Gas insults

image-300x218Miffed with Europe, Gazprom has decided to teach its European partners a lesson by leaving them without gas pipeline (the company has recently turned the South Stream to Turkey) and gas (lobbying again and again an idea of selling the Yamal gas to China) at the
same time. However, it seems the Russian gas giant has forgotten one popular proverb: if you chase two rabbits, you will lose them both.

Gazprom’s top managers seem to be very resentful. They are ready to cast billions of dollars to the wind just because their European partners asked them to work properly. The EU has only explained that things don’t work in Europe the way they work in Russia. As a result Gazprom has refused to continue the South Stream project, which was supposed to bring 63 billion cubic meters to Europe per year and exclude Ukraine from the supply route.

The initial plan was faulted by the European Union, which only wanted to comply with the law. In response to that President Vladimir Putin called off the project and made public plans to start the so-called Turkish Stream. The idea is to run gas pipeline to Turkey and if Europe wants to buy this gas it will need to build pipelines from Turkey itself. By that time Russia also plans to give up on transit though Ukraine.

The news came as a big surprise for Ukraine and the EU. Turkey seemed also surprised to suddenly become Russia’s strategic partner in the region and bargained 10.25% price reduction for gas. However, there is no final decision concerning this issue as yet. Gazprom wants to apply this discount to contract price, while Botas (the Turkish gas company) suggests that it should be related to reference price. While the sides are trying to find common ground Turkey doesn’t give formal permission to start exploration and construction works in its territorial waters. Meanwhile, Gazprom pledges to finish construction by 2019, when its contract with Ukraine expires.

«When we speak about some big supplies for European customers, you cannot adopt such a decision without talking to them, without talking to the EU and without talking to the European Commission», Maros Sefcovic, the European Commission’s vice president in charge of energy policy said at a press briefing in Ankara on March 17, when yet another big project — the TANAP gas pipeline from Azerbaijan through Turkey to Europe — was launched. According to officials, the pipeline will bring 16 billion cubic meters to Turkey and Europe in 2020, and 31 billion cubic meters – starting from 2026. Europe and Turkey are close partners and Moscow shouldn’t expect Turkey to fully support Russian initiatives.

Keeping that in mind, Gazprom has casted a look of hope on China. According to Reuters, the Russian gas giant has got back to plans of building gas pipeline to China — the Altai project, which is expected to bring gas from Yamal to China through the Russian republic of Altai. This agreement means Power of Siberia pipe could be delayed. «Yamal gas needs new markets — that’s why Gazprom is pushing for the Altai route. That’s why neither Vladivostok nor the Power of Siberia are a priority – the last one even has no source to be connected to», said a banker close to Gazprom, according to Reuters.

No doubt, the Chinese market looks very attracting. BP Energy Outlooks forecasts the country will import around 250 billion cubic meters per year in 2035. Gazprom would be happy to cover at least half of this volume. The company’s head Alexey Miller has told President Putin Gazprom is ready to supply 100 billion cubic meters to China through the western route, and around 38 cubic meters trough the eastern one.

The only problem is that there is no certainty in China over the issue. Reuters quotes a Chinese CNPC advisor as saying that Beijing is interested in investing in building both gas pipelines. «But the truth is that there is shortage of gas in the east of the country and some proficit in the west», he added. The key issue is the price. If Gazprom manages to offer a better price than Turkmenistan, China will opt for Russia.

On the other hand, the Russian company wants this project to be beneficial. Taking into account the current oil and gas prices, pessimistic forecasts and anti-Russian sanctions, the Power of Siberia doesn’t look gainful. However, the Russian authorities may once again surprise everybody by starting selling the Yamal gas to China with a discount instead of building bridges with Europe. From time to time they cut off their nose to spite face.

Samotlor Field

Almost 50 years ago, in the summer 1965, Soviet geologists discovered oil field under the Lake Samotlor in the Tyumen region (West Siberia). Geological reserves estimated at Samotlor is about 6.5 billion tons (47.5 billion barrels), recoverable – 3.3 billion tons (24.1 billion tons). For now the field already produced 2.7 billion tons (19.7 billion barrels).

Samotlor field is located under the lake, so engineers were forced to look for ways to build oil rigs. The lake is surrounded by swamps, so it can not be dried. Dry peat is a fire hazard. So, the way of creating artificial islands, connected by causeways, was choosen for this field.

10980190_346550998872290_8352890258680765648_oIn the USSR, the Samotlor oil field was kept secret and was not applied to the maps. Now you can see it on Google Maps (photo 1). You can also look at oil derricks on artificial islands on Panoramio photo by Dmitry Bald (photo 2).


World marks 40 years since King Faisal assassination

King Faisal of Saudi ArabiaOn this day, 40 years ago, Saudi Arabia’s King Faisal was assassinated in palace in Riyadh by his half-brother’s son with history of mental illness. Faisal’s brother, Crown Prince Khaled, succeeded to throne. The killer, Faisal bin Musaid, was publicly excecuted on June 18, 1975, in the Saudi capital.
Faisal’s reign had significant popularity among Saudis. Among other things he managed to stabilize the kingdom’s bureaucracy, officially abolished slavery, and was behind the Saudi major economic growth. For our readers he is more known for withdrawing Saudi oil from world markets in protest over Western support for Israel during the 1973 Arab-Israeli War. This action increased the price of oil and was the primary force behind the 1973 energy crisis.

ExxonMobil pays too much to Russia

Sakhalin 1ExxonMobil wants to get back the money, which the company overpaid as profit tax within the Sakhalin-1 project, the Russian Kommersant newspaper reports. The amount sum is claimed to be dozens of billions rubles. According to Mikhail Krutikhin, partner at a Moscow-based consulting company, the parties can settle the dispute out of court.

On March 18, the Russian energy minister Alexander Novak met with the company’s management team. “During the meeting the two sides discussed issues concerning the Sakhalin-1 project, including export gas sales and tax regime”, the ministry’s press-service said. According to Kommersant, possible amendments to profit tax as well as returning billions of rubles to ExxonMobil as overpaid tax topped the agenda. From 2009 ExxonMobil left 35% of its profit in Russia, but since then the tax rate in the country has dropped to 20%. In case the two sides don’t find common ground the American company threatens to file a suit to the Stockholm Court of Arbitration.

“The company has several times raised this issue but it vanished in the Russian red tape. Obviously, the Russian side thought ExxonMobil would continue to overpay billions of rubles for the right to work in the country. But ExxonMobil thought otherwise,” said Mikhail Kritikhin, partner at the RusEnergy consulting company. The expert considers the company’s claims to the Russian government to be well justified and doesn’t give the Russian side many chances in case of arbitration in Stockholm.

“ExxonMobil needs to make benefit from its investment,” says Krutikhin. “They have lost around $1 billion in a joint shale project with Rosneft. The loss needs to be compensated at least partly by restoring tax justice. If the management let this opportunity slip, it will be regarded as a big failure by the company’s shareholders”.

The issue hasn’t been settled as yet, writes Kommersant. However, there is still a chance to find a compromise and fix it out of court.

“The Russian government could bargain better conditions by giving ExxonMobil additional opportunities,” explains Krutikhin. “They could lean on Gazprom so that the Russian state-owned gas giant allowed the American company to run gas through its gas pipeline, the Sakhalin-2 project, to the south. Currently they are not authorized to do that, but if the Russian government puts extra pressure on Gazprom the situation may get off the ground.” The expert believes such an opportunity is the main bargaining chip of the Russian side.

Krutikhin is certain that Rosneft and ExxonMobil will continue cooperation despite the current tax controversy and sanctions.


The Sakhalin-1 project has been functioning under PSA, ExxonMobil is the project operator and holds 30% of shares, Japanese Sodeco holds 30% of shares, Rosneft – 20%, Indian ONGC – 20%.

Fuel costs


Specific “oil” taxes (royalty, excise duty) and conventional (VAT, income tax) are more than half the retail price of gasoline. For national budget inclusion of taxes in the price of gasoline is very convenient – collection of such taxes is extremely high, oil companies can not hide from them.