Page 9 - FSUOGM Week 13 2021

FSUOGM COMMENTARY FSUOGM

Russia to update oil

strategy this year

There is speculation about how Moscow will shift its policies in light of the

coronavirus pandemic and the energy transition gaining momentum

RUSSIA RUSSIA’S energy ministry is set to update its oil The project would help offset decline at Russia’s
strategy up to 2035 this year and there is specu- older fields, but such a large-scale investment in
WHAT: lation about how Moscow will shift its policies in oil is risky, given the pace of the energy transition
Russia is preparing light of the coronavirus (COVID-19) pandemic in key markets where Russian crude is sold.
to update its 2035 oil and the energy transition gaining momentum. A prevailing theme in Russia’s past oil strat-
strategy this year. Russia approved a long-term roadmap for egies has been seeking to stem the decline in
LNG development in late March, betting on output at mature fields in Western Siberia, by far
WHY: strong global gas demand growth over the long the country’s biggest oil-producing basin, while
Russia will need to term. This is the consensus opinion, with con- encouraging the development of remote and/or
navigate the energy sumption expected to soar in Asia as more coal- challenging greenfield sites. Over the years, the
transition, limiting the fired power is phased out. Africa and Middle strategies have outlined fiscal benefits for these
threat it poses and East should also see increased gas use. older and sometimes hard-to-recover deposits.
capitalising on potential The outlook for oil, however, is far bleaker. The government had to expand its support when
opportunities. COVID-19 lockdowns caused demand to col- Western sanctions were imposed on the sector
lapse in 2020, and the International Energy in 2014, limiting the supply of equipment and
WHAT NEXT: Agency (IEA) and other forecasters have warned technology to unconventional, deep offshore
It remains to be that oil demand might never return to pre-pan- and Arctic projects. These projects, which Rus-
seen to what extent demic levels. sia was counting on to offset decline, had to be
the government will Russia had been due to publish its roadmap postponed.
provide support to the for oil last year but delayed the move because of
oil sector to maintain the crisis. In the past, the strategy has played a Taxation
and potentially grow oil key role in determining medium-term trends in The government has provided certain catego-
production. the Russian oil industry. ries of fields with breaks on mineral extraction
“We expect the report to shed some light on tax (MET) and export duty. It has also reached
how the Russian government sees domestic oil agreements with operators on individual pro-
production amid the energy transition, as well jects, whereby fiscal support is granted in return
as which projects and regions will get preferen- for investment commitments aimed at expand-
tial status via tax status, royalty rates and fiscal ing or maintaining production.
regimes,” Norwegian consultancy Rystad Energy While the energy ministry has advocated for
commented. increased support for challenging projects over
Of particular note will be the government’s the years, the finance ministry has pushed back
guidance vis-à-vis Rosneft’s Vostok Oil meg- by increasing taxation on the sector as a whole.
aproject in the Russian Arctic, which company The base rate in the MET formula increased from
CEO Igor Sechin has claimed could one day sup- RUB419 ($5.50) per tonne in 2007 to RUB919
ply some 2.3mn barrels per day (bpd) of crude. per tonne of oil in 2020, Rystad estimates. At the

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