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World Tendencies of Oil and Gas Market Development and the Strategy of Russian Companies
National Energy Security Fund, July 2006, Pages: 60
The main tendency in the world hydrocarbons’ market today is the enlargement of businesses, expansion of influence spheres and the geography of oil and gas companies’ operations.
The logic of the oil and gas development forces the large corporations to not just go beyond the traditional territories but also spread their influence on other states and even continents. Success is determined by both geographic diversification and the ability to conquest adjacent markets. That is why the companies in the O&G business aim to transform into fully-fledged energy corporations with producing, processing, transporting and sale facilities in the oil and gas industry and with energy assets.
Russian oil and gas companies are no exception. Today the formation of a new structure of the local oil and gas industry is nearing completion, and the owners of energy assets are seriously thinking about the ways to fortify their positions in market with the help of attaining control over foreign assets. This is especially important for the Russian power political clans that have turned into the largest proprietors of the local energy concerns. Diversification of business beyond Russia will allow them to move several assets to their direct control and insure against the possibly encroachment on ‘their’ property in the future. They are insuring against the political risks and receive the opportunity to become global political players and expand out of the Russian political framework.
The paper dwells on the following topics:
Expansion of the Russian O&G companies overseas. The continuing formation of the oil and gas sector in Russia makes Russian businesses concentrate their efforts and resources on the competition for the assets’ repartition inside the country. Practically the only company that was initially interested in oversea projects is LUKOIL. The campaign of TNK that began to emerge into the neighboring states flopped due to the ‘merger’ with BP. The efforts of YUKOS to turn into an energy company of the world scale were in vain due to the conflict with the ‘new’ political elite. The state-owned Zarubezhneft failed to turn into a full-fledged operator of projects oversea. However, the situation can change radically now.
The outlook on the integration of the Russian oil and gas business into the world energy market. The active exchange of assets, in which Gazprom in the first place is involved, allows large national companies to reckon on control over not just oil and gas production but also on their transportation to foreign countries and over a share in the end consumer market. On the other hand, this is leading to the emergence of foreign managers into the Russian mining sector. This cross-emergence and even the possible merger of Russian, western and eastern (Chinese and Indian) corporations can become the main scenario of the world oil and gas industry development.
Political aspects of the assets’ exchange and access for foreign corporations to the Russian mining sector. Russian power clans are hasting to secure their property by moving the juiciest assets from the state property to their personal control before Vladimir Putin resigns. This is done through the sale of a part of their resources to foreign partners and with the help of shares’ market liberalization and initial public offers (IPO). On the other hand, they are unfolding large-scale exchange of assets and emerge into international projects. This can mean that Vladimir Putin has begun to construct a transnational corporation with the Russian participation that he will be able to head after 2008. Although the price of this one is the sovereignty over the energy assets in Russia.