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The Fuel and Energy Complex of Russia - Series of Analytical Reports - 2013
National Energy Security Fund, February 2013
The National Energy Security Foundation presents a traditional series of analytical reports devoted to main problems of development of the Russian oil and gas industry. Subscribers are provided with detailed descriptions of the condition of the Russian fuel and energy sector, the state system of administrating the sector as well as scenarios of its development in the medium-term perspective.
The range of sources used includes NESF’s in-house information, sectoral statistics, data from companies operating in the oil and gas sector, laws and bills, information from federal and regional mass media sources, materials of conferences and round-table meetings.
The series consists of 8 (eight) reports to be published in February through December 2013.
1. Russia in struggle for European gas market
The European gas market remains a key one from the point of view of Russian interests.
However, most experts predict soon downfall for Russia: previous forecasts of sharp rise in imports are moved to the recycle bin, and there are speculations about shale gas production in Europe, its deliveries from the USA, replacing natural gas with fuel and launch of new gas supplies from the Caspian Sea region.
Moreover, practical implementation of the Third Energy Package is in full swing. Russia responds to this by building new gas pipelines as if not paying attention to the eminent threats.
But how really dramatic is Russia’s standing on the European gas market? What direction will its evolution take? How correct are forecasts of experts about fierce struggle of gas sellers for European customers and unavoidable changes in the rules of the game?
2. Development of offshore projects: words or deeds?
Development of the world oil and gas production sector has long and steadily been focused on offshore projects.
Russia seems to realize this tendency, and the future of its oil and gas sector is linked to development of offshore deposits. Quite many statements about rapid shelf development, including the Arctic shelf, are made. The state promises solid assistance – both in terms of infrastructure and taxation. There are speculations about possible liberalization of access to the shelf for private and foreign companies.
However, it is necessary to separate real things from declarations, and find out the degree of feasibility of plans on developing the Arctic and other important offshore projects and the declared dates of their launch.
3. Eastern energy policy of Russia
Over the past few years Russia has become keen on considering Asian consumers of hydrocarbons. And it is logical. Firstly, our difficulties in relations with the EU are too obvious. Secondly, Asia is the main driver of growth in the world demand for energy resources.
It would be unwise to miss this relatively new market for Russia. Yet, the situation is not that simple. It is necessary not only to develop the infrastructure – the sphere where we have progressed substantially lately, but also to seriously improve the situation around production projects. The resource base of our supplies exists mainly in plans. Moreover, the marketing strategy is important, as the Asian market is not homogeneous and the selection of new energy partners will have both financial and political outcomes.
4. Search for new taxation regime in Russian oil and gas industry
Fiscal novelties are becoming more noticeable in the oil and gas sectors. However, vectors of changes are often opposite. In the oil industry the state seems to intend to loosen its grip: preferences are allocated to deposits with hard-to-extract oil, to fields of eastern and offshore projects. However, the question is whether the philosophy of taxation will ever change. Oil producers need not local concessions but altering the principle of taxing revenues, not profit.
In the gas industry the Cabinet tries to implement the so-called taxation maneuver that means growth in the fiscal burden on the gas sector that the finance ministry believes to be under-taxed. Gas producers respond by claiming they are ready to reduce investments and close a number of promising production projects.
5. Central Asia and Caspian region: oil and gas geopolitical square
The Caspian Sea region and Central Asia remain in heightened focus of the EU, Russia, China and the USA. This geopolitical square becomes more and more tangled. On one side, we observe development of production and pipeline projects. On the other side, political risks are rising. This is why it is very important to figure out the region’s real production potential and the pace of implementation of transportation projects, as well as the economy of supplies and political developments.
6. Oil refining: huge plans
Russian oil companies posted grandiose plans on developing their oil processing capacities. This produces strong impression save one “but” – the need for investments in the Russian downstream segment has been spoken about for more than ten years. The question is whether usual declarations will have some follow up.
It is also important to understand the goals of oil companies and what they counts on first of all – on growth in the profit margin on the domestic market or increase in exports of oil products. To realize successfulness of this strategy it is necessary to look into the future of the European market of oil products where Russian companies hope to organize significant changes.
7. Gazprom during Putin’s latest tenure
The past few years have been rather difficult for Gazprom. Competition on foreign markets is growing as well as pressure by domestic competitors that have significant political support.
Questions of preserving Gazprom’s export monopoly and possible restructuring of the company are again on the agenda. Meanwhile, after his comeback to the president’s chair Vladimir Putin seems to be creating additional difficulties for Gazprom rather than assisting it.
8. State regulation of oil and gas sector in 2013, prospects for 2014
NESF traditionally concludes its oil and gas series by this traditional report that sums up main events and tendencies of the year. The report contains analyses of production results of the year, main novelties in the sphere of state regulation of the sector, struggle for assets as well as a traditional forecast of the sector’s development in the medium-term perspective.