Page 5 - FSUOGM Week 20 2021

FSUOGM COMMENTARY FSUOGM

Russian energy minister
Nikolay Shulginov

KEY POINTS:
• Oil and gas will
continue to play a
"significant role" in the
energy mix in the years
to come.
• Russia is positioning
itself to become
a major hydrogen
exporter, predominately
using natural gas and
nuclear energy.
• The minister has called
for Russia's excess
profit tax system to
be expanded to more
is that we must not stand still, we must develop you shouldn’t do it all at once. It is necessary to fields gradually.
new technologies. We are faced with an ambi- see how the EPT will turn out over several years • LNG is likely the
tious task – occupying 20% of the market – and of operation, while gradually expanding the best option for
it is not negotiable.” group of fields.” commercialising the
He said it was difficult to predict what price vast gas reserves on
either blue or green hydrogen would be sold at Downstream incentives the Yamal Peninsula.
in the future, as the market for these products Russia has also embarked on another push to
does not yet exist. modernise its refining sector, to produce more
“Russia plans to be present in the markets of higher-quality light fuels like gasoline and die-
all types of hydrogen in order to close all niches,” sel at the expense of heavy fuel oil output. It also
the minister said. wants to build up its petrochemicals sector to
The topic of one day converting Nord Stream add value to its hydrocarbon resources.
2 to supply a mixture of natural gas and hydro- The energy ministry has already signed 14
gen was “complex” and “not fully understood,” investment agreements with oil refiners for
he noted. “To date, there are no standards for the construction of 30 new processing units.
constructing such pipes or for mixing propor- The deals were signed by four Rosneft-owned
tions. We are exploring all possibilities to max- refineries, Novokuibyshevk, Syzran, Tuapse and
imise asset performance.” Komsomolsk; two Gazprom Neft-run facilities,
He reiterated that the pipeline would be com- Moscow and Omsk; the Afipsk and Orsk refin-
pleted this year. Construction was brought to a eries managed by Mikhail Gutseriev’s Safmar
standstill at the end of 2019. Group; Tatneft’s Taneco complex; Gazprom’s
Neftekhim Salavat; and independent plants
Upstream tax Novoskakhtinsk and Antipinsk. In return for
Shulginov also touched on the abolition of min- investing in new units due to start up by 2026,
eral extraction tax (MET) and export tax breaks the refineries will receive a reverse excise tax on
at extra viscous and depleted oilfields last year, their crude beginning this year.
under a major tax overhaul undertaken by the Russia is taking similar steps in the petro-
finance ministry. The finance ministry has pro- chemicals segment. It plans to introduce reverse
posed moving these projects to an excess profit excise taxes on LPG and ethane, two commonly
tax (EPT) system from 2024. used petrochemicals feedstocks, in 2022. To
The ending of the tax incentives “worsened be eligible for the subsidy, projects must have a
the economics of these projects,” the minister capacity of at least 300,000 tonnes per year (tpy)
said, estimating a resulting loss in investment of feedstock or have an investment cost of over
in extra viscous fields alone of up to RUB200bn RUB65bn ($882mn).
($2.7bn) in 2021-2025. He noted it would be This reverse tax is already available for pet-
possible to move the projects to the EPT system rochemical projects running on naphtha feed-
sooner to help alleviate the impact. stock. But Rosneft is apparently dissatisfied with
Depleted fields can also be included in the the current level of support. CEO Igor Sechin
EPT system, and they are eligible for an invest- last year requested extra subsidies on naphtha
ment tax deduction from January 1, 2024. How- and oil feedstock in order to realise Rosneft's
ever, Shulginov cautioned that there still could long-delayed Far East Petroleum Co. (FEPCO)
be a negative impact from the change in the tax refining and petrochemicals project in the Far
regime. East.
“It is necessary to gradually expand the
groups of deposits that can be classified under LNG versus pipe gas
EPT,” the minister said. “This tax system allows Shulginov also dismissed the idea that over-
us to optimise costs and financial results, which seas competition between Russian pipeline gas
is a step forward for our companies. However, and LNG was a problem.

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