an important factor.

  7. Rosneft discusses prospects of oil supplies to China via Kazakhstan

    This is an interesting story: at first a pipeline to the Pacific Ocean is laid and then Rosneft begins discussing variants of oil supplies to China through Kazakhstan. This is certainly an interesting situation: one state company builds a pipeline, while another is thinking whether it should use it. The problem is quite simple: Rosneft is interested in China, while Kozmino is a gateway for deliveries to other regions. Moreover, except Vankor oil, there is practically no oil production in the East of the country, there is no additional oil. This again raises the problem of the unified state energy policy: there is no such policy, and different state companies are just pursuing their own interests; there is no single coordinating center. This results in such very disappointing cases.

  8. Rosneft president Igor Sechin visits Venezuela

    Rosneft has clearly indicated it will not leave Venezuela. On the contrary, it may increase investments in Venezuelan projects, although this is obviously fraught with high political risks (everybody knows that Hugo Chavez’s health has sharply worsened), and this also means the outflow of capital from Russia. It is very strange that experiencing difficulties in oil production we encourage our oil companies to make investments abroad depriving Russia of new jobs. There are evidently a lot of benefits from production projects in Russia, but instead we promote investments in other regions and with high political risks. It is absolutely unclear why we have decided to become global energy players.

  9. Transfer to Euro-3 fuel standard as of January 2013

    Cancelation of Euro-2 fuel consumption finally came into force on 1 January 2013. We do not consume this low quality fuel any longer. Finally the state has demonstrated that the decisions it makes are implemented. It is important that this cancelation was to come into force long ago but it was many times postponed because of pressure by companies that failed to upgrade their refineries. Those companies that had invested in refining found themselves in an awkward situation: they had made investments, but companies that had not invested resources benefited. So, it is good that the decision has been implemented; this is a big positive sign.

  10. Domestic petrol prices keep surging

    This is a significant tendency as fuel prices actually define the inflation level in the country. We have to understand that oil prices on the world market continue advancing, excises keep growing, which definitely pushes petrol prices upward. Even when world oil prices are going down, this does not influence our domestic petrol prices. Oil companies have learnt to calculate profitability of crude exports and petrol supplies to the domestic market; in this regard they clearly follow the principle of equal profitability. When world oil prices advance, domestic petrol prices in Russia increase too. When world oil prices decrease, petrol prices remain unchanged because our oil companies use their oligopoly: there is no competition and they easily preserve prices. The federal antimonopoly service has proved to be useless in fighting oligopoly on the domestic market. Thus, car owners have nothing else but to wait for another rise in fuel prices. Moreover, there are no national elections this year, which means no moratoriums on price hikes should be expected.

 


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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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