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Internal challenges of the Russian hydrocarbon sector in the current context
Dr. Tatiana Mitrova
20 September, 2016 Paris
420 West 118th Street, New York NY, 10027 | @ColumbiaUEnergy | energypolicy.columbia.edu | [email protected]
2
Federal budget receipts from oil and gas, $ bln
Declining oil and gas revenues are a huge challenge for the state budget
Source: Sberbank CIB
Ruble devaluation helped to overcome the negative effect of oil price decline (at the expense of population)
0
10
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90
0
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140
160
Ru
ble
s p
er U
.S. d
olla
r
Oil
pri
ce (
Bre
nt)
, $/b
bl
Source: KAPSARC's research, Bloomberg data
Russian ruble and oil price: inverse correlation during crises
Brent oil price Ruble to U.S. dollar exchange rate, right hand scale
Russian ruble and oil price: inverse correlation during the crises
Source: Bloomberg.
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Russian oil companies are still very competitive (especially after devaluation)
Reasons for the production growth:
• Main contribution was provided by gas condensate and by the new greenfields, where major investments were made in the period of high oil prices prior 2014
• Ruble devaluation (as the majority of costs is nominated in rubles)
• Progressive scale of Russian oil taxes, which go down when the crude price falls – so it was mainly the Russian federal budget, which took the heat of the oil price decline
• Tax concessions, provided for the new fields in Eastern Siberia in 2013
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Ro
snef
t
Luko
il
Gaz
pro
m N
eft
Shel
l
Stat
oil
Tota
l
BP
2014 2015
$/boe
Oil production costs comparison, $/boe
Source: Bloomberg.
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Status quo: gas production and exports are stagnating
Monthly gas production in Russia
in 2013-2015, bcm
Russian gas export dynamics
by destination in 2000-2015, bcm
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10
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40
50
60
70
Jan
uar
y
Feb
ruar
y
Mar
ch
Ap
ril
May
Jun
e
July
Au
gust
Sep
tem
ber
Oct
ob
er
No
vem
ber
Dec
emb
er
2013
2014
2015
Sources: Rosstat, CDU TEK
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CIS Europe Asia
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Increasing gas bubble in the domestic market
Company Production in 2015, bcm Unutilized potential and capacities additions under development by 2020, bcm
Gazprom 406 ~155
Novatek 52 ~48
Rosneft 42 ~48
VIOCs (APG) 46 ~15
TOTAL 635,5 266
Gazprom has started Bovanenkovo, Rosneft and Novatek have extremely ambitious
plans on gas production expansion, while obligatory utilization of the associated
petroleum gas stimulates growth of VIOCs gas output
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Domestic gas prices are frozen again
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Russian average weighted wholesale gas prices for industrial consumers in 1998-2016
Sources: Rosstat, Federal Tariff Service of the Russian Federation, ERI RAS,
RUB/mcm
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140
160
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6000
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98
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Wholesale industrial prices, RUB/mcm (left axis)
Wholesale industrial prices, $/mcm (right axis)
$/mcm
Estimated gas sale prices of the main
Russian gas producers, 2013
Aggressive price wars are becoming the only way to secure market niche, but Gazprom is obliged to supply at higher regulated prices
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Source: Source: T.Mitrova, G.Molnar “Russian Gas Market:
Entering New Era”, Cedigaz 2015
RUB/mcm
Two-sector gas market model
Regulated prices Free prices >
Gas market reform options
• All national gas production, transportation, sales and export under control of a single national gas company
Nationalization of the gas industry
• No changes Status quo
• Gradual improvement of the transportation tariff methodology, access to the underground storages, liquidation of the most obvious contradictions.
Gradual improvement of the market mechanisms
• UGSS unbundling into a number of competing private gas producers, selling their gas on the wellhead and a separate state-controlled company, responsible for domestic and export supplies and being the “guarantying supplier”.
Upstream competition with centralized transportation, storage,
domestic sales and export
• UGSS as a separate state-controlled company, production and supply performed by the competing private companies. Proportional export (through a single export channel?).
Transportation unbundling
• Complete Gazprom`s unbundling, complete gas export liberalization. Pricing at the gas exchange.
Complete Anglo-Saxon type gas market liberalization
All gas market reform options seem unattractive and risky, especially in the crises environment, so any profound changed are postponed
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Inefficiency Supply security
threats
Complete gas industry nationalization
Competition in production and state-owned company responsible for transportation, supply and export
Gazprom`s unbundling
and creation of
“Transneft”-type
transportation company
Complete Anglo-Saxon
type market liberalization
Status-quo and minor adjustments of the institutional framework
Russia is well placed to defend its market share on the European gas market if needed
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Short run marginal costs to Europe
(Russian pipeline gas and US LNG) Long run marginal supply costs to Europe
(Russian pipeline gas and US LNG)
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West Siberia-Europe
US LNG-Europe
Regas
LNG transportation
Liquefaction
Export duty
Nord Stream transportation
Transportation to the Russian border
15% Henry Hub
Henry Hub
Production (incuding taxes)
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West Siberia-Europe
US LNG-Europe
Regas
LNG transportation
Export duty
Nord Stream transportation
Transportation to the Russian border
15% Henry Hub
Henry Hub
Production (incuding taxes)
