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Top events of February 2017

The National Energy Security Fund introduces top-ten events in the oil and gas industry in February 2017 and is ready to comment on them in detail.

  1. Emergency measures in Ukraine’s energy sector

    Coal supplies from Donbass were blocked, and even Ukrainian state authorities, e.g. energy minister Igor Nosalik, PM Vladimir Groisman, and president Pyotr Poroshenko, declared that the situation was very disturbing, and accused blockade activists of serious destabilization of the Ukrainian economy. It has not affected transit of Russian gas that, by the way, has increased this year. Yet, the situation is very dangerous. Ukraine is readying for rotational outages. Nosalik says that natural gas will have to be used more actively, although this possibility is doubtful because of technical capacities of Ukrainian thermal power plants. The risk of radicalization of the situation in Ukraine remains; radicals have seized railway stations next to Donetsk. They may declare that Ukraine must not make friends with Russia, and that gas pipelines should be seized too. Such developments question reliability of gas transit. It is not the only question to the Ukrainian system. According to some calculations, transit through Nord Stream-2 and simultaneous refusal of Ukrainian transit services is economically quite feasible.

  2. Deadlock in talks with Belarus

    The agreement has not been achieved yet. At the end of February Russia indicated conditions of a compromise. We are ready to make gas price concessions, but we demand paying off the accumulated debt. Belarus invented the formula and paid under it. The debt of $600m is, actually, a stumbling block. As soon as the debt is paid off, documents on the new formula of gas prices will be signed. Belarus will benefit from this formula. Russian oil supplies to Belarus will grow, because Iranian oil deliveries that Aleksandr Lukashenko referred to is just trolling.

  3. Gazprom losses expanded access to OPAL on Feb. 1

    The European Union has acted pretty cynically: during the heating season accompanied by high demand for natural gas, Gazprom was allowed to use 50% of the pipeline’s capacity directly and buy another 45% at auctions that were obviously attended only by Gazprom. However, following a suit filed by Poland, that arrangement was canceled on February 1, and Gazprom has to increase transit via Ukraine. Proposals that Gazprom made on using OPAL do not contradict the Third Energy Package provisions – the Gas Release procedure and auctions are stipulated in the regulations. But, unfortunately, the EU proceeds from the assumption that there is no diversification where Gazprom is, although additional pipeline capacities reduce risks of the system.

  4. Gazprom decides to control 100% in Nord Stream-2

    Despite hindrances created by the European Union, implementation of this project continues. So far, Gazprom is ready to make everything at its own expense. According to some assessments, the project will be definitely profitable. Gazprom will benefit more from it, compared to the Ukrainian transit. It is especially true given that Ukraine constantly wants to raise transit fees.

  5. Contract on laying line 2 of Turkish Stream signed

    Gazprom signed a contract with Allseas Group on laying the second line. It means the gas giant still bears in mind the South Stream. Building two lines simultaneously is much simpler and cheaper. No final choice seems to have been made on whether the second line will run to Turkey or Bulgaria. Allseas will begin construction near Anapa, Russia, and two lines will be built together until they reach the border of territorial waters of Turkey and Bulgaria. And then the decision will be made. Ankara definitely needs line 1 of the Turkish Stream.

  6. EU adopts plan of investments in infrastructure

    The plan includes some known interconnectors, connection of a non-existent LNG plant in Croatia with an existing but underutilized LNG plant in Poland. The EU persistently keeps spending the money on interconnectors, although, according to our estimations, they are 70% to 80% empty. Therefore, such investments are inefficient. Meanwhile, projects suggested by Russia that could be loaded by 100%, e.g. OPAL, are considered unsuitable for the energy strategy, although they fully correspond to the rules and regulations of the European Union.

  7. Cooperation between Rosneft and states in Middle East

    Agreements with Iraq and Libya were signed. Experts immediately pointed to a political component in these deals, because their economic component is hard to notice. It is especially amusing to hear statements that Libyan oil will be processed at European refineries of Rosneft. The matter is that Libya is just next to Sicily, Italy, where Rosneft withdrew from a local refinery in February. Therefore, the question is why Rosneft sold its stake in this refinery and immediately sealed a contract with Libya? So, the idea is that we probably again use oil as some foreign policy instrument. The question is what we will get for that? We do a serious favor for Libya and Kurdistan. Besides, there are active negotiations with Iran; we are not giving up this strange desire to buy oil from this country and market it in exchange for some, possibly, mythical purchases of Russian commodities. We do some strange favors for our direct competitors on the world oil market. Perhaps, it is part of our payment for implementing the agreement with OPEC; the deal is still in force, as in February oil prices were quite high.

  8. Gazprom, CNPC start commercial talks on gas supplies from Far East

    The contract on the Power of Siberia was inked in 2014. However, given the Chinese market capacity, the contract is not that big. Therefore, the sides are looking for opportunities of expansion of supplies. Some 25% of the Power of Siberia has already been built. Meanwhile, as negotiations on the Altai pipeline are rather complicated, there is a variant of stretching the existing Sakhalin-Vladivostok gas pipeline to China. However, the issue of Sakhalin resources is not clear. Moreover, Rosneft and Exxon do not want to give Sakhalin-1 gas to Gazprom; they insist on independent exports of this fuel.

  9. Gazprom refuses to supply gas to Rosneft’s Eastern Petrochemical Company

    In this case Gazprom just follows the behavior of Rosneft. Gazprom says: “Hey, guys, you’ve got Sakhalin-1 gas. So, why not using it? Why do you make us supply our gas to your enterprise, while you have your own fuel? You refuse to give this gas to us for exports. Well, use it yourselves!” Gazprom does not see any logic in claims of Rosneft. It is not the first conflict between the two state companies. The story is likely to continue.

  10. First deputy energy minister Aleksey Teksler to supervise tax issues

    Actually, the question is not about the tax issue supervisor, but about the way the energy and finance ministries interact on this topic. So far the dialogue is rather bad, and changing the supervisor is unlikely to facilitate adoption of fiscal decisions the sector needs. The finance ministry beats oil producers. On one side, there are preparations for an experiment on introducing the excess profit tax – a new taxation system. On the other side, the finance ministry says its introduction may lead to lower revenues of the state budget, and oil producers should offset them in full. Oil producers do not count on support of the ministry, and, depending on their own political weight, solve problems independently. For instance, Rosneft is actively demanding personal preferences for the Samotlor deposit.

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