Peak income

The Ministry of Finance and the Ministry of Economic Development are planning to get off the “oil and gas needle” starting next year

Minister of Finance and Deputy Prime Minister Alexei Kudrin admitted yesterday at a government meeting where the draft three-year budget of the country was discussed that “2008 is the peak of oil and gas revenues in our country for the entire previous period and, apparently, for the future period, that is Russia has historically reached the peak of oil and gas revenues.” This will happen primarily due to the growth of other industries and a slowdown in the growth rate of oil production.

However, the Ministry of Economic Development, which prepared the forecast for the socio-economic development of Russia for 2009-2011, states: “Since the beginning of 2008, there has been a downward trend in oil production, but in the second half of the year its growth is expected to resume, and in general, by the end of the year, oil production may increase by 0.3%." However, the price of Russian Urals oil is forecast to decrease: the annual average for 2008 will be $112 per barrel (for the first half of the year it was $105.3 per barrel), and the annual average for 2011 will be $88 per barrel. “The main factors for the decline in world oil prices are increased instability in global financial markets, the expectation of an increase in interest rates with the stabilization and subsequent strengthening of the dollar, as well as the beginning of an increase in oil production by OPEC countries (primarily Saudi Arabia) combined with a slowdown in global economic growth.” . True, as additional options for the development of the global situation, the Ministry of Economic Development still allows for both a stronger reduction - up to $75 per barrel, and an increase to as much as $122 per barrel by 2011.

According to Mr. Kudrin, in 2008 the share of oil and gas revenues in GDP should reach a record level - 11.2% (last year it was 8.8%). However, as Mr. Kudrin predicts, there is no point in expecting a further increase in the share of hydrocarbon sales in GDP. Next year it will be 9.1%, in 2010 - 7.7%, and in 2011 - 6.9%. At the same time, the minister notes that due to a decrease in oil and gas revenues, the federal budget surplus will also decrease. This will affect the growth of the Reserve Fund and the National Welfare Fund. Therefore, the Minister of Finance does not rule out that after 2015-2017 it will be necessary to “dig into” these “stashes” in order to cover the lack of a high level of oil and gas income.

At the same time, the Ministry of Economic Development predicts, according to the inertial economic development scenario, that by 2011 up to 500 million tons of oil will be produced, which is 1.9% more than last year (490.7 million tons). In 2008, this figure should increase by another 1.3 million tons and amount to 492 million. Such a low growth in production is explained by the fact that the resource base at existing fields is being exhausted. And when developing new areas, oil producers will be faced with undeveloped infrastructure, which, in turn, will lead to a delay in the commissioning of new fields. In addition, this pessimistic option does not provide for tax breaks, which the government of Vladimir Putin has been working on since the very first day after its formation. This option also assumes an increase in oil exports to 256 million tons (in 2011), which is 2.8% higher than the expected level for this year, but 3.8% less than last year.

The second, more optimistic option (the ministry calls it the fashionable word “innovative”) assumes an increase in oil production to 518 million tons in 2011, which is 5.6% more than in 2007. This scenario relies on tax innovations that stimulate the start of development of new fields. As you know, amendments to the Tax Code have already been adopted, which from January 1, 2009 will increase the amount of the non-taxable minimum when calculating the mineral extraction tax (from 9 to 15 dollars per barrel). The Ministry especially emphasizes the need for tax breaks and believes that “with intensive implementation of already adopted and planned additional tax innovations, oil production in 2011 may be higher than predicted volumes.” Prime Minister Vladimir Putin said exactly the same thing in May at a meeting in the Leningrad region, when he practically demanded the introduction of tax breaks for the oil industry. In addition, the second option involves introducing amendments to the law “On Subsoil” in terms of streamlining the mechanism for granting rights to use sites, which should have a positive impact on the investment climate in the industry.

The increase in production, according to the Ministry of Economic Development, will also be due to the fact that the need of other countries for Russian energy resources will increase (though why this will happen is not reported). Thus, in 2011, Russian oil exports should amount to 262 million tons, which is 1.4% more than last year.

At the same time, the Ministry of Economic Development believes that gas exports will grow at a much faster rate than oil supplies. This year, as the ministry expects, Gazprom will sell 205 billion cubic meters abroad, and in 2011 - 224 billion (according to the pessimistic scenario) or 227 billion (according to the optimistic scenario) cubic meters.

Kirill MELNIKOV