Page 6 - FSUOGM Week 46 2019

FSUOGM COMMENTARY FSUOGM
Russian oil industry pans proposed tax on APG
The finance ministry needs to extract more funds from the industry to pay for tax breaks at a major Western Siberian oilfield
RUSSIA
WHAT:
Russia’s finance ministry wants MET to apply to APG production.
WHY:
The move could raise $520mn for a year, helping fund tax breaks at the Priobskoye field.
WHAT NEXT:
The ministry’s proposal is unlikely to be adopted, given oil industry opposition.
RUSSIA’S oil and gas industry has been quick to condemn the government’s plan to impose a new tax on associated petroleum gas (APG), released as a by-product in oil extraction.
The finance ministry has proposed applying mineral extraction tax (MET) to APG for the first time in Russia, Kommersant reported in October, at a rate of RUB385 ($6) per 1,000 cubic metres. The levy would shave around RUB33bn ($520mn) off the industry’s annual earnings, based on last year’s APG production in Russia of around 86-87bn cubic metres.
Unsurprisingly the industry has hit back, with the heads of leading oil producers Ros- neft, Lukoil, Surgutneftegaz, Gazprom Neft and Tatneft submitting a joint letter to President Vladimir Putin earlier this month to block the policy, according to Kommersant.
“We believe that this initiative does not serve the best interests of the industry; the interests of Rosneft,” the oil giant’s vice president Pavel Federov said in a conference call earlier this month.
Russia’s association of independent produc- ers has also filed complaints.
Siding with the industry, Energy Minister Alexander Novak told TASS on November 5 that the measure was “impractical,” warning it could
result in “serious consequences in terms of the costofassociatedpetroleumgasforconsumers.” While the finance ministry has defended its position, saying that as a mineral, it is only fair that APG should be subject to MET, in reality few such policies exist in other oil-producing
nations.
Give with one hand, take away with the other
The measure was suggested by the finance minis- try to help pay for lavish new tax breaks awarded to a single, albeit major oilfield in Western Sibe- ria, Priobskoye. The same ministry recently caved in to pressure from leading state produc- ers Rosneft and Gazprom Neft, awarding them almost RUB60bn in tax breaks over a 10-year period at the Soviet-era deposit.
The pair claim this support is justified given the high cost of extracting oil from Priobskoye’s mature and water-filled reservoirs. Without it, they say production at the field – dubbed the Pearl of Western Siberia – could plummet.
Rosneft lifted about 478,000 barrels per day of crude from the northern section of Priobskoye in the three months ending September 30, accord- ing to company records, while Gazprom Neft extracted around 215,000 bpd from its southern
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w w w . N E W S B A S E . c o m Week 46 20•November•2019