Top events of April 2013

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

1. New proposals on changing system of oil sector taxation

   On the whole, the finance ministry and our government act quite predictably: instead of paying attention to the idea that the current taxation system absolutely does not correspond to tasks the oil sector is facing, and revising the approach, they suggest the same thing but just slightly amended. There is no sense in reducing export duties and raising the minerals production tax. This will not remove fundamental problems of the taxation system that does not take into account the degree of development of deposits, the distance from deposits to pipelines, the quality of reserves, etc. This is an absolutely repressive system, because it equates everyone and hinders the sector’s development. But it seems that on the background of the budget deficit and the upcoming second wave of the crisis, which was spoken about by everybody in April, the fiscal system in the oil industry will be built on the premise that “the oil industry is a milker of the Russian budget”. Unfortunately, this is true.

2. Presentation of Rosneft plans in London

   We can state that the company has huge ambitions in absolutely all segments. Currently there are often speculations that the situation in the gas industry seems to be wrong, because there is only one very big state company. By the way, Mr. Igor Sechin is believed to actively facilitate such speculations. It is understandable why Rosneft is collecting assets: sooner or later the question of the company’s privatization will rise and its future beneficiaries will obviously want to get the best share for themselves.

3. Attack on Gazprom, Vladimir Putin answers question about Alexey Miller during live Q&A session

   There was a wave of information attacks on Gazprom in April. They concerned abolishment of its export monopoly and Gazprom’s restructuring. During Vladimir Putin’s live call-in one of TV journalists asked what should be done to Miller who had missed the shale gas revolution in the United States. The question sounded menacingly given that one of the previous questions was “When will you sentence Chubais?” However, Putin defended Miller. He said the Gazprom head had not missed anything. And this is an important moment, because when the issue of restructuring is debated in the media, everything is portrayed like “all decisions have been made, it is just necessary to take a document from yellow folder and put it into a green folder, and everything will be ok”. In reality, this puzzle lacks the most important element – Putin’s consent. Without it the whole puzzle gets mixed again. Vladimir Putin has not given his consent to Gazprom’s restructuring, and he publicly demonstrated it during the Q&A session.

4. Gazprom delegation visits Japan

   However, there is an advantage in the atmosphere of pressure on Gazprom: the state giant has to intensify its activities because of accusations of being ineffective. In particular, a lot of efforts are focused on development of eastern projects, including the Vladivostok LNG project. It is very important for Alexey Miller to show that he is indeed capable of implementing the project quickly, that he can deliver gas from Yakutia to Vladivostok, build a gas liquefaction plant and sell it to Japan. Negotiations with Japanese firms are actively developing. Actually, the Japanese are certainly interested in entering Russian projects. Anyway, Russian gas is the most politically safe gas for Japan. The recent visit by the Japanese PM to Russia testifies to this huge interest.

5. Idea of Yamal-Europe-2 gas pipeline

   The idea of laying another pipeline through Belarus, Poland, Hungary and Slovakia to Baumgarten, Austria, was voiced. The idea is clear: it should finish off Ukraine and fully deprive it of any chance of gas transit. Nord Stream and South Stream cover the Ukrainian transit volume but there are certain points to solve from the logistical point of view. For instance, because of the third energy package it was decided not to prolong South Stream to Baumgarten. There are some grey zones, e.g. Slovakia, Hungary and Austria where Nord Stream and South Stream will not get. To finally deprive Ukraine of all illusions, the idea to build Yamal-Europe-2 emerged. This has caused a nervous reaction in Poland, but any Russian proposal creates such response there. It is believed that the more pipelines, the higher the energy security of the country is. The situation became even amusing when the Polish energy minister was sacked, although he had always fought against Gazprom. But it looks like it was necessary to find a scapegoat, and they even did not check his position towards Russia.

6. Ukrainian gov’t proposes parliament to lift ban on sale and lease of national gas transmit system

   Ukraine has reacted. Kiev seems to be demonstrating consent and readiness to consider the issue of the GTS future. The reason is clear: a hard economic crisis is approaching. The question is about sincerity of Ukrainian authorities: we have received many signals from them over the past decade but the situation has not changed.

7. EC says OPAL not exception from 3rd energy package

   The Europeans are still opposing Russian pipelines. Unfortunately, there is no fair competition in this case. Russian companies are investing in the gas transmission infrastructure. By the way, the OPAL gas pipeline actually fits the European energy strategy with one of its objectives being connecting Europe through new gas pipelines. In fact this is what OPAL does: it unites Northwestern Europe with Eastern Europe. Nevertheless, sanctions are constantly applied. There is a feeling that any project suggested by Russia is perceived negatively, even if it fully meets the European energy strategy. Thus, we can state that our relations with Europe are very difficult, which is certainly very sad.

8. Deputy PM Dvorkovich suggests giving up offshore development program

   On one side, it was interpreted as the final strengthening of the monopoly of Gazprom and Rosneft on offshore projects; moreover, at the beginning of May Gazprom received new offshore licenses. On the other side, there is some good sense in this initiative: all these programs have not been executed and there was no reason in them. It is absolutely unclear whether we need these strategies. But, of course, the issue of access of private companies to offshore deposits remains open.

9. Kirill Molodtsov appointed deputy energy minister

   We have a new deputy minister instead of Mr. Fedorov. Will the new person bring changes, as Mr. Molodtsov will be responsible for the oil and gas sector? Actually there are many questions to the energy ministry. Any high-ranking official of the energy ministry is in a complicated situation, because the sector is currently being torn up by the clan struggle. Any top manager in the energy ministry will be involved in this struggle anyway. And this creates the main problem. Solving problems in the sector is one thing, participating in inter-clan struggle is a different thing. These are absolutely different cases with absolutely different outcomes. And this important thing undermines efficiency of work of the ministry.

10. Nikolas Maduro elected Venezuela president, Rosneft and PDVSA establish JV

    Nikolas Maduro’s election seems to have added optimism to adherents of cooperation with Venezuela and strengthened their confidence in success of Russia’s participation in oil projects in Venezuela. In reality nothing is clear in Venezuela. His lead was rather conditional. Sooner or later the country will plunge into political chaos, and our investments remain at risk. But the main thing is that it does not remove the fundamental problem – it is unclear why we should withdraw money from our country. The Russian government is speaking about our huge reserves, and if this is true, why we are encouraging withdrawal of funds from the country? If we do not have reserves, let’s honestly admit it. In this case we need different strategic solutions.