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Top events of January 2020

The National Energy Security Fund introduces top-ten events in the oil and gas industry in January 2020 and is ready to comment on them in detail.

  1. Dmitry Medvedev’s Cabinet resigns, a new Cabinet is formed, the oil and gas sector’s supervisor changes

    The government does not really look totally new. For instance, changes in the industrial bloc, including the oil and gas sector, are minimal. Aleksandr Novak is still the Minister of Energy. The supervisor of the oil and gas sector on a Deputy PM level is different. It is remarkable that no new supervisor was appointed. Dmitry Kozak left, and Yury Borisov, previously responsible for the defense industry, is now in charge also of the oil and gas industry. It is indeed an interesting move. Kazak left for the Presidential Executive Office, as he is very close to Vladimir Putin. The President probably had expected Kozak to become an initial arbiter in complicated situations happening in the fuel and energy sector. Kozak eagerly attempted to assume such a function – he held tough meetings with actors and tried to explore either this or that topic. Yet, the sector is very complicated. Besides, there are real giants, both economically and politically, in the sector. It turned out to be very difficult to build the system of objective arbitration. In this regard it is sufficient to mention the history of the Rosneft-Transneft conflict. By the way, this case very clearly showed that the government in fact could not offer any solution to that situation. No explanation of what actually happened has been offered yet, let alone sharing some conclusions. Thus, the arrangement with a strong Deputy PM neutral to the sector has not proved effective. Meanwhile, Borisov has never dealt with the fuel and energy sector; it is actually a makeweight for him. In the near future we will see how well he will manage to soak himself in this topic.

  2. New social targets of the state, tax expectations of oil and gas companies

    The new government was formed for a purpose. On January 15, Vladimir Putin declared about new social priorities. Basically, the so-called political transition has begun. Putin is changing the political system. Putin obviously will stay in charge of the country, but it is not clear yet how it will be institutionally arranged. Some amendments to the Constitution are prepared, and to avoid negative surprises, this process is accompanied by distribution of quite sizeable “gifts”. Oil and gas companies certainly shuddered seeing this new social policy. Moreover, the current First Deputy PM is Andrey Belousov, whose proposal to take “devaluation revenues” from companies is still very well remembered. On one side, we observe growth in taxes on oil and gas companies. On the other side, last year was quite positive inter alia because of quite convenient prices of hydrocarbons on the background of a rather cheap ruble, which enabled oil producers to earn quite well. This is why oil producers are always on alert – when the government runs out of the money, it will turn to oil companies again. Thus, they are certainly in the risk zone, and they should not expect anything positive for them from the new social policy.

  3. Gov’t approves bills on incentives for investors in Arctic projects

    It is an interesting case. On one side, we can see that the sector is in suspense. On the other side, large companies are well aware of the golden rule: the most effective defense is an offense. Therefore, instead of waiting for the government to come for new taxes, it is necessary to request something while it is not too late. Such attempts may be fruitful. The government is in a difficult situation: the priority task is to find the money to fulfill social promises made by Vladimir Putin, but the task of economic growth has not been canceled. It is only the oil and gas sector that can support economic growth in Russia now. It is obvious. It is certainly possible to refer to some small and medium-sized businesses, and good institutions, but it should have been done much earlier. Since nothing of this kind was done, now it is too late to do. This is why the stake is only on large industrial projects. Where such projects can be found? – Certainly, in the oil and gas sector. This is the reason for the idea of Arctic incentives actively lobbied by Rosneft. No wonder that Rosneft is targeting this soft point of the government. The company promises almost 2% of GDP growth – these are fantastic figures, but the idea is exactly that: there will be no economic growth without new projects in the oil and gas sector. While the National Prosperity Fund (NPF) has the money, invest it in these projects. The government understands all that. This is why the task of the Cabinet is to make sure that there is money in the NPF and simultaneously there is no money in the NPF. And the masterstroke is to buy out Sberbank from the Central Bank of Russia. On one side, the money will remain in the state budget, but on the other side, the deal will be financed with the NPF money. Therefore, when lobbyists ask for the money, the Cabinet may just make a helpless gesture: “you know, we have just paid for Sberbank; therefore, we have no money at present”.

  4. Russia-Belarus conflict over oil and gas prices continues

    It seems there was indeed a plan to establish a united state. The idea was nice: to create a united state by the 75th anniversary of Victory Day, and Vladimir Putin would prolong his powers. However, it seems that Aleksandr Lukashenko rejected this idea and fell victim of his defiance, as Putin immediately put his foot down. Gas prices of $127 per 1,000 cu m were prolonged for 2020. However, with spot prices below $100 this proposal does not look optimal for Minsk. Belarus actually has no alternative at all. The oil case is different. Belarus still does not pay customs duties saving over $10 per bbl, which is a serious benefit. Therefore, when Aleksandr Lukashenko argues that he is not offered “fair” prices, he actually is not very sincere. Putin did not change his firm position in January. It is possible that Lukashenko is trying to get something, because his main idea is to sell politics. It means that everything he is left to do is to constantly threaten to “leave for the West” and turn Belarus into “another Ukraine”. The Belarus story obviously did not end in January.

  5. Implementation of a new gas contract with Ukraine

    Some pages of the contract were posted on the Internet. The previous contract, however, was fully published in Ukrainskaya Pravda; this time, unfortunately, it did not happen. Yet, the posted extract is interesting too. For instance, it turns out that the pump-or-pay provision defines monthly, not annual, quantities. Thus, Gazprom must observe this provision every month. Transit in January was lower than planned, and Gazprom paid for unutilized capacities. This part of the contract obviously is not positive for Gazprom. However, this agreement with Ukraine was a compromise, meaning that each side ceded something. For instance, Ukraine made concessions on the tariff. It added insignificantly; the symbolic advance was even below the inflation level in Russia. Since the tariff did not surge, the pump-or-pay provision became tougher. Therefore, a compromise is indeed a compromise. Nobody said that we fully beat Ukraine.

  6. Ceremonial launch of TurkStream

    The gas pipeline began operating and pumped the first 1 bcm of natural gas in January. It is an example of implementation of bypassing pipeline projects. The Nord Stream 2 is still facing the well-known political problem. The TurkStream has some difficulties too – they are related to Bulgaria. However, the pipeline already delivers gas to Turkey. Although consumption of Russian gas dropped in Turkey in 2019, from the strategic perspective, having a new gas pipeline is an important and serious argument.

  7. Vladimir Putin, Angela Merkel meet in Kremlin, developments around Nord Stream 2 construction

    Political tension indeed remains, but Germany still supports this project. There is no way to expect someone to assist the blacklisted project technically or in some other way. This is why completion of its construction is the task of Gazprom. There is a technical possibility to do that, as we have corresponding ships and one year to finish the project. It is indeed a challenge to Gazprom and the country, and we have no right to fail here.

  8. Russian LNG becomes one of main competitors of Russian piped gas in Europe

    January is a traditional period to sum up the results. The most striking conclusion is that Russian LNG was one of the main competitors of Russian piped gas on the European market. Russia became the second largest supplier of liquefied natural gas in Europe. It is a case of cannibalism. The liquefied natural gas produced at the Yamal LNG plant was promised to be exported to Asia, but over 20 bcm was shipped to Europe. Taking into account gas prices, statements by NOVATEK that its gas is transshipped in Europe and sent to Asia are not quite honest. For instance, it was pointless to transship gas to Asia at the beginning of 2020, because spot prices in Europe were higher than in Asia. This is a new reality. State authorities are silent about it. Gazprom, by the way, also prefers not to really spread this information. However, numbers do not lie. And the most remarkable thing is that the Yamal LNG project was created with huge support of the state. It turns out that the government invested the money in the project that pushes gas prices down on the European market and undermines our gas supplies through pipelines. It is the strategic choice that nobody is willing to explain.

  9. Political situation in Libya, output decline, developments on the world oil market

    Although some say that the influence of geopolitics on prices is decreasing, if it was really so, world oil prices would be much lower now, and the situation would be worse. In this regard, Libya supported us in January with suspension of its oil exports over political motives. No wonder Europe immediately got concerned about the Libya case. Russia played its role here. Political presence in such complicated regions enables Russia to somehow influence oil prices. Anyway, the situation could have been much worse in January without Libya. Later, however, the coronavirus case began generating panic forecasts of decline in demand in China. This situation has not been resolved yet. Though, if the coronavirus was supplemented with Libya, and there were no problems around Venezuela, the situation would be much worse.

  10. Beijing pledges to buy additionally $52bn in US energy supplies within two years

    It is necessary to bear in mind that the oil market is global, and the gas market is also moving towards globalization; this is why it is necessary to consider everything on a global scale. If there was no China, American producers would sell their energy somewhere else. Growth in oil and gas production in the USA has long been a problem for its competitors, including Russia. Nevertheless, we should watch how USA-China trade relations will develop. Moreover, they may encounter the problem of the declining pace of growth in China’s demand for energy resources. Some in Russia would say only fools produced oil and gas, but the USA within a short period of time in fact doubled its oil output, and these days it is our serious competitor on the world market.


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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

All reports for: 2015 , 14 , 13 , 12 , 11 , 10 , 09 , 08 , 07

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