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Top events of February 2013

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

  1. Meeting of presidential commission for FES; NOVATEK, Rosneft attempt to cancel Gazprom’s export monopoly

    The meeting of the commission was marked by an attack of the two companies on Gazprom; some observers may find the position of Rosneft president Igor Sechin unexpected. In reality Rosneft’s objective is to try to enter the gas market independently. Rosneft is obviously thinking about piped gas supplies, but it cannot declare about it openly. This is why, at first, it raises the LNG exports monopoly issue, although Rosneft does not have any serious project on LNG production. And the project on building an LNG plant near Vladivostok can be implemented without amendments to the law. Sakhalin-1 can be a resource base of this project, and the law does not apply to this deposit. However, Vladimir Putin has not heeded to pressure of Rosneft and NOVATEK; his statement was very careful. Some mass media sources made a supposition that Putin had agreed to cancelation of the export monopoly. In reality he spoke about a possibility of phased cancelation, i.e. Putin has not made a decision yet, and it is clear why. He realizes very well that there will be competition between Russian gas supplies on the European market, which will drive prices down. And from the point of view of interests of the country, there is no point in this liberalization. From the point of view of profits of certain companies, this is obviously beneficial, but it does not seem to have an advantage for the state budget.

  2. Igor Sechin visits Asia Pacific region, debates on hydrocarbons supplies to China intensify

    We are getting back again to the fundamental question of the Russian oil and gas industry development. It is logical to pay more attention to the East, because we have a large consumer there. Moreover, we are experiencing certain difficulties in relations with Europe. The latter’s capriciousness and growth in the demand for hydrocarbons in Asia form clear-cut agenda – we need to think what we can offer to Asian states. But this offer should be beneficial for us too. We should not propose too low prices, should not cede the pricing issue and should not sell hydrocarbons at extremely low prices just to enter this market. We should not generate lower profits there than on the European market. We have to assess everything correctly. If Rosneft says it will raise supplies from 15m to 30m tons, while production in the country is not growing, it becomes clear that these 15m tons will have to be taken away from the European direction. So, we have to evaluate such things.

  3. Vladimir Putin meets with LUKOIL head Vagit Alekperov

    The topic of granting access to the shelf to private companies is raised again. Mr. Alekperov made quite an interesting move: he agreed to take a deposit in the territorial waters. The matter is that we consider a 12 mile zone to be territorial waters, and private companies are allowed to get deposits there. The objective is simple: to assure Putin that private companies are capable of operating offshore, even in north conditions as the deposit is located in Yakutia, and of operating more efficiently than the state. Rosneft is currently arguing with the natural resources ministry saying the latter sets extremely tough requirements concerning the period of the beginning of activities in the Arctic. But if there are no tough requirements, we will never start these activities and will not solve the fundamental problem of offsetting declining production in Western Siberia.

  4. Searches at RusHydro office

    The campaign was launched at a meeting of the presidential commission for FES when Vladimir Putin flogged RusHydro head Yevgeny Dod. But the problem is that such flogging usually results in the personnel reshuffle but does not change the essence of the problem. By the way, in the RusHydro case even no HR decision was made. There is a feeling that Igor Sechin decided to punish Yevgeny Dod, probably, having suspected him of some disloyalty. Later Mr. Dod went cap in hand to Mr. Sechin, and thus, no dismissal took place, although Mr. Dod’s predecessors had stolen 1bn rubles, but RusHydro’s current executives have done nothing to return this money to the state budget.

  5. Struggle around Novorossiysk commercial seaport

    Transneft unexpectedly made a proposal to fire executives and the board chairperson of the seaport. There is apparently a conflict between Transneft and Summa Group that were partners in this project. Actually, the problem is that businessmen close to Dmitry Medvedev are being heavily pressed. This also concerns Summa Group, since its owner Ziyavudin Magomedov is very close to Medvedev. So far the question is about forcing Summa Group out of the seaport. The dispute finished with a compromise – there will be changes in the board of directors but the general director is to stay. But the most intriguing thing is how the seaport will be privatized. And this is the reality of the current privatization – there are few assets, especially as tasty as this one, but there is a huge number of hungry bidders. And it is absolutely unclear how to divide the property without conflicts.

  6. Decision on reducing gas prices in April

    This decline does not mean the U-turn in tariff policies on the whole. The previous decision on a 15% annual rise in gas prices remains in force, but, nevertheless, certain flexibility has appeared. However, it is evident that if prices decrease now, they will be growing at a faster pace at the end of the year. Thus, the discussion about how the policy on the domestic gas market should look like will stay. Currently there are many funny proposals, e.g. there are suggestions to link Russian prices to domestic prices in Trinidad and Tobago. There are many speculations around US prices, although it is not understandable how the US market is connected to the Russian one, and why Russian prices should be linked to the US market, if they are absolutely not connected. Often they argue that gas for US industrial manufacturers is cheaper than in Russia, but this is not true. In America gas for industrial enterprises is $50 more expensive than in Russia. Certainly everybody is irritated by Gazprom’s desire to raise gas prices. However, this is not only its desire. If the market is liberalized, gas prices will surge even faster, because NOVATEK’s appetite is bigger than that of Gazprom. But on the whole, we need a substantive expert discussion without PR attacks, faulty facts and doubtful figures. Unfortunately, there is no serious discussion on this important issue of pricing on the gas market. As a result, on one side, nobody drops the idea of transfer to the principle of equal profitability, but on the other side, more and more alterative ideas are voiced that do not always look sound. This means the topic needs adequate discussion as soon as possible.

  7. Deputy energy minister Pavel Fedorov resigns

    This is a key story for the oil and gas sector: a deputy energy minister resigns but nobody gives any distinct explanation. This person has a second citizenship of Great Britain, but when he entered the civil service this fact was unknown. Nobody was taking measures for the whole year. Why has it happened now? Who will replace him? Unfortunately, such decisions, to a great extent, discredit Russian authorities, because nobody can explain why the person occupied a key post for a year, if dual citizenship is a negative thing? Is he the only functionary with dual citizenship or not? And, the main thing, if this person is so important for the sector, as it was declared, why he has not refused this citizenship? This is a very strange story that shows that our HR policies are still covert, generating absolutely unexpected moves and decisions.

  8. Developments around Irkutskenergo

    The company’s fate was debated throughout the whole month. Igor Sechin’s concept is winning so far, but the topic of war for energy assets continues in general: here are questions about network assets, property of Rosneftegaz, Irkutskenergo, RusHydro and the future of Inter RAO UES. This is a very serious set of issues. We again come back to the topic of privatization. Those who have control over assets now will have advantage over other bidders during privatization. And we have no doubts that these assets will be privatized.

  9. New initiatives on the future of Ukraine’s GTS

    The Ukrainian side was making rather indistinct proposals throughout the month. As far as the idea of leasing the GTS to the Russian Federation is concerned, why do we need it, if there is no guarantee, unless this is a thousand year lease? Another idea that emerged was to give away Naftogaz but not to give away ownership of the pipeline. It is not understandable who will need an empty firm? Unfortunately, Ukraine cannot adequately perceive Russian proposals. Do you want cheap gas? – No problem, buy it at Russian domestic prices, but in exchange you have either to cede the pipeline or to join the integration process. The desire to seat on two chairs leads to nothing good, but Viktor Yanukovich keeps seating on two chairs, which was demonstrated by his visit to Russia at the beginning of March. But sitting on two chairs is becoming more and more difficult. It does not matter how much you scare Russia with LNG and shale gas, the reality is very sad for Ukraine; no serious changes in the situation are observed.

  10. Development of strategic cooperation between Rosneft and Exxon

    This is an interesting story. On one side, Rosneft said private companies should not be allowed to the shelf, because the shelf is Russia’s strategic asset. On the other side, as soon as licenses of 12 blocks were received, it immediately signed a new agreement with Exxon. So, do you really think this is a strategic asset, if you give away a stake to foreign companies as soon as you receive licenses? There is a feeling that Exxon will be a key player on the shelf. If it decides to accelerate activities there, they will be accelerated. If it decides to freeze them, they will be frozen. In this regard, all powers are transferred to Exxon. But it is not quite clear how the company will behave in this situation.

 


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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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