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Top events of Jule 2013

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

  1. Struggle for Rosneftegaz sharpens

    We are observing another round of a conflict between different clans of Russian elites. Rosneftegaz is one of the lines of this conflict around control over privatization. The approaches are well known. Igor Sechin believes that dividends of Gazprom and Rosneft should be transferred to Rosneftegaz; the latter is supposed to buy assets using this money. This will make Rosneftegaz a kind of “asset box” that will be ‘correctly’ privatized later. Sechin’s opponents from the government think that Rosneftegaz should not accumulate money, as they are aware of who controls Rosneftegaz – by transferring funds to this company they would assist Igor Sechin. Thus, the conflict continues, elites are divided, the situation remains complicated.

  2. Rosneft vs. Transneft

    The showdown between the state companies is another line of tension between elites. Perhaps, this is one of bright examples of a high degree of conflicts in the current political system. It has been long since state companies publicly made fur fly last time and their top executives pointed fingers at each other. One of the problem lines is that Transneft is made to build oil pipelines that will be used by Rosneft that is not going to finance their construction. The government planned to bear expenses on that, but it is not rushing to do so. Actually Transneft pushed itself into the corner – many years ago we warned that the lack of a sufficient volume of oil production in eastern regions would lead to its redirection from Western Siberia. This was an obvious thing. And now the necessity is emerging in building the necessary infrastructure. Transneft did not take those warnings seriously then, and now it turns out that the company is supposed to invest in construction but it does not have the money for that. The pipelines to be laid are to service just one company that is not going to pay for the construction. It is difficult to say how this conflict will end. Igor Sechin is a super powerful figure, but Nikolay Tokarev is also a person from Putin’s close circle and his positions are strong.

  3. Rosnedra head replaced

    This is an example showing there are no all-powerful figures in the Russian system; even such persons as Igor Sechin can be defeated. His protégé Alexander Popov was ousted as head of the Federal Subsoil Resources Management Agency. This move was made in a classic bureaucratic manner: the post was abolished; the Rosnedra head was also made deputy minister of natural resources. This is actually the same thing but the post is new. Thus, Popov was dismissed when the post was abolished. He was replaced by Valery Pak, who is Viktor Vekselberg’s protégé; his candidature was agreed to with Arkady Dvorkovich. In the existing Russian system one of the main rules is that there are actually no people who always win – anyone can suffer losses. Even if you are a member of the team of some highly-ranking official it does not mean that you are fully protected. By the way, this has not been Sechin’s first defeat over the past year.

  4. Ban on disclosing reserves data lifted

    The main intrigue of this case is whether we will introduce the western system of registering reserves. It is clear that confidentiality around reserves was a rudiment, as we have a great number of foreign companies that are allowed to enter the sanctum sanctorum, e.g. offshore projects. They are obviously aware of the reserves data; moreover, they are to finance geological prospecting. So, who we are going to conceal this data from? If we have decided to be open, we should, perhaps, abandon the Russian classification and introduce the western one. But if we transfer to the economic system of calculation of the reserves, the amount of oil reserves once voiced by minister Donskoy, that were substantially higher than data by ÂĐ and Oil&Gas Journal, may be considered doubtful.

  5. Russia’s record high daily oil production

    This record is with a bit of sadness, because it is already becoming obvious that the year results will not be very optimistic: growth will be insignificant – within statistical accuracy. Russia’s record is certainly impressive, but the USSR produced more. And in 1987 to 1988 the Russian Soviet Federative Socialist Republic (RSFSR) produced substantially more. There is certain restoration of previous positions, but the question is what comes next? Even the government says that the main thing is to maintain production. Thus, amid stable oil prices at $100 per barrel, we are struggling for preserving the current output volume being unable to increase it. This is the main drama and problem currently.

  6. Putin signs law on differentiating hard-to-recover oil production tax

    The main problem is that it is necessary to change the taxation system to raise production. But if you change the taxation system, budget revenues will decrease. Production costs of new oil will be higher, which means that it will bring less money to the budget. Oil producers are businessmen; if they cannot achieve, for instance, 15% profitability, they will not deal with untraditional oil. And this law has very many pitfalls, e.g. the system of accounting is not quite clear. The government promised not to introduce the system of differentiated accountability at wells, but it is not clear what will finally happen. So, the government seems to be sending positive signals but problems remain.

  7. Meeting at Yuzhno-Sakhalinsk, decision to build Rosneft’s new plant

    This is the case of competition as process not stimulating but eating up investments. Rosneft decided to erect a separate LNG plant, although from the economic point of view the most expedient decision would be expansion of an LNG plant in Korsakov where the bay does not freeze, which is optimal for 24h shipment of LNG. We understand that Gazprom was doing a lot to prevent exports of Sakhalin-1 gas, but the decision made also shows that this is the result of administrative war, not competition between companies. And the decision is in favor of Rosneft that will build its own plant in another bay, which is a more expensive project.

  8. New round of Russia-Ukraine talks, Putin visits Kiev

    There is no solution of the gas question. Meanwhile, the situation is critical: a record low volume of natural gas has been pumped into underground gas storages in Ukraine. A new conflict at the beginning of the next year is envisaged. How it will be settled is unclear. The relations remain dramatic, and there are no solutions. Russia suggests no compromises, but there is no way to avoid Ukraine as transit state until the South Stream is built.

  9. Growth in gas and petrol prices

    The planned 15% rise in gas tariffs occurred on July 1, but advance in petrol prices was not planned at all. When gas prices surged, the popular comment was “Well, now you see the result of the absence of competition in the gas industry”. But nobody wrote: “And now you see the result of competition on the market of oil products”. Everybody is confident that the gas market is uncompetitive, while the oil market is absolutely competitive. But we see that prices on the competitive market can also grow quite substantially. We do not observe any big difference between the gas and oil industries: prices are growing in both sectors. There is probably no real competition in either sector.

  10. Another coup in Egypt, president Morsi ousted

    This information is important for Russia. Although many observers portray Russia as authoritarian state, our situation is not that pessimistic compared to other producers. There has been a number of coups in Egypt. The whole Middle East and Northern Africa are in fire. This is a tinder box that may blast at any moment. And this instability obviously looks positive for us, because hopes of the Europeans for our competitors in the Arab world are melting in political fires of Egypt, Syria, Mali and other states in these regions.

 


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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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