Announcement of a series of analytical reports «The fuel and energy complex of Russia» - 2015

The National Energy Security Fund presents its traditional series of analytical reports on key problems of the Russian oil and gas industry development. Subscribers are provided with detailed description 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 year 2015 will be special for the sector. The fuel and energy sector is under tough pressure of sanctions; cooperation with nonresidents is hindered; marketing in the EU is getting more complicated because of the conflict with the West; decline in oil production is possible; the anticipated “tax maneuver” is fraught with a higher tax burden. All these issues will be touched upon in our new analytical studies.

The range of the sources employed 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 outlets, materials of conferences and round-table meetings.

The series consists of 8 (eight) reports to be published in March 2015 through January 2016.

1. The Russian oil and gas industry under sanctions: main threats to the industry

(March 24, 2015)

Western sanctions largely focus on the oil and gas sector. It is no surprise, as direct taxes and levies on the oil and gas sector generate half of the consolidated state budget. This is why the main blow is on this sector that faces three types of restrictions: limiting access to credits, marketing problems and, most importantly, banning supplies of technologies to Russia.

The latter factor has already resulted in suspension of some new projects in Russia. How is the sector going to develop under the rising pressure of sanctions?

The report is to reveal the weakest points of the sector, evaluate opportunities for replacement of imports and forecast the situation concerning provision of services in Russia.

2. The Asian gas market: is there room for Russia?

(May 6, 2015)

Russia is more actively turning its gas flows to the East. New agreements on supplies to China’s eastern and western provinces are expected to follow the contract on supplies of 38bn cu m signed with the PRC in May. Meanwhile, in addition to piped gas supplies, there are several LNG projects whose target market is also the Asia Pacific region. But Russia is facing serious competition there against other producers, first of all Australia that is readying to launch several LNG plants, and the USA that intends to begin gas exports.

There are disputes on whether there is room for our natural gas in the Chinese market and what the real volume of natural gas is that we can offer to China and its neighbors, the time and prices of such supplies.

3. Nonresidents in Russia: the depth of the conflict and possibilities

(June 22, 2015)

Foreign companies are curtailing their projects in Russia. Exxon left the Arctic; Total froze the Bazhanov formation project. These are not occasional examples. How will it influence offshore deposits and unconventional deposits in Western Siberia?

Another question is the aggressive luring of Chinese and Indian companies into production projects on very advantageous conditions that are often much more beneficial than the proposals Russia made to its western partners. What will be the result of this policy of replacing European and American companies with new Chinese friends?

4. Tax maneuver: the fiscal policy in the oil and gas sector, prospects of its correction

(August 24, 2015)

There is another change in the rules of the game in the sector. This time it is called the “tax maneuver”. This move may have a confiscation character, while the sector, on the contrary, requires fiscal support to investments in new projects.

Decline in production will become the reality already in 2015, and the state will face the obvious dilemma – to keep solving growing problems of the state budget by raising the tax burden on the sector, which will lead to accelerated decrease in production and will strategically complicate the budget situation, or to think about incentives facilitating growth in investments in the upstream segment. But this should be done wisely.

Some time ago very preferential procedures for offshore projects were adopted; however, because of the sanctions, currently the question is whether this vector is worth pursuing.

5. Natural gas motor fuel: will the balance change on the domestic market?

(October 12, 2015)

Attempts to promote the demand for natural gas in Russia include active introduction of the natural gas motor fuel that is a relatively new kind of fuel in Russia. State authorities support this project. We can draw the first results already and evaluate how efficient the promotion of this fuel was. Who will compensate losses of producers of other kinds of fuel, as many of them are affected by sanctions and questionable decisions of state authorities?

It would be interesting to understand the model of behavior of oil companies that, on one side, are developing their gas business more actively and, on the other side, are still major players on the Russian market of oil products.

6. Second shale revolution in the USA, its influence on Russia

(November 10, 2015)

The USA is going through the second shale revolution; this time it is the shale oil revolution. World experts make apocalyptic predictions for Russia; according to them, America will refuse oil imports and the released quantities of oil supplies from Africa and the Middle East will flow to the European market resulting in the collapse of oil deliveries from Russia.

Difficulties with exports to China are also forecasted, although China is often portrayed as unlimited market for supplies. But what will really happen to shale projects in the USA? And what will be the real consequences for the Russian industry?

7. Gazprom: the life in an epoch of sanctions, the turn towards the East, growing domestic competition

(December 8, 2015)

Gazprom found itself under double pressure. On one side, it is becoming more complicated for Gazprom to deal with the EU that perceives the Russian company as instrument of political pressure by Russia. On the other side, the gas giant is attacked on the domestic market by large independent gas producers that are suffering from sanctions and hope to expand their share on the domestic market as kind of compensation.

But the political situation is assisting Gazprom in some way – at least, the question of the concern’s restructuring is not that acute on the agenda. Vladimir Putin is not ready to begin serious reforms in such complicated political and economic conditions. Yet, this does not remove the necessity for Gazprom to solve important tasks on fast reorientation towards China, expansion on the domestic demand and search for investments amid limited access to credit markets.

8. State regulation of the oil and gas sector in 2015, prospects for 2016

(January 11, 2016)

NESF traditionally concludes the year with a traditional report that sums up main events and tendencies of the year. The report will contain analyses of production results of the year, main state decisions concerning the sector, describe struggle for assets by leading clans, as well as provide a traditional forecast of the sector’s development in the medium-term perspective.