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Top events of January 2021

The National Energy Security Fund introduces top-ten events in the oil and gas industry in January 2021 and is ready to comment on them in detail.

  1. New conditions of OPEC+ deal, growth in oil prices

    This year’s first and rather nervous meeting of the OPEC+ Joint Ministerial Monitoring Committee took place in early January. Russia put forward a proposal to expand production quotas. This move led to an unexpected compromise: Russia and Kazakhstan were allowed to increase their output as of February, while Saudi Arabia pledged to offset new quantities to be supplied by Russia and Kazakhstan. The concession was attributed to weather conditions in the two states. Although the climate did not differ from past years, this new argument was accepted. Then the weak dollar factor emerged. Then there were hopes for successful vaccination. Though, the situation was very contradictory amid new strict lockdowns in Europe. Nevertheless, all these factors led to growth in oil prices. On one side, the situation looks pretty bright for Russia, because we wanted both prices and our output to go up. On the other side, the situation on the world market is still very fragile; there is a long way to stability. Besides, growth in prices has rather ambiguous consequences, because growing prices improve economic conditions for oil production in the USA, while declining oil prices create problems to the Russian state budget. The global demand has not reestablished yet. By the way, results of Russian oil exports were rather sad in January – we lost almost 20% compared to last year’s exports. It is a rather significant loss.

  2. New US sanctions against Nord Stream 2, construction resumes in Danish waters

    Preparations for laying pipes began at the end of January. In early February, Nord Stream AG announced the beginning of pipe laying activities. The Fortuna vessel is operating, and Danish regulators have no objections to it. It is an excellent piece of news on the background of withdrawal of insurance and certification companies from the project in January following the increased sanctions pressure. The latter seems to be impeding Akademik Cherskiy to start working; in January it was at one of German seaports. Thus, the big game is not over yet. There is some progress, despite attempts of Donald Trump to worsen the situation around the Nord Stream 2 on the last few days of his term in office, since the pipeline is an obvious competitor of American LNG supplies to the European market.

  3. Balkan Stream launch

    Gazprom has confirmed the beginning of supplies though the new route to Serbia and Bosnia and Herzegovina. Thus, the pipeline through Bulgaria to Serbia operates, and it is an important stage of development of the southern bypassing route and the second line of the TurkStream. Nevertheless, there are some outstanding questions, because it is still necessary to complete construction of three compressor stations at this section of the pipeline. Thus, the struggle in the south and the north will continue.

  4. Azerbaijan begins commercial gas supplies to Europe via Trans Adriatic Pipeline

    The Southern Gas Corridor system (TANAP-TAP) has begun operating and delivering Azerbaijani gas to Western Europe. We certainly expected it. However, when temperatures dropped in Europe at the beginning of the year, demand for Russian has surged substantially anyway. January was quite successful for Russian gas supplies to Europe. It means that we have a competitive advantage to stand competition on the gas market, provided that such competition is fair. The TANAP-TAP launch is not a problem. This system has not radically altered the situation in the south of Europe yet. Though, Europe politically promoted this system but, unfortunately, militated against our TurkStream 2 project. The Bulgaria case proves this attitude has not changed.

  5. Joe Biden comes into office, pledges to follow clean energy policies

    Initial decisions of the new US President were sufficiently indicative: Biden reestablished the US participation in the Paris Agreement, canceled the Keystone XL oil pipeline and imposed restrictions on using federal land in oil and gas production. So, his actions immediately demonstrated that he intended to be a climate conscious President. Speculations that followed predicted problems to American shale producers. However, his moves have done nothing that could strongly hamper American shale companies. Banning licensing of federal land? – Shale producers were collecting licenses on private land throughout 2020 realizing that Trump could lose the elections. Keystone XL? – It is Canada’s problem. The Paris Agreement? – Well, it is strategically clear that Biden will lobby interests of green Keynesians eager to use state subsidies allocated on development of the renewable energy sector in the United States. This is a huge market and huge money. Though, the money will be invested in the USA. The problem is that the US domestic fuel market perhaps will decrease. It is a giant market; the USA is the major oil consumer in the world. It means that the USA will have more oil to export. And this is the problem. Some observers in Russia think that Biden will destroy the US shale industry, but it is a very naive point of view. The year 2020 can serve as an example in this regard, though Biden was not the President then. The US oil output indeed eased back slightly last year, but exports surged noticeably by 4%, which was a serious achievement in the year marked by COVID-19 restrictions.

  6. Norway’s Government Pension Fund says it sells all oil and gas related assets

    There in more hype than reality in this statement. For instance, if a company produces oil and simultaneously develops the renewable energy sector, the Fund does not treat this company as an oil and gas firm. Thus, the Fund might still have shares of such producers. Actually, all European majors have long been investing in green energy. Moreover, this statement is somewhat cynical. Norway’s Government Pension Fund accumulated its money from revenues of the country’s oil and gas industry. Thus, it looks like an attempt to play against your father. It is remarkable that Norway that lives off the oil and gas sector openly hates it. By the way, we are in a very similar situation. Although the Russian budget strongly depends on oil and gas revenues, for decades we have been persuaded to dislike the oil and gas sector. It is said to be the cause of our underdevelopment, our curse and etc. This situation is probably more grotesque in Norway, given that Norway produces four times more oil per capita than Russia. Therefore, it is quite ridiculous to live off the oil sector, hate it and threaten to withdraw from all oil projects soon. A trillion dollars is certainly a gigantic amount, especially for Norway, but unjustified decisions may corrode such a fund.

  7. Vladimir Putin meets with Aleksey Miller amid rumors dismissing the Gazprom head

    The business media and Telegram channels were predicting Miller’s departure throughout January. His dismissal was said to be just round the corner. Yet, at the beginning of February Miller is still in charge of Gazprom. This year will be obviously difficult for him. His current employment contract expires this May. Therefore, Miller should expect continuous attacks this spring. Nevertheless, it is very difficult to remove Miller at present. Even if we assume that Putin is already considering this option, removing Miller now would mean admitting that the Nord Stream 2 is having evident problems. This pipeline must be laid now – replacing the Gazprom head before the construction is completed is practically unreal. Though, some think that upon completion of its construction there will be a good moment to get rid of Miller. However, Gazprom has launched a new program of gas supply development – it is supposed to be free and nationwide, and this economic idea can inject new life into the old economic background of state authorities, let alone the social role of this initiative. Certainly, it should be organized in a proper way. Therefore, it would be strange to declare a large-scale program of free gas supply development with Gazprom being responsible for its implementation and to remove Miller soon afterwards. His departure will mean the beginning of Gazprom restructuring. It is hard to image a different person running Gazprom and the company staying undivided. This factor should be taken into account.

  8. Discussion of acquisition of Payakha and a stake in Vostok Oil

    Rosneft purchased Payakha from Neftegazholding of Eduard Khudainatov. Trafigura took a huge credit from banks affiliated with Rosneft, and the Vostok Oil project was estimated at $85bn, which is more than the current market value of Rosneft. The number of such deals raises a big number of questions. On one side, Trafigura buys a stake in Vostok Oil; on the other side, it uses the money of Rosneft to do it. Reserves of Payakha skyrocketed recently, which correspondingly influenced the price that Rosneft paid for the asset. The Western media suspected that Trafigura had been granted some preferences in oil trading. This caused a furious reaction of Rosneft that demanded that such reports are refuted. Deals with Rosneft stocks raise questions quite often. They were raised when a block of shares was sold to Glencore and Qatar Investment Authority and when assets in Venezuela were exchanged for a stake that belonged to the state. The Vostok Oil case is also very untransparent and, possibly, it is not the last deal of this kind.

  9. Government office establishes energy department headed by Pavel Livinsky

    Pavel Livinsky is a former head of Rosseti. He is a prominent state manager, and Rosseti is one of the biggest energy companies. This is why it is interesting that such a big figure has agreed to head the government department of energy. It means that reshuffle in the system of state regulation of the oil and gas sector continues with new intrigues and new lines of conflicts to emerge.

  10. Deputy PM Aleksandr Novak holds a meeting on fuel prices and the dampening mechanism

    It is the first crisis that Novak has to settle in his capacity of a Deputy PM. Domestic petrol prices have grown causing certain concerns of state authorities in the election year. Such developments could lead to very unpleasant outcomes. Novak did not have time to prepare but he managed to convince companies to control the situation. However, no economic incentives were provided to oil producers. Although the Ministry of Finance claims that the dampening component cannot be altered, it has raised the basic price in the dampening mechanism formula by 5%, which should cause extra payments by oil producers. The Ministry of Finance admitted that oil companies paid almost 4bn rubles under this mechanism in 2020. Thus, threats of bureaucrats to complain to Putin about growth in petrol prices work for oil producers so far. The serious question is for how long they will work.


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Analytical series “The Fuel and Energy Complex of Russia”:

State Regulation of Oil and Gas Sector in 2021 and Prospects 2022
Gazprom: Life after Major Construction Projects
The Arctic: a new state priority
Tax Treatment of Oil and Gas Sector: Choosing Priorities
Import Substitution in Oil and Gas Industry: Myths and Reality

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

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