Page 8 - FSUOGMWeek 10 2020

FSUOGM COMMENTARY FSUOGM
Russia introduces
new tax relief for
oil producers
Russia is eager to support its LNG and petrochemical industries, and incentivise development of its Arctic resources
RUSSIA
WHAT:
Russia has approved changes in its oil industry taxation.
WHY:
It wants to encourage develop of LNG, petrochemical and Arctic upstream projects.
WHAT NEXT:
The measures include reduced MET, the expansion of a profit- based tax system and special breaks for a major Rosneft project.
RUSSIA is set to roll out additional tax breaks aimed at incentivising the development of its Arctic oil and gas resources, and supporting the growth of its LNG and petrochemical industries.
Offshore
Under a new draft tax law approved by the State Duma on a second reading, offshore production will be subject to a mineral extraction tax (MET) rate of only 5% for oil and 1% for gas during the first 15 years of a project’s commercial operation. This is good news for Gazprom, which controls a number of major fields in the Pechora and Barents Sea containing trillions of cubic metres of gas. The first of these fields, Kamennomyss- koye-more, is due to start up in 2025 and flow 14.5bn cubic metres per year of gas at peak capacity, according to Gazprom’s latest investor presentation.
Kamennomysskoye-more is located near land in the shallow waters of the Gulf of Ob. Gaz- prom’s other significant fields are situated further offshore in deep-waters, driving up development costs. The company does not expect to exploit them before 2030.
The tax break will also benefit Gazprom Neft and Rosneft oil projects on the Arctic shelf,
including the former’s Prirazlomnoye oilfield, the only offshore Arctic project in Russia to have entered production.
LNG & petchems
LNG and gas-based petrochemical projects will enjoy a zero rate of mineral extraction tax (MET) during their first 12 years of operation, or until their cumulative gas production reaches 250 bcm. The measure will only apply to facili- ties that start up after January 1, 2022, and to gas fields north of the Arctic Circle.
The key benefactors here will be Gazprom, once again, and its private rival Novatek. Despite its prowess as a major oil and gas exporter, Russia has lagged behind its competitors in developing its petrochemicals segment, currently account- ing for only 1% of global petrochemical supply.
The watershed moment is set to come when Russia’s Sibur finishes commissioning its ZapS- ibNefteKhim complex in Western Siberia this year. Gazprom, meanwhile, recently revealed plans for a $14bn petrochemical hub on Russia’s northern Yamal Peninsula, which will use ethane from gas fields in the area as its feedstock. The new tax relief will apply to this project.
Russia has already introduced other measures
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w w w . N E W S B A S E . c o m Week 10 11•March•2020