Page 79 - RusRPTOct19

9.0 Industry & Sectors 9.1 Sector news
9.1.1 Oil & gas sector news
On 2 August, CDU TEK published its oil and gas production data for July. Total Russian output was flat m/m at 11.1mmb/d, restrained by the production cuts under the OPEC+ agreement (which has been prolonged for another nine months). In July, Russian crude production fell 268kbbl/d from the October 2018 level (the reference point for the production cut under the OPEC+ agreement). Given that Russian companies have agreed to cut production some 228kbbl/d, the production cut in Russia exceeded the required level by 17.5% in July, we calculate. Russian gas production was up 1.4% y/y in July, according to Interfax, supported by the 8.7% y/y output growth at NOVATEK (including joint ventures).
90% of Russian oil fields are to get MET tax breaks by 2033 and MinEnergo claims that without tax break oil production is to decline 40% by 2035.Alexey Sazanov, the Head of the Tax and Customs Policy Department at the Ministry of Finance has been quoted by Vedomosti as saying that 90.4% of the oil to be produced in Russia is at fields with MET tax breaks. As a result, the budget is to see a shortfall of RUB2.3tn per year ($35bn). In the same article, Pavel Sorokin, the Deputy Minister of Energy, mentioned that under the current fiscal policy, oil production in Russia would start to fall after 2021 and eventually decline 40% to 310mnt/a (from 555.8mnt/a) by 2035. Because of this, the budget stands to lose RUB4.1tn ($62bn) in MET payments each year, while oil companies are to cut their investments RUB2.3tn ($35bn). Sorokin also said that Russian oil companies now gained just $5.90/bbl, while the rest goes to export duties, MET payments, capex, transport, opex and income tax. The scale of the tax breaks provided to the industry has increased notably over the last eight years (if calculated under flat oil prices). Simultaneously, the companies have channelled more investments into those assets, which have the highest levels of tax break (so-called high margin barrels). As a result, the share of crude production from such fields grew from 21% in 2011 to 46% in 2018 of the total, replacing output from fields without tax breaks. Therefore, Russian oils’ EBITDA is set to grow even under assumptions of both oil prices and crude production remaining flat.
EU Court rules to abolish Gazprom’s expanded access to OPAL. The EU court has cancelled the European Commission’s decision on Gazprom’s access to 90% of OPAL’s pipeline capacity, writes TASS. The company will have to return to using 50% of capacity. Since OPAL is an extension of Nord Stream, the company will have to supply less via this pipeline and more via the Ukrainian route. The decision will be appealed.
OPAL Gastransport started to reduce gas transportation through the OPAL pipeline on the morning of 14 September, cutting it 25mmcm/d (or 9.1bcm annualised), Vedomosti reports. At the same time, gas throughput via the NEL pipeline increased 7.5mmcm/d (or 2.7bcm/a). Therefore, throughput via the Nord Stream pipeline was reduced only 17.7mmcm/d (6.5bcm/a). Nevertheless, Gazprom has not increased transportation through the Yamal – Europe pipeline (which is already working at full capacity) and transit through Ukraine, the paper writes.
79 RUSSIA Country Report October 2019 ww.intellinews.com