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Top events of April 2021

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

  1. OPEC+ decide to gradually expand output quotas

    We seem to have forgotten that just a year ago oil prices were negative or close to zero. In early May 2021, oil prices were around $70, and it was perceived almost as a norm. The oil market continues to be somewhat unpredictable, and this unpredictability may create both advantages and disadvantages. Actually, following the April 1 decision of OPEC+ members to increase quotas, and given that the increase turned out to be higher than expected coupled with Saudi Arabia’s decision to gradually lift its voluntary extra cuts in the output, initial expectations were very nervous. Those decisions could have sent prices downwards because the demand had not got restored yet. Though, it turned out that prices embraced new conditions of the OPEC+ deal, which again raises the question of the influence of speculators on the market. The bull market seemed to be forming. Some observers began speculating about a new mining super-cycle. Anyway, the market consumed new quotas, although, as we have already indicated, initially they looked higher than it was necessary to preserve prices on a comfortable level. So far, the market is tolerating new production levels, while economies are gradually rebounding. Nevertheless, it is too early to claim that the economic situation has normalized: there are still lockdowns in Europe, and India is struggling. Prices, however, indicate that the market has accepted new quotas. Though, Russia is in a slightly worse situation because of the climate, as our extra quota was provided in winter. Since our updated quota takes into account its previous expansion in winter, the latest permit for Russia to increase its oil production is rather moderate.

  2. Preparations for a new version of the General Plan of Oil Sector Development are completed

    The General Plan should be discussed at a government meeting soon. It was spoken about throughout April, as some of its provisions had been leaked to the press. And the mass media certainly focused on details of the basic scenario stating that the peak output of oil was 2019. It is a rather unexpected conclusion. In fact, it means the Ministry of Energy agrees with the opinion of those who view oil as an unpromising commodity. It is quite an important point. The idea that oil does not have prospects in Russia is actively promoted by the Ministry of Finance – the minister and his deputies regularly share this point of view. They argue that Russia should think not about how to encourage oil production and how to exit the onerous OPEC+ deal. They suggest not focusing on oil but subsidizing new sectors instead. It has been a typical position of the Ministry of Finance over the past 15 years. Though, we still cannot figure out what is going to replace the oil industry. They are eagerly burying prospects the oil sector but not suggesting any real alternative, except some mythic ideas. The fact that the Ministry of Energy has come to share this point of view is quite a symbolic moment. By the way, the Ministry of Energy very cautiously commented on tax discussions last autumn. And at present the Ministry of Energy does not seem to have any desire to fight against the Ministry of Finance. In this regard, the oil sector is indeed in a difficult situation. In addition to carrying the burden of the OPEC+ deal, the Russian government’s official position is like that: “lads, thank you for being the main contributor to the state budget, but you actually have no future. Therefore, we will milk you to the end, and we will use the money that we take from you to build a new wonderful economy”. This position is so firm that even the relevant ministry, in the basic scenario of developments, agrees that the best years have passed, and we should prepare to watch the sector’s gradual demise.

  3. Vladimir Putin speaks at the International Climate Summit, mentions the climate issue in his address to the Federal Assembly

    Many observers saw an important symbolic step in it: Putin seems to be more climate-oriented than he was before. Obviously, one cannot claim that Russia’s position was anti-climate previously, as Moscow joined the Paris Agreement some time ago. Though, that decision was made by the PM, and it has not been ratified by the parliament. On several occasions Putin said that Russia was ready to follow the green course. Nevertheless, this time he raised the climate agenda on a larger scale and addressed the Federal Assembly, which is a signal to lawmakers. Secondly, Putin spoke at the climate summit organized by US President Joe Biden who had called Putin a killer just a few weeks before that. Biden and many Europeans liked the speech of the Russian President at the climate summit. We are obviously looking for some common ground with Europeans and American, as our dialogue has been in impasse. The climate logically seems to be such a platform for a dialogue. However, the question is whether it is political greenwashing or more serious steps should be expected? We would suggest considering it as reinforced pressure on Putin by Russian green lobbyists. They do exist forming three major groups at least. Firstly, these are bureaucrats who try to create a new monetary flow and take it under control. The idea of the green economy is very simple: the government sponsors green technologies. The question is where to take the money from? Green technologies are sponsored by governments in the USA and European Union. It is evident despite claims about their economic competitiveness. The US President simply declares a $2 trillion plan, and they start printing the money. As the US dollar is the world’s main reserve currency and means of payment, they can afford doing it up to a certain limit. Europeans plan that their green course will be paid by suppliers of environmentally unfriendly commodities, mainly Russian suppliers of hydrocarbons. Thus, the question is who is going to pay for this green course in Russia? The actively promoted opinion is that the green course is a chance for modernization. It is a purely Keynesian case with the state paying for some novelty. Businesses can build anything from pyramids to windfarms and solar panels – it does not matter, as long as somebody pays for that. The natural idea that emerges is that producers of hydrocarbons will pay for that, since they are considered as unpromising. Since there will be no place for them in the future, they should pay for the green course now. Functionaries understand it and put forward the following reasoning: hydrocarbon producers will pay, while we will administrate monetary flows. It is the first group of lobbyists. The second group is financiers who are eager to be intermediaries. They are ready to provide financing to ensure the green course implementation but expect the state to reimburse their expenses. And there are producers of eco-friendly products that often do not have any commercial prospects in Russia; yet, they will be eager to use state budget resources to manufacture windfarms, solar panels and etc. In the meantime, Putin, on one side, makes truly serious statements on the climate agenda, and, on the other side, does not make any concrete commitments. He said Russia’s cumulative carbon dioxide output would be lower than that of the EU in the next 30 years. On one side, this promise is quite significant. On the other side, the population of Europe is thrice as much as in Russia. The current volume of emissions in the European Union is twice as high as in Russia. Thus, it is not clear whether our goal is really ambitious.

  4. State Duma passes a bill limiting greenhouse gas emissions in its first reading

    This story is about implementation of the green course. So, what is this bill about? It introduces the system of registration of emissions. However, it does not introduce the so-called carbon payments. No taxes and no quota payments are stipulated. Meanwhile, there is such a system in Europe: they buy emission quotas there. By the way, these quotas are approaching the level of €50 per ton. There are no such payments in Russia yet. It means lobbyists of mineral producers are fighting for their interests too. There is a struggle for the opinion of President Putin. On one side, he declares climate-oriented slogans but, on the other side, the text of the bill is based on a cautious approach. The green lobby obviously will attempt to amend this bill. So, we are likely to come back to the question of carbon payments.

  5. The problem of gas supply in Russian regions

    Many observers have forgotten that on 31 May 2020, Vladimir Putin signed several executive orders to the government and Gazprom concerning free connection of households to gas supply networks. In other words, the state promised to finance the gas supply development project. In his address to the Federal Assembly the head of state again specified this question. For instance, he said the state would assume the obligation to bring gas to the border of a household’s land plot and that such activities should be accelerated; new orders were given to Gazprom and the government. This question has been discussed over the past year, but the situation is not very optimistic. On one side, Gazprom has allocated additional funds. The company is placing perpetual bonds, while the government is said to pay coupons. The idea is very simple: these bonds are like the American debt that nobody is going to pay off. The company issues bonds, coupons are paid while the debt remains. The arrangement is indeed brilliant. On the other side, what are you going to do with the debt? The USA increases its debt assuming it will never have to pay it off. It is a big question whether Gazprom can afford such a practice. Many observers think the issue of gas supply is about the money. However, this matter is not just about the money. For instance, Putin referred to some subterfuges in his address. So, what are they? For instance, Mosoblgaz that was also mentioned in the address does not belong to Gazprom. There are many regions in Russia where Gazprom does not control gas distribution organizations. It turns out that since Gazprom is made responsible for the entire gas supply development, it should control the entire vertical of gas supply, but it is not so. And there has been no visible progress in this sphere over the past year. On one side, we see that the state raises the issue of gas supply, and it becomes almost the main political slogan. On the other side, there are serious doubts about implementation of this program.

  6. NOVATEK head Leonid Mikhelson meets with Vladimir Putin

    The NOVATEK head is rumored to have touched upon the question of transfer of Tambey cluster fields in Yamal from Gazprom to NOVATEK. The Tambey cluster consists of six fields: two of them belong to NOVATEK and four are controlled by Gazprom. These are huge reserves that naturally become the subject of a very serious battle for them. Responding to questions of journalists about the Tambey group, Mikhelson quoted a popular joke about an elephant and the animal’s big daily intakes: “Well, he is capable of eating all these products, but who is going to give them all to him?” This is how he illustrated the situation around the Tambey group. The first attack probably failed, because after his meeting with Putin, Mikhelson visited Miller, but Gazprom did not make any public statement. Mikhelson does not want this question to be public. If you ask for something publicly and do not get it, everybody will think that your administrative weight is not sufficient. Though, we think that the war for Tambey will be a major story in 2021, and we will keep watching developments attentively. One thing is evident: NOVATEK made an offer, but Gazprom rejected it. It means Putin has not articulated his position clearly and plainly.

  7. SIBUR and TAIF declare merger of gas and petrochemical assets

    Many observers have analyzed the economic aspect of this deal, and we want to add a political feature that few commentators paid attention to. TAIF shareholders are known to the public – among them are children of the Tatarstan ex-president, Mintimer Shaymiyev. It means the family of an influential regional clan is offered to enter a large asset whose ownership structure is always a subject of discussion (e.g. the case of Kirill Shamalov). It is undoubtedly very interesting from the political point of view.

  8. Introduction of draft provisions of the hydrogen development concept

    There is no deficit of various concepts in our country. Actually, the topic of hydrogen production development is very illustrative. Hydrogen is certainly produced here, but it is often consumed by its producers. It happens like that in the metallurgical industry. Thus, there is no hydrogen market. There is no development of hydrogen-powered transport vehicles. There are samples of hydrogen-powered locomotives, but such samples were made many years ago. There was even a hydrogen-powered aircraft in the USSR. Thus, this topic was developed some 50 to 60 years ago. There is nothing new about it. Nevertheless, without understanding economic realities, production costs and technological solutions, the hydrogen topic is snowballing. And Russia reacts to this situation. The concept claims that by 2050 we will be able to export $100.2bn in hydrogen. How was this precise amount calculated? Just imagine: there is no market at present, we practically do not sell hydrogen, but we calculate every single cent of its exports in 2050. Actually, it is how new economic and energy prospects are promoted – figures are pulled out of thin air. Obviously, if the state finances everything, it is possible to draft a strategy and utilize the money allocated. The question is whether the state needs it. We hope there is enough people in the government who will recall the joke Mikhelson said to journalists.

  9. Vladimir Putin receives LUKOIL head Vagit Alekperov

    After their meeting there were speculations about possible correction of the tax regime applied to viscous oil. However, there has been no progress in this direction yet. On its side, the Ministry of Finance realizes that it has gone too far about highly viscous oil. In some cases, its production is no longer profitable. LUKOIL is a commercial company. Its position is like “I will suspend production, and you will have to deal with the unemployed and their families”. What else should the company do? The Ministry of Finance seems to understand it and agrees to adjust taxation. But when will it do that? By the way, earlier Putin chaired a meeting devoted to investments, where Alekperov raised this issue publicly; Putin even made a corresponding instruction. However, the Ministry of Finance continues to act within its logic: since oil is doomed, and nobody will need it soon, there is no point in subsidizing it. Let’s collect the money and invest it in hydrogen.

  10. Deputy PM Yury Trutnev accuses Rosgeo executives of failing to timely implement geological prospecting in Kamchatka

    This reflects the struggle for the geological sector. Throughout April there were rumors about resignation of the Rosnedra head. Deputy PM Trutnev toughly criticized Rosgeo executives. Thus, even if the epoch of oil and gas is said to be finishing, there is still a desire to distribute resources available in Russia. It is the reason for heavy battles in the geological sphere. And this struggle is not over yet.

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

Hydrocarbon Rush to East: Current Status, Medium-term Prospects
Hydrogen as New Energy Hope
Russian Oil Production and Export in Time of Low Prices and OPEC+
State Regulation of Oil and Gas Sector in 2021 and Prospects 2022
Gazprom: Life after Major Construction Projects

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

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