Transcript a_belyi

Russian hydrocarbon sectors
Andrei V Belyi,
CEURUS, Tartu
structure
1.
2.
3.
4.
5.
6.
Historical and institutional specificities
Reserves, production and exports
Dynamics in oil sector
Oil pipelines
Gas sector: domestic issues
Gas Export dimension State-owned
companies
7. Gazprom and Rosneft: new policy
dimensions
1. Historical and institutional
specificities
Soviet legacies of energy sectors
Non-rentable wide scale infrastructure (oil and gas pipelines, electricity
networks)
Geology based resource classification (no link to market)
Social importance of access to resources, energy price and access to
export
Increased rate of over-investments (corruption?)
High energy intensity (TPES/GDP), about 0.5
In addition, Russia’s political strategy remains in scope of disputes
Decrease the role of the
State in the economic
segments or reinforce the
State especially in the oil
sector?
Dvorkovich view to support
privatization
Sechin view to reinforce
State in energy
Regulation of hydrocarbon
• No energy-specific regulator
– Federal Anti-Monopoly Service (FAS) covering issues of competition,
anti-trust and consumer protection (remains very liberal)
– Federal Tariff Service (FTS) covering price regulation in natural
monopolies; also responsible for monitoring of price
– Ministries: (1) Economic development, (2) Energy and (3) Natural
Resources
• Oil sector was restructured since 1992
– No monopoly on export but a growing concentration on production
– Oil pipelines are unbundled from production, private pipelines are
possible
• Gas sector exempted from restructuring
– But legislation is set for a wholesale market, issues with
implementation
– Gazprom owns MRG, the pipeline operator
– Export monopoly, de-jure since 2005
2. Reserves, production and exports
Before 1917
Volga
region
develomment since
1864
Vast reserves allowed an energy intensive economy but access to new fields in Eastern
Regions is more difficult hence requires a new approach
1917-1955
Large
exploration
and
production
works started in
North
Caucasus,
Volga-Ural regions
1955-1991
Negative prospects
for
further
oil
discoveries proven
to be wrong: with
Timan Pichora and
Western Siberia oil
reserves
Russian
production boosted
1991- to date
New
discoveries
provide even larger
production potential
in the short-term
production increase:
North Caspian, East
Siberia Sakhalin,
Exploration ongoing
Russian
and
Siberian North still
has an important
estimated resource
potential
Source: IEA, 2002 , TEK, 2008 and BBVA, 2008
Timan Pichora
Volga
Urals
N. Caspian
Baku
First drilling in Baku
in 1846 (second
drilling after US in
1814)
Access to upstream
Licensing
PSA
• Allocated by Ministry
of natural resources
• Licenses for
exploration separated
from licenses for
production
• Ministry may revoke
the license. Disputes
resolved by Highest
Arbitral Tribunal
• Separate legal regime
approved by State
Duma
• No link with State
taxation policies
• In case of Sakhalin
energy: State exerted
pressure by using
“environmental
monitoring”
Russia’s oil and gas production
since 2000
Oil Export growth with the production, but
half of oil goes for Russian internal market
Russia is the first world gas producer,
But gas consumption close to the EU level
700.00
Production
Production
600
600.00
459
500.00
Domestic consumption
400.00
300.00
Mln tons
500
200.00
100.00
323
200
100
Up to 70% of gas production is consumed 0
Domestically
470
481
421
400
300
Mln tons
144
2000
348
164
2001
380
Mln tons
260
190
2002
230
2003
262
258
Export
2004
2005
2006
2007
BCM
0.00
Russia is the world largest oil and gas producer
But also a large hydrocarbon consumer
How to accommodate domestic demand and export ambitions?
Exports historically oriented to Europe
(outdated map shows that by 2001 no exports to Asia)
3. Dynamics in oil sector
Russian oil companies
Approx. Production share in brakets
1992-2000
VSNK
(3-5%)
Yukos
(12-13%)
2001-2003
Yukos
acquires
VSNK
(20-21%)
2003-2010
Rosneft
(28%)
Reasons for concentration:
state-owned
Rosneft
(5-6%)
Rosneft
(5-6%)
Onako
(1-2%)
Sidanko
(8-9%)
TNK
acquires
Sidanko,
Onako
(12%)
TNK
(9-10%)
Slavneft
(4%)
Sibneft
(7-8%)
Gazprom
(7-8%)
Tatneft
(7-8%)
SurgutNG
(11-12%)
Sibneft
(9-10%)
Gazprom
(7%)
Tatneft
(5-6%)
SurgutNG
(15%)
Lukoil
(19%)
– Political:
- Concentration of the control over
TNK-British
Petroleum
Holding
(16-17%)
private
strategic state resources
- Easier conditions to conclude profitable
concessions
– Economic/financial:
Gazpromneft
(8%)
State-owned
Tatneft
(6%)
regionally owned
SurgutNG
(16-17%)
private
- Larger profits stimulated by the high world
oil prices
- Attraction of external capital to invest into
the sector
– Technical:
- Better capability to exploit difficult areas of
resources
Lukoil
(22%)
private
Lukoil
(19%)
Slavneft
(5-7%)
With purchase of TNK-BP (2012), Rosneft can be defined as a new NOC
• Transition from command to market
Oil Production and export: historical trends
economy in the 1990s lead to a decrease
in production. In 1998 oil production
represented 59% of its 1990 level
• After
1999: oil sector regained its
strength with the economic stabilization
and world price increase
Mln tons
• In 2004 Largest production subsidiary
600
Yuganskenftegaz was taken over by the
state owned company Rosneft from Yukos
500
• Stagnation after 2007 mainly due to
300
1992: private and state-owned oil
companies start operating Russian
oil sector
400
inefficient taxation system (Royalty is
linked to world oil price)
200
Oil production decline
after Break-down of
the USSR (1991) Due
to under-Investments
1995-99: lowest production level
100
• Tax relief since 2009 for greenfields but
0
1988
limited effect
1990
1991
1992
1995
1998
1999
2003
2005
2007
Source: Oil & Capital
• In 2013 production rate reached the level
Mln tons
of 1988 but average marginal costs are
high
• Regulation on access to small fields is
stalled
Profits decline  unwillingness to change classification to avoid decrease in capitalization
Oil products
Vertically integrated structure of oil refining and downstream distribution
remains (i.e. low level of inter-company exchanges)
Quasi-monopolistic structure in downstream pushes prices up, Marginal costs are
also above western average
Federal Antimonopoly Service (FAS) attempts to pressure oil company on prices
Increase of environmental standards (i.e. introduction of Euro standard for gasoil)
have been inefficient (companies tend to decrease refining capacities, prices go
up, but revenues decline)
Refineries are concentrated on the western part of Russia
Levels of price vary from 0.6 Eur to 1 Eur per l.
Yakutia and Far East have the highest levels (low market fragmentation)
Source: Russian Energy Agency, 2013
Transneft pipelines
Specificities:
– Telescope down effect: built to supply former satellite countries, the pipeline
capacity is small on export points due to the low demand in Eastern Europe.
– Different heavy and light oil sorts are commingled in Druzhba pipeline within
one flow (so called Urals), Ministry of Energy constantly delayed quality banking
– Pro rata regulation is applied: all oil producers get a quota according to the
production level
World longest oil pipeline network
Source: TEK, 2008
Baltic
terminals
Black sea
terminals(
crude oil
oil products
Length: 50 000 km
Average shipment length: 3000
km
Druzhba pipeline: 5500km
Constructed
during
Soviet era, pipeline
sector needs to be
reshaped in order to
meet world market
structure
Página 14
Geography of export by pipeline: decrease of Druzhba and increase of terminals
Geography of Transneft oil shipments in time
Source: TEK, 2008
100%
80%
60%
40%
20%
0%
Before
1992
Druzhba
2001-2005 2005-2008
To Black Sea
2010
2012
To Baltic Sea
To Pacific
Oil shipment via Druzhba and
Black sea terminals decreases
Proportionally
to
an
increased use of Baltic
terminals and of the Pacific in
future.
Effects: decrease of shipment to Baltic branches (LV and LT)
Other pipelines
Baltic Pipeline System (since 2002): new pipelines owned by Transeft
AS: Transneft
allocates quotas to
Kz
•
•
CPC - Private consortium
lead by Shevron (US)
Commercial agreements for
access, laws on natural
monopolies do not apply
5. Russian gas sector: domestic issues
EU oriented export, East direction is underdeveloped
Russia is the first world gas producer
700.00
Production
600.00
Export is monopolized by Gazprom
Oil companies and independents sell gas
domestically
500.00
400.00
BCM
Domestic consumption
300.00
200.00
100.00
0.00
Russia is the world leading gas consumer:
Up to 70% of gas production is consumed
Domestically  need to reduce gas flaring
Novatek aims at producing
115-120 bcm by 2020
1992-2010
Gazprom would allocate an internal market, but price is
uncompetitive
 Pressure on exports  Oct 2012 Novatek concludes 10 yrs
agreement to supply German costumer EnBV with 2 bcm annually
Institutional setting
Increased role of FAS in limiting incumbent (Gazprom)
Gazprom gets however priority access in the upstream, mainly Arctics
Hence, level of fragmentation remains marginal  HHI is about 7000
Gazprom now controls up to 17% of generation with 36 GW of installed capacity
Long term effect on electricity market: if gas price is increased, and market
fragmentation remains low, consumers will be sensitive to the price of fuel (gas)
Towards wholesale market?
2007: first electronic trading
platform
2010: Decree on wholesale market
2013 amendment: FTS not to
regulate the price but the access to
pipelines only
MRG (pipeline operator) is
responsible in drafting access code
The issue of pricing is crucial since
2012!
• Trade from 5+5 to 7+7 bcm, but slows down since
2009
• Aiming at increasing sector’s efficiency
• objective to have a wholesale market by 2015
• No real implementation
• Market to control Gazprom’s price hikes?
• Or to find an alternative in the context of stagnating
exports?
6. Export dimension
Gazprom’s gas deliveries to Europe 2007-2011
Export in bcm
Other (incl. Hub trade) in bcm
Price in USD per MMBTU
2007
153
16
7.6
2008
160
8
11.6
2009
148
7
7.3
2010
139
10
8.5
2011
150
9
10.8
Source: T. Vehrs, Gazprom Germania presentation, Tallinn 14.11.2012
Most of gas is delivered under long term contracts, long term upstream
investments needed:
- Development of upstream: Northern Yamal, South East Nadym Pur Taz; Far
East; Eastern Siberia
- Largest investment plans: 40 billion USD till 2020 (mostly transport
infrastructure)  need for long term contracts with take-or-pay
Gazprom participates in the spot, and increases competition for the European
retailers  ground for disputes
EU-Russia gas trade issues
European retailers are under pressure on TPA; anti-trust monitoring
against GDF and Eon
Gazprom attempts to keep price indexation to oil, in spite of the opposite
trend (up to 50% of gas is hub-based in Europe)
PGNIG, EON: agreements on adjustments of long term contracts; RWE
Transgas won an arbitral case against Gazprom on take-or-pay
Impact on relations with Ukraine? (Ukraine demands to decrease
volumes without take-or-pay payment)
However: LNG export liberalization is foreseen for Autumn 2013
Gazprom and Baltic States: area of difficulty
Estonia
Latvia
Lithuania
Eesti Gaas JSC
Ltd.
Latvijas
Gaze
JSC
Lietuvos
Dujos
Gazprom -
Gazprom -
37%
Gazprom 25%
37.1%
Itera Latvia- Itera Latvia9.85%
25%
Most difficulties are with Baltic states, where Gazprom has stakes in distribution
EE and LT decided to implement full ownership unbundling 
disputes
7. State-owned companies:
Gazprom and Rosneft
• Both Rosneft and Gazprom are state-owned but dynamic of
influence is different
– Gazprom is a VIC which is in path to a decentralization (without losing
the institutional structure)
– Rosneft became a China-type NOC
• Financial differences:
– Since 2000s oil export revenue is higher (reaching 172 bln USD in
2012) then of gas (58 bln USD for gas)
– Rosneft is less dependent on exports
– Rosneft was successful in dealing with China
– Level of securitization of oil imports from Russia is much less
significant