Translated material
Crisis rebound
How will turmoil in the global economy affect the Russian oil and gas sector?
In recent years, the oil and gas sector has been the basis of Russian fiscal prosperity, creating the illusion of impending prosperity. But, apparently, it is not destined to come, at least for now. Gazprom and oil companies, which just a few months ago occupied pride of place in the rankings in terms of capitalization, are falling in price at double the speed - along with the entire stock market and additionally as world oil prices fall.Gas workers are still counting their profits with satisfaction (the head of Gazprom, Alexey Miller, recently said that he expects “astronomical” income), but together with the oil workers, just like ten years ago, they are waiting for help from the authorities. Meeting these expectations, the government has already significantly reduced oil export duties.
Experts call one of the first and obvious consequences of the global financial crisis the upcoming reduction in investment programs in all sectors of the world economy due to worsening access to financial resources and general considerations of the “new” economy. However, the next stage will be a slowdown or cessation of industrial growth.
To what extent will these general conclusions affect the Russian fuel and energy complex? As is known, at the end of 2007, oil production increased by more than 2%, while gas production decreased by approximately 0.5%. This year, oil workers promised not to reduce production, and the Ministry of Industry and Energy predicted a three percent increase in gas production. Many experts and even government officials admitted before the crisis that these volumes are not enough to maintain high rates of economic growth (even subject to the transition to the so-called innovative scenario). Of course, the crisis will correct all the scenario developments of the authorities, and it is not yet clear how serious. But most importantly, there is no slowdown in global demand for oil and gas sector products yet - on the contrary, lower prices may help maintain demand at a high level.
However, the possibilities for development of the oil and gas industry are limited, primarily by large external borrowings. There is no doubt that it is gas and oil workers who have the “right of first night” to the funds that the state has reserved to help Russian companies pay off their debts. But behind this problem another immediately arises - the financing of investment programs. It is clear that the previous mechanisms will not work. President of the Institute of Energy and Finance Leonid Grigoriev believes that the industry will face a “primitivization” of financing, when complexly structured transactions will be replaced by more traditional sources of funds, including commercial banks and the state. However, these sources, unlike capital markets (of course, in the form in which they existed before the crisis) are not inexhaustible. And the President of the Energy Policy Institute, Vladimir Milov, points out that, despite the course towards state interventionism in the industry, state capital cannot yet be considered as a source of development of the fuel and energy complex.
Experts agree that the investment plans of Russian oil and gas producers will suffer. So far, however, only the head of LUKOIL, Vagit Alekperov, has admitted that his company may revise its investment program downwards due to falling oil prices. He said that some projects will be moved forward in time, and some will be revised. LUKOIL even raised the issue of the impact of the crisis on company policy at a meeting of the board of directors. Gazprom, whose size of upcoming capital investments in the development of Yamal or Shtokman is amazing, plans to consider the issue of a strategy for dealing with the crisis at its board of directors in December. But at the same time, through the mouth of Andrei Kruglov, deputy chairman of the board, he states: “The concern has no intention of suspending any projects due to the financial crisis, which our investors have already been informed about.” Mr. Kruglov explains that the accumulated liquidity will allow Gazprom to mobilize funds to finance the investment program without raising borrowed funds on the foreign market. Alexey Miller, in turn, recently said: Gazprom feels absolutely stable financially. I can say that, on the contrary, there is a queue of banks that would like to lend to the concern. Another thing is that Gazprom has its own significant financial resources, and we actually select partners very seriously and carefully.”
Leonid Grigoriev notes that the crisis restrains cost inflation - this is also a kind of investment resource. It is noteworthy that Prime Minister Vladimir Putin also spoke about this the other day, noting that infrastructure projects implemented by the state in the transport sector should become cheaper, since cement is becoming cheaper. The same mechanism should apply to capital investments in the oil and gas sector. It is likely that private companies will use it successfully. The coming months will show whether state-owned companies, which have dramatically strengthened their presence in the industry, are able to do this. However, Mr. Kruglov from Gazprom noted that he expects a positive effect from the crisis in the form of lower prices for materials and services.