Translated material
State: “It’s me!”
Stopping the growth of oil production, Gazprom's aggressive policy, slowing down reforms in the electric power industry - the main trends of 2006
In 2006, when, at Russia’s initiative , the G8 discussed energy security issues , a new trend clearly emerged in the global energy market: resource-rich countries are increasingly seeking to make it difficult for the largest private corporations to access these resources. It is too early to talk about significant shifts in the market, but the question of whether global majors will have to be content with the role of service companies is already on the minds of experts. This was, in particular, discussed by the participants in the discussion of the report “Economic results of 2006 for the energy sector ”, prepared by the Energy Policy Institute (IEP), which took place recently at Alexander House.Being a major market player, Russia has joined this trend in the past year. A clear confirmation of this is the decision to cancel the international consortium to develop the Shtokman gas condensate field , made by Gazprom and supported at the political level. As is known, the gas concern, already during the tender for participation in this project (partner companies were supposed to give a 49 percent share), decided that it would develop Shtokman independently, and foreign companies would be able to participate in the project as contractors. The President of the Energy Policy Institute, Vladimir Milov, believes that such a proposal will remain unanswered. “The companies that participated in the tender (American Chevron and ConocoPhillips, French Total, Norwegian Statoil and Hydro. - Ed. ) really have the technologies necessary to develop Shtokman, but Gazprom does not,” he says . “But selling technology is not their business; their capitalization is not based on service contracts, but primarily on production assets.” Now, Mr. Milov believes, the prospect of developing the largest offshore field with gas reserves of 3.7 trillion cubic meters has become more than vague. In his opinion, Gazprom can count on the fact that only the Norwegians (after the merger of Statoil and Hydro, the state will receive a controlling stake in the new company) will agree to participate in the project without receiving a share in the capital.
In its desire to independently manage its resources, Russia is not alone on the planet, although to a certain extent it is alone among its G8 partners. Such a policy is usually pursued by poor countries that have given up their mineral resources to global corporations, but have failed to improve the standard of living of their own population as a result. A sense of social injustice is pushing towards populist policies and tough measures to regain national control over resources. The most recent example is Venezuela , which in recent years has been systematically nationalizing its extractive industries.
The Russian authorities declare openness to foreign investors, but the role of the state in the fuel and energy sector continues to grow. The story with Sakhalin-2 showed that “the contractual obligations of the state in Russia are no longer valid,” Mr. Milov quoted the words of a top manager of one of the international oil and gas corporations said in a private conversation, which means that large foreign investments in new There is no point in counting on Russian deposits in the near future.
The most important result of 2006, according to the IEP, is that the state-organized redistribution of property had a negative impact on the performance of the oil and gas sector, and growth was observed mainly in segments where private (including foreign) companies operate.
Oil production, whose growth rate has slowed significantly, is still experiencing the effect of the “YUKOS affair” . In 2006, daily production failed to reach the 10 million barrel mark. The reason for this is a drop in production from the subsidiaries of YUKOS, which is under bankruptcy proceedings . Over the past year, according to preliminary estimates by the IEP, Tomskneft reduced production by 2 million tons, Samaraneftegaz by 0.3 million tons. Moreover, in October 2006, compared to September 2004, when the “YUKOS case” began, these companies reduced their daily production by 35.5 and 26.4%, respectively. Vladimir Milov emphasizes that the decline in production continues, including due to access to exports being difficult due to administrative mechanisms.
According to the IEP, if the divisions of the current YUKOS had maintained production at the level of September 2004, production in Russia at the end of 2006 would have amounted to 490 million tons. At the same time, its growth rate for the country as a whole would have been 4.8% in 2005 and 4.2% in 2006 (instead of the actual 2.4 and 2.2%, respectively). According to Mr. Milov, when the Tomskneft and Samaraneftegaz companies find a new owner after the completion of the Yukos bankruptcy procedure, they will be able to restore production volumes. The President of the IEP cited as an example the successful performance of Yuganskneftegaz, which provided almost half of the all-Russian increase in production in 2006. He attributes this success to the successful technological solutions of the new owner, Rosneft. She resumed cooperation with the American service company Schlumberger, which stopped working with Yuganskneftegaz in October 2004. The use of hydraulic fracturing technology - for which, by the way, YUKOS was sharply criticized - made it possible to increase production by 4.5 million tons last year alone.
Meanwhile, strengthening the role of the state in the oil sector can qualitatively change the balance of power in it. In the new year, the IEP report says, three important events are likely: state-owned companies will establish control over Yukos, Gazprom will buy a 50 percent stake in TNK-BP, and Rosneft will acquire Surgutneftegaz. If these forecasts come true (there is at least no doubt about the likelihood of the first), then for the first time since the privatization of the oil industry in Russia, the public sector will overtake private companies in production volume. And the share of foreign companies will remain projects for the development of new fields in difficult regions.
In the gas sector, independent producers presented perhaps the main surprise: if Gazprom, according to preliminary data, increased production at the end of the year by only 0.4%, then they exceeded the 100 billion cubic meter level and showed an increase of 13.6%. However, this trend may be coming to an end. “The independent gas producer sector continued to shrink in 2006 under the impact of Gazprom's aggressive offensive,” the report notes. Moreover, the offensive was carried out in all possible ways: the purchase of companies (Sibneftegaz, which owns the license to develop the Beregovoye field), and the purchase of shares (19.9% of NOVATEK shares), and operations in the gas market (complete buyout “at the well” of the entire volume gas produced by LUKOIL at the fields of the Bolshekhetskaya depression). These events, Mr. Milov believes, give reason to say that the sector of independent gas producers in Russia may soon cease to exist
Vladimir Milov calls the results of the campaign carried out by Gazprom to establish market relations with the CIS countries “dubious,” meaning, first of all, “a seriously damaged political reputation.” Among other negative effects, he names the increase in prices for Turkmen gas from 44 to 100 dollars per thousand cubic meters provoked by the price revision for Ukraine, the retaliatory measures of Ukraine and Belarus in the form of increased prices for oil and gas transit, as well as the loss of the Azerbaijani market.
The last statement, as noted by the discussion participants, looks like a stretch: Azerbaijan is a gas-rich country and, in any case, in the future, not a client for Gazprom. As is known, starting next year, Baku intended to abandon gas purchases from Russia and independently satisfy its needs for blue fuel. Gazprom offered Azerbaijan to buy gas for $230 in 2007, and it refused to purchase at all (the deal was about supplying 1.5 billion cubic meters).
Nevertheless, Vladimir Milov insists that the loss of this, albeit very narrow, market is significant: Baku needed Russian gas this year, and the refusal to purchase created problems for the Azerbaijani energy balance. But Baku considered these problems more acceptable than the price announced by Gazprom. Confirming Mr. Milov’s opinion, Azerbaijani Foreign Minister Elmar Mammadyarov writes in an article recently published in The Wall Street Journal: “In fact, at one point, the price of gas for us was more than doubled. This is more than just a signal from the market, and this is unacceptable for Azerbaijan. In response, we decided to stop buying Russian gas, as well as using the Russian pipeline to export Azerbaijani oil to Europe.”
Thus, using the example of Azerbaijan, we see a model of behavior of a buyer of Russian gas if he has sufficient confidence in an alternative source of energy to Moscow. However, taking into account the peculiarities of the global gas market, this threat is unlikely to become systemic.
At the same time, the Azerbaijani situation also has a positive side: the freed-up volume of gas is not at all superfluous in Gazprom’s balance sheet. Gas shortages on the domestic market have already become real, as was clearly demonstrated by the last frosty winter. Then, against the backdrop of a sharp increase in demand for electricity, RAO UES faced serious restrictions in the supply of gas.
As shown by the discussion in the government, which Vladimir Putin insisted on, gas shortages impede both the development of the electric power industry and the long-delayed reform of this industry. The state is only preparing to privatize generating capacities on a serious scale, and private investors are already faced with the problem of providing power plants with gas fuel. The scenario for increasing domestic gas prices approved by the government in November should obviously lead to increased energy savings and, accordingly, free up some volume of fuel. This scenario at least gives potential energy investors an idea of how market conditions will play out. However, so far delays in reform have led to a serious imbalance in the structure of investment in the industry. Much less money is invested in the construction of thermal generation, where there is an acute shortage of capacity, than in other energy sectors. There is a simple explanation for this: according to the logic of the reform, heat generation should be developed through private investment, and since the state has not yet decided on a single major deal (with the exception of the sale of a controlling stake in Mosenergo to Gazprom), there is no such investment.
“Although the past year did not lead to serious crises, it demonstrated clear negative trends in the development of the Russian energy sector and became a harbinger of more serious problems in the future. These problems are a direct consequence of the economic course of recent years - the course towards nationalization of the economy and the rejection of market reforms. The course does not change - which means, most likely, the problems will not go away in the near future,” sums up the head of the IEP.
Leaders of world gas production, billion cubic meters. m per year
| 2.USA* | 526 | |
| 3. | Canada* | 186 |
| 4. | Russian independent gas producers | 106 |
| 5. | United Kingdom* | 88 |
| 6. | Algeria* | 88 |
| 7. | Iran* | 87 |
| 8. | Norway* | 85 |
*According to 2005 data
Source: BP, Ministry of Industry and Energy