ExxonMobil pulling out of Arctic projects with Rosneft
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In September, the Russian State Duma will review legislation that aims to liberalize liquefied natural gas exports, a move that would end Gazprom's long-standing monopoly in the field. One of the companies that have rosneft exxonmobil lng market for this strategic move is Rosneft, which has been actively expanding into the gas sector. In the general scenario, over the next 10 to 15 years, Russian exports of oil and gas would drop by more than 20 percent, with their share of the country's GDP decreasing by one-third.
By the most optimistic forecasts, it will take Russia at least 10 years to catch up with the leaders of the new energy markets. The report alerted Russian officials. By the end of April, the Energy Ministry had openly acknowledged that Russia is facing the real threat of losing its competitive advantage in the world energy market.
In the last few years, the global share of tight oil production increased from 1 to 19 percent, the offshore production share reached 30 percent, and the share of liquefied natural gas LNG production will shortly surpass 40 percent. But the structure of the Russian energy industry prevents the country from meeting the technological challenges of these trends.
To overcome rosneft exxonmobil lng market gap, the Russian authorities made a rosneft exxonmobil lng market decision—to develop offshore and LNG production and direct LNG exports to Asian markets. According to the law on gas export, the exclusive right to export gas from Russia belongs to the owner of the unified system of gas supply, namely, Gazprom. All Russian companies that would like to export gas are obliged to do so through this monopolist—but even most energetic managers are often brought to the point of exhaustion in negotiating with it.
Despite the fact that this shift has great strategic value for the Russian energy industry, it has taken time to resolve this bottleneck. In the late s, even though Gazprom's position was still strong, Vladimir Putin who is undoubtedly the key decision-maker in rosneft exxonmobil lng market company began encouraging other gas producers to develop.
All Russian companies that would like to export gas are obliged to rosneft exxonmobil lng market so through Gazprom—but even most energetic managers are often brought to the point of exhaustion in negotiating with it. For a long time, independent gas rosneft exxonmobil lng market in Russia have been fighting for the chance to sell gas abroad.
This export agreement was the first of its kind in the corporate history of Russia. Another development of was the increase in the mineral extraction tax for independent gas producers. Since Gazprom used to justify its monopoly by arguing that it faced a higher tax rate, this created a new argument in favor of liberalization, which NOVATEK used rosneft exxonmobil lng market its pursuit of export opportunities.
In response to this argument, the government began discussing the issue. There is no doubt that this move of the oil corporation had been previously approved by the head of state. Early inthe issue of export liberalization rosneft exxonmobil lng market official support from the Energy Ministry and Putin himself.
But liberalization was supposed to happen only for LNG exports. At the time, the Energy Ministry promised that the final decision on liberalizing LNG exports would be made by the end of this year.
In September, the amendments to the law on gas export will be reviewed by the State Duma and will most likely be passed. The only question to which the answer remains unclear is which companies will have access to the global LNG market: Will the independent producers be allowed to export only to the markets of the Asia-Pacific region, will their exports be limited by certain quotas, or will they be allowed to compete with Gazprom all over the world, including in Europe?
This possibility has officially been denied: Such a scenario seems logical, since the state holds a stake in both corporations. Should there be a conflict, the key owner—the government—will have the last word. But in terms of changes in the global energy market and the weakening position of Gazprom, it is safe to assume that some competition between Rosneft and Gazprom will be unavoidable. And then he began to methodically implement them. In terms of changes in the global energy market, it is safe to assume that some competition between Rosneft and Gazprom will be unavoidable.
Rosneft acquired the majority stake in Itera in Februaryand in May increased its stake to percent. Before Rosneft developed interest in the company, Itera was the only large independent gas producer in Russia. Upon consolidation of its gas rosneft exxonmobil lng market, Rosneft increased its gas production by one-third and became one of the top rosneft exxonmobil lng market largest gas producers in the country, behind only Gazprom and NOVATEK.
Bythe company plans to increase its gas production by 2. First of all, the company is counting on the development on Sakhalin. SinceRosneft has participated in rosneft exxonmobil lng market Sakhalin-1 offshore development project as part of a production-sharing agreement: Thus, the only thing that Russian oil corporations have left to do is to wait for the liberalization of LNG exports.
Gas accounts for up to 80 percent of these reserves. Earlier this year, Rosneft negotiated the development of the offshore gas deposit Mariscal Sucre with the government of Venezuela.
The development of this deposit will be carried out in partnership with the Venezuelan state oil and natural gas company PDVSA. Among other major players that were seeking to get into the Venezuelan offshore market was Gazprom, but the parties were not able to reach an agreement.
Rosneft is trying to take an early lead: The two companies are planning to create a joint enterprise on a parity basis rosneft exxonmobil lng market the purpose of oil production and exports.
This move by Rosneft exxonmobil lng market is also strategic. SinceAzerbaijan has been developing offshore production at the Shah-Deniz gas field through an international consortium whose operations are overseen by BP. In about five years, these two pipelines will have to compete for the markets of the Balkans and Southern Europe. In the nearest future, Azerbaijan is likely to experience an energy boom, and Rosneft wants a piece of the pie. The second stage of the Shah-Deniz development Shah-Deniz-2 will start in —17, and Rosneft will have the opportunity to join it.
The fact that both Putin and Azerbaijani President Ilham Aliyev were present at the signing of the agreement shows that Rosneft's ambitions have support at rosneft exxonmobil lng market highest levels. Azerbaijani gas will sooner or later become a direct competitor of Gazprom's gas in Europe, and it is therefore crucial to Putin to insert Rosneft into this country's energy projects, which will let him exert a certain amount of control in this strategic region.
For the last 10 years, Gazprom has been both a backbone and a sacred cow of the political regime created by Vladimir Putin. Putin constantly defended it from tax increases, antimonopoly investigations, and attacks by the European Commission and members of the Russian government and business community. Its financial productivity is also being questioned: Its share of the European market the 27 member-countries of the Rosneft exxonmobil lng market went down from 47 percent in to 34 percent in This May, head of the Russian Accounts Chamber Sergei Stepashin noted that for the first time in the last 5 years, he would audit Gazprom.
Still, Gazprom is being given special opportunities to develop its domestic operations. For example, in May, Prime Minister Dmitri Medvedev announced that 50 percent of Russian transportation would be gas-based by This idea was originally voiced by Vladimir Putin two years ago, but bureaucratic delays played their part. The new company has already announced its plans to open 17 gas-fuel stations by the end of the year. As a result, Gazprom, which had been rosneft exxonmobil lng market watching Rosneft's successful moves, finally decided to join the public argument.
This summer, Miller and Sechin took a few punches at each other, trying to prove which company is more important to Russia. First, they clashed on the issue of who is the largest taxpayer. Then Gazprom rosneft exxonmobil lng market on the offensive, claiming that no other Russian company has enough capacity and necessary experience to successfully develop offshore projects.
It should be noted that the first Russian company that started to develop offshore projects was actually Lukoil—back inthe company launched an operation in Kravtsovskoye oil field in the Baltic Sea. Somehow, Gazprom forgot about this. Rosneft was not left abashed. Meeting with Putin at the sea platform Orlan, Igor Sechin spoke of the success of Sakhalin-1—the first offshore project with a Russian stake that has reached the extraction stage.
Still, Sechin also played with the facts a little bit, since it is ExxonMobil that should actually take credit for the success of this offshore project. The verbal back-and-forth between the two companies is hardly evidence of the beginning of a serious confrontation. But in the future, competition might become feasible in the Far East. Rosneft has already taken a lead in this region: Gazprom is lagging in conquering Asia.
The program is scheduled to be finished in — For the moment, this program is still one of the most expensive projects in the world and therefore raises questions of cost-efficiency and viability. It often happens that the decision is made, the project is implemented, money is invested in it, and later it stands idle, unclaimed. Negotiations with China on gas supplies have been going on for several years, but it is still not clear what price can satisfy both parties.
The largest French energy company, GDF Suez, was the first contractor that managed to negotiate new, more favorable terms with Gazprom. As Timchenko later told Neue Zurcher ZeitungGazprom wants to retain its monopoly and not change anything: But we would also rosneft exxonmobil lng market eager to work [with these countries] if rosneft exxonmobil lng market could impose the same extra charges as Gazprom. A plan for restructuring the company by was developed, but it encountered powerful resistance from Gazprom CEO Alexei Miller.
Bythe idea of dividing the company had been shelved. In this context, rumors of Miller's resignation have started surfacing again, but so far, they have not been confirmed. One thing is clear: Global shifts in the world gas market and the necessity of raising taxes on the Russian gas industry to cover the growing infrastructural and social expenditures of the government make such reform inevitable. The question is, who is going to lobby for the reform? The way Rosneft chooses to act will have an effect on the Russian energy sector and may stand to change the system of checks and balances.
Rosneft exxonmobil lng market, let alone the sagging Gazprom, will most likely postpone the development of the Arctic offshore fields for decades. In the end, everyone may lose. Every Friday, we release a comprehensive digest of the most compelling articles related to Russia. If you are interested in getting a rare insight into what Russia is really about ; what the Russian government and the Russian people are really thinking; what the Russian expert community is really discussing; subscribe to our weekly newsletter below or by letting us know at info imrussia.
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