Interview with Cederic Cremers, Executive Vice President and Country Chair Russia at Shell

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Neftianka had the chance to interview Cederic Cremers, Executive Vice President and Country Chair Russia at Shell. Neftianka correspondents Sergey Nikitin and Maria Kutuzova spoke with Mr. Cremers on topics ranging from the company’s bullish outlook on LNG, downstream expansion in Russia, and Shell’s investment in the Nord Stream-2 pipeline project. Below is the transcript of the interview, which was originally published in Russian.

Neftianka: Mr. Cremers, Russia’s economic situation is far from great now. There are internal problems, existing sanctions, and new sanctions yet to come. Does any of this have any impact on Shell’s strategy in Russia or are you following the course that was set previously?

Cederic Cremers: Shell has been active in Russia for over 125 years. There have been great times for the industry, and there have been difficult times, but we have found a way to make our business successful during all those years. And we are still here today, and I see very important opportunities for us to continue to grow in Russia.

If I think about what we look for as we grow, I think it’s about the combination of the right scale, the right type of projects and the right partners… And then we look for the right synergies, where Shell brings something that works in good combination with local companies, local contractors and our local strategic partners to create the right value and the right projects.

I see many of those opportunities, particularly in our downstream business, in both retail and lubricants, but also in our LNG business: expanding our presence in Sakhalin and working on Baltic LNG together with Gazprom. This fits in terms of right scale, right partners and right synergy.

You also asked about sanctions. There are certainly key areas that are clearly off limits to us right now, the Arctic offshore and shale oil being examples of that. In 2014 we had to stop our activities in those areas. At the same time, our downstream business is much less impacted by sanctions.

You recently published Shell’s second outlook on the LNG market. How does the company see this market growing between now and 2030? What investments will be necessary? Please, tell us in more detail.

In 2017 the demand for LNG was just about 300 million tonnes per annum (mpta); if you think about it in terms of scale, it powers more than half a billion homes worldwide. And if you then look at the 2017 demand growth, it was almost 10% of that number, 29 mpta. Quite a bit more than what was expected even one or two years ago.

Many market players were talking about the expected oversupply. A lot of supply came onto the market from the new projects in Australia, the USA and Africa. But the real story of the last two years has been the fact that the demand has caught up and fully absorbed all that additional supply. First, the number of countries that are importing LNG today has grown significantly if you compare it to the year 2000. There were only about 10 countries importing LNG, and there’s more like 40 today. Second, there are more areas where LNG is being used right now, such as LNG for transport.

Another real story was China where there’s been a significant increase in demand for gas and LNG. That related to improvements on air quality that have been made in the last few years.

There’s been a government-driven program to switch over from coal to gas across the industry. Not only in power generation, but also in the industries themselves, heavy industries, the heating and power to plants. This is long-term new demand. This is not switching back and forth between gas and coal in power plants, but really making new investments into boilers, etc. This has made a huge difference in China and we see that trend continuing.

Based on our projections that the global gas demand will grow about 2% per annum, we expect LNG to grow even faster by about 4%. This is for the simple reason that the gas isn’t always in the ground where the demand is, and therefore LNG is a good way to transport and connect those demand and supply.

If you then take that 4% per year demand growth into the next decade, we see supply is not projected to grow at that same rate. There are very few new projects that have been sanctioned anywhere in the world in the last two years and therefore as you get to about 2024 there will be a shortage in the market and there will be new projects needed to be sanctioned in the years ahead. Personally, I feel this provides a great opportunity for Russia and for the LNG market in Russia in terms of starting up new supply projects that will fill that demand.

Mr. Cremers, let us talk about the glory days experienced — and yet to be experienced — by the Russian LNG. First was the commissioning of the LNG plant at Sakhalin-2, the second one was the recent commissioning of Novatek LNG, and now we are waiting for you to tell us about the coming halcyon days, about the future of your LNG projects in Russia.

The Ministry of Energy in Russia has outlined a plan of the total LNG market being about 70 mpta in Russia by somewhere in the 2020s. And even then, if we continue to see the market growth, Russia would still only be 14% of the global LNG market, which is only a fraction compared to Russia’s share of global gas resources.

If you look at Sakhalin LNG plant, the capacity is about 11 million tonnes per annum. One train on Yamal is online, if the next ones come online that would be about 15 million tonnes. Let’s say that we’re going to somewhere between 20 to 30 MTPA when both those projects. There’s going to be a lot of new projects required from multiple players in the market to meet the goal of 70 million tonnes.

At Shell, in partnership with Gazprom, we have two key projects that we’re focusing on. One is the third train in Sakhalin, adding another 50% to the capacity, i.e. a little bit more than 5 mpta. The other project is the one in the port of Ust-Luga, the Baltic LNG, with 10 mpta for just the first two trains and a possibility of expansion. We think these projects will be very competitive globally as new projects on the LNG market.

I’m quite proud to say that just a few days ago, on February 28, Train 3 received the final approval of its project design from Glavgosexpertiza. The next step is on the commercial side, where we have to resolve the discussions around gas supply to the project. Once this is resolved we should be at a stage where we can take the final investment decision and move forward with the project.

On the Baltic LNG side, in 2017 we agreed with Gazprom on the key terms of a joint venture and started a feasibility study which we’re now finalizing. We have landed on a very robust and strong technical concept.

Cremers, let me ask you about Shell’s collaboration with Gazprom on another project, Nord Stream-2. How much has Shell already invested in this project, and how much do you plan to invest? And what are the principal political risks that you see for this project?

The European energy market is in transition right now. There’s quite a large increase in renewable energies, and at the same time quite a shift away from coal. With these two counterbalancing forces, we expect that the demand for gas in Europe will stay roughly flat for the next 15 to 20 years. But the amount of gas produced within Europe, in places like the Netherlands, Germany and Norway, is reducing. With demand flat and production in Europe reducing, Europe will have to rely more on import of gas. I believe that will come from multiple sources, from a combination of more pipeline import and more LNG import.

This is where Nord Stream-2 fits, and I think it’s an important project in ensuring energy security in Europe with a new alternative, modern, and more efficient source of gas pipeline import.  You ask about political considerations, for us it’s very much a commercial project. We think it’s a good project that makes sense for Europe, that makes sense from an investment perspective.

We are financing 10% of the project, the estimate is about 950 million euros. I can say that the project is well on track, it is progressing along schedule, which means that we’ve executed about one third of the project financing to date.

I heard that Shell has some specific plans to use LNG as bunkering fuel. What is happening in this segment at the moment? What does Shell think about potential growth of the fleet that would use the bunkering fuel?

LNG as a fuel for marine transport has huge potential. First in terms of making the market more cost-competitive, but also as a cleaner burning fuel for heavy land transport and heavy marine transport. It’s also strengthened by the recent IMO regulations to go to below half a percent of Sulphur emissions in marine fuel by 2020, and LNG as a marine fuel is effectively Sulphur-free.  Shell supports this market by helping build the infrastructure required for bunkering, to ensure there’s enough LNG available to fuel marine transport and to really make it a sustainable and an effective industry.

Can you tell us, please, about your collaboration with the Russian company Sovcomflot?

We’ve had a strong relationship with Sovcomflot dating back to 2004 as a supplier of vessels for Sakhalin Energy. We went on a journey together and said, ‘let’s also look at tankers’, specifically Aframax crude tankers and see how can we make them more environmentally friendly. Sovcomflot has developed what they call their “green funnel”, six ships that will be fueled by LNG. Shell developed the capability to fuel these vessels with a new bunker vessel, the Cardissa, able to operate across Europe, which was put in place in 2017 in the port of Rotterdam.

I’m quite proud to announced that just a few weeks ago we chartered two of those six vessels for our own use. This is an area where we’re intensely working together with Sovcomflot to make the marine industry greener.

Is Shell satisfied with the way its joint project with Gazpromneft using ASP flooding at Salym fields is going? What’s in the project’s future?

One of the areas of our cooperation is ASP flooding, a chemical-based recovery method used in other places around the world before, like the USA, Canada and China. It is a process that uses a combination of alkali polymers and surfactants to achieve enhanced oil recovery. We sanctioned a pilot project back in 2012 that has now been completed. It produced about 3000 tons of oil and now the company is finalizing its analysis, so that then we can make choices about larger scale economic development. Our belief is that that it will require different fiscal incentives and tax treatment to make it economic on large scale.

Mr. Cremers, I also want to talk about the retail business. Our independent producers claim that their gas stations are on the verge of closing. Our majors claim that they are basically selling at self-cost. Meanwhile, the number of Shell gas stations continues to grow. How would you comment?

We see Russia as a very important market for our retail business, and it is one, where we have been steadily growing. About five years ago we had a hundred stations, in 2015 we already had 150, whereas just last year we opened our 250th station. It’s been on a rapid increase and that will continue going forward. Also, we were initially concentrated around St. Petersburg and the region, now we are much more spread out and present in many more regions.

Regarding profitability, it is fair to say that today the margins are under pressure. But our retail business is profitable. Two things are critical: one is customer focus, really understanding the customer needs and servicing those; the second is operational excellence, running the retail stations at the right cost and right efficiency. With those together certainly there’s an opportunity to have a very profitable business in the retail space in Russia.

Last year, we visited your refinery at Torzhok along with Gazpromneft’s delegation. I can tell you that our colleagues were very impressed by everything we saw — the way the plant functions, the way production safety is enforced, the way people are treated. What would you say about the state of the lubricants market in Russia?

We are quite proud of our Torzhok refinery. We are the only international company that has its own lube blending plant in Russia. It was built to worldwide standards, it’s a state-of-the-art modern plant. I think it gives us a very strong position in the market. We are currently the largest international brand on the Russian market as far as lubricants are concerned. And we see a lot of opportunity, a lot of capacity in the plant also to grow further, in partnership with many of our distributors across the country, to increase our presence in different market segments and with different customer segments.

The $200BN LNG Investment Gap


The liquefied natural gas (LNG) market needs more than $200 billion more in investment by 2030, Royal Dutch Shell said in its 2018 LNG Market Report.

In 2017, LNG consumption increased 29 million tons and to reach 293 tons, surpassing all estimates and expectations. In the last year since Shell published its report, LNG imports grew 11%. According to company estimates, by 2030 the demand for LNG will increase to 500 million tons. Despite the rapid development of the LNG market, investment into new projects isn’t keeping up with demand.

Shell warns that underinvestment in the industry could lead to a shortage of the product by the mid 2020s. This is due to the ‘gap’ in energy investment that began in 2014 when energy prices fell and new capital investment in LNG came to a halt. But in today’s somewhat recovered price market, final investment decisions (FIDs) on new projects are still not going forward.

According to Shell, the so-called ‘gap’ between investment and demand is a function of how the frozen natural gas is negotiated between buyers and sellers. Buyers prefer short-term and more flexible contracts (similar to the oil market), whereas sellers want long-term contracts to supply steady income to begin paying off the massive debt of constructing the LNG terminal.

The energy giant has been ramping up its LNG holdings in recent years, with the most notable acquisition being the $30 billion purchase of BG Group, which brought several natural gas and LNG assets to Shell’s portfolio. It participates in projects along the entire value chain, from exploration and production, to liquefaction and transport, as well as regasification and distribution to customers. Now, the Anglo-Dutch firm is the world’s largest independent producer and trader of LNG, and accounts for more than one-fifth of the world’s LNG market. In 2017, Shell increased is LNG production by 8 percent to 33.24 million tons.

One of Shell’s biggest project to date is Prelude FLNG off the coast of western Australia, a floating liquefied natural gas facility which can liquefy gas from offshore fields on the vessel itself instead of building  onshore facilities. Then, once production runs dry, the unit can move to another field for production. Prelude, which is innovative in both its size and technology, will produce 5.3 million tons per year once it is online. Shell faces several other energy majors in Australia and around the world who are building projects similar in scope. The successive announcement of these LNG projects (especially in Australia where labor is expensive and many of the projects are facing delays) caused fears of the LNG market becoming oversaturated. Prices have been depressed since a brief post-Fukushima spike in 2011.

Shell is also weighing large-scaled projects in the US and Canada, Shell’s head of integrated gas and new energies, Maarten Wetselaar, said.

The shale boom has put downward pressure on natural gas prices, making LNG attractive option for traders – buy at about $2.00-3.00 on the Henry Hub, then freeze and ship off to Japan where it fetches prices between $8.00-9.00. Conversely, in countries such as the US and Russia where natural gas is produced cheaply, there zero demand for more expensive LNG.

Japan remains the world’s largest importer of liquefied natural gas, while China is in a close second, followed by South Korea. China’s demand for LNG has reached 38 million tons as the country’s economy continues to suck up energy. The government’s policy on reducing carbon emissions has made LNG, which is cleaner than burning coal, a favorite. Across Asia, demand for LNG grew by 17 million tons.

The new Shell forecast for the LNG market looks at the future supply-demand ratio. Since the beginning of the twenty-first century, the number of countries importing liquefied natural gas has quadrupled, and producers have doubled, while world trade in LNG has tripled: from 100 million tons in 2000 to almost 300 million tons in 2017.

Novatek Secures LNG Position with New Arctic Field

Icebreaker ship, Beaufort Sea, U.S.A.

NOVATEK’s subsidiary company Arctic LNG-1 won an auction for the right to explore and produce hydrocarbons in the subsoil area of the Gydan Peninsula of the coast of the Kara Sea in northern Siberia. The acquisition will help NOVATEK secure its foothold in the Russian LNG market, as the Gydan Peninsula license will boost the resource base for large-scale LNG projects in the Yamal region.

The company bought the rights in an auction for $38 million (2.262 billion rubles) for a 27-year lease.

The Gydan site is located in close proximity to the Utrenno field, which is the resource base of Novatek’s Arctic LNG-2 project. The area is estimated to have a total resource potential of 4.74 billion barrels of oil equivalent. Together, the Gydan and Yamal peninsulas are comparable to LNG production in Qatar, NOVATEK has said.

The Arctic LNG 2 project will nearly match Yamal’s production capacity of 16.5 million tons (21 billion cubic meters) per year once it begins operating in 2022-2023. The plant will draw from a resource base of 1.2 trillion cubic meters of proven gas reserves in addition to 50.5 million tons of liquid hydrocarbons.

The addition of Arctic LNG 2 to the Yamal LNG project will significantly reduce the cost of producing LNG in Russia’s Arctic seas, and a liquefaction hub will be set up in Murmansk. Arctic LNG 2 is planned to cost $10 billion and produce 16.5 million tons (21 billion cubic meters) per year once it is in operation starting in 2022 or 2023.

NOVATEK CEO Leonid Mikhelson has said that Russia will soon occupy a quarter of the global LNG market, since the country’s share in world gas reserves is 22-24%. According to Mikhelson, Russia’s vast reserves give the country and obvious competitive advantage in the emerging LNG market.

By the end of this year, NOVATEK’s Yamal LNG project will be commissioned, and eventually production will reach 16.5 million tons per year.

According to NOVATEK, the company already has a significant raw material base on the Gydan Peninsula, including the Utrennoye, Geophysical and Ladderoyskoye fields, as well as the Trekhbogorny, Niavayakhsky, Zapadno-Solpatinsky, Tanamsky, and Severo-Tanamsky fields.

Iran’s Gas Future

South Pars field

Tehran has announced that gas production at South Pars, the country’s and world’s largest gas field, has doubled in the last four years, and  the launch of five new gas platforms has put Iran in reach of surpassing neighboring Qatar’s gas production capacity level.

Iranian President Hassan Rohani, who is up for re-election next month, delivered the good news in April.

According to a statement by the National Iranian Gas Company (NIGC), with the start-up of the five gas platforms has put Iran’s gas production capacity level on par with neighboring Qatar.

The inauguration of South Pars phases 17 through 21 completes the country’s biggest investment, amounting to around $20 billion over the past ten years.

South Pars, which is the world’s largest gas field, has some 230 billion barrel of oil equivalent recoverable hydrocarbons. Two-thirds of the field is located in Qatar, and the other third in Iran. At present, Qatar produces more than 590 million cubic meters of natural gas per day from the field and has plans to boost production by 2022. Iran is trying to catch up in production. Iranian authorities have said that by 2018, gas production from the South Pars field (3,700 sq. km) will exceed that of Qatar’s in the North Field (6,000 sq. km), which is the geological continuation of South Pars.

In total, Iran’s gas production has reached 540 million cubic meters, up from just 240 million when Rohani was elected in 2013, according to Iran’s Ministry of Energy.

Production was curbed by sanctions against Iran, which made it impossible for foreign companies to invest in infrastructure to bring the product to market. As a result, most of Iranian gas produced is used for domestic consumption.

Most of the gas produced is used for domestic consumption, and exports are focused on delivering natural gas via already-existing pipelines to Oman, Pakistan, Iraq, and Kuwait. Tehran relies on oil, not natural gas, for main export revenues.

Iran has not yet been able to replicate Qatar’s successful LNG model, due to a lack of investment as a result of sanctions, and now, an over-supplied market. Qatar is currently the world’s LNG exporter, and ships natural gas to both Europe and Asia, where the product fetches higher market prices.

Iran has signed memorandums of understanding agreements with Gazprom Neft, Lukoil, Tatneft, and Zarubezhneft to jointly develop and operate oil fields.

The Future of Russian LNG: Thierry Bros

thierry bros pic

Thierry Bros, a senior research fellow of The Oxford Institute for Energy Studies sat down with Neftianka to discuss Russia’s future prospects in the LNG market.

Neftianka: You’ve been an analyst on both Russia and LNG markets for decades. You tell us, is LNG Russia’s top energy priority right now?

Bros: The government wants to be a decent player in the LNG world, and again, if you are the government, you have to address the question if you want to be a major LNG player, and ten years later you are a small player, but nowhere near where you wanted to be. It is difficult and risky for companies, therefore we need to partner one way or another.

Today we are in a world where there is too much LNG, other sources are drastically changing merit order system. The Russian government needs to answer one very simple question, is LNG strategic or not? It will need to adapt model to produce. If it decides that the project isn’t strategic, then the market can do it.

We are seeing a relaxed LNG world. I think companies have to think that its still a capitalist world, so you have to think about what type of strategy you want. If you have depletion of historical fields, then you need to find new fields.

You’ve been in the analyst trenches for quite some time now. What do you think about the current slump in LNG prices? Will Russia be able to influence LNG pricing the same way they were able to play with European gas pricing?

I think the Russian state will never be able to control the LNG price, it will be like Brent for oil. The question is, “Do we have sufficient market power LNG to understand the mechanics?” And right now the answer is no. The way to better understand the mechanics is to do more projects.

In order to better understand the LNG market, this means more Russian players and better reporting to the government. In a world where pipeline gas is going to be connected with LNG, Russia has an interest in understanding, but not necessarily controlling, the mechanics of LNG.

There is a very simple question if you are Russia is pipeline gas at discount to LNG, and if so, how can I price this?

The LNG “success” story that everyone is talking about these days is Yamal, an LNG plant with16.5 mtpa that looks like it can break even at $30/barrel prices, even though the area is remote and the technology advanced.

Novatek succeeded in understanding, thanks to Total [partner in Yamal LNG] that costs and CAPEX can’t go through the roof. They understood making it profitable from day one. We can’t twist the spreadsheet, the only way for this to go ahead is for the Russian government to take control, to provide tax holidays, port infrastructure, etc. Novatek and the Russian government definitely came out with a win/win situation.

Yamal has strong state support, provide LNG on time and on budget, a new thing in the LNG world these days. Russian LNG provided by different actors. Remember no monopoly in LNG world. Not enough to put Russia on the LNG map. Still second class player when it comes to LNG. Policy makers would like LNG to become more relevant in Russia.

Conversely, the Shtokman LNG project was thought to be risky, and was postponed. You cant say on your spread sheet you’ll add it up later, it has to be adapted from day one.

Gazprom’s Sakhalin, Russia’s first LNG project, had problems in term of CAPEX during the building phase, but now it operates perfectly fine.

We’ve seen LNG projects on maps for many years, but so far there are only two in Russia [Sakhalin and Yamal].

And what about Gazprom’s Vladivostok LNG project that has been officially shelved since late 2015?

If you are Gazprom, it makes sense to expanding Sakhalin because its cheaper.

Gazprom has never built an LNG liquefaction plant [their partner on the project, Shell, was the operator up until 2009].

Gazprom is extremely good at pipes and conventional upstream. LNG is challenging for them. I think Vladivostok LNG was on the map back many years ago because it was a hedge to Power of Siberia, but with Power of Siberia going ahead, they don’t need

Vladivostok LNG would in theory involve an undersea pipeline from Sakhalin to Vladivostok. Is it really profitable to use pipelines in an LNG project?

Gazprom is used to doing pipelines. They can do the profitability analysis and decide yes or no.

How do energy companies become more vertically integrated? What’s Gazprom’s future in an LNG world?

These big companies have the challenge to adapt – Exxon has the same problem with oil: Their mantra will be “oil, oil, oil” for how long? Gazprom has an advantage as a gas company, its one step ahead in the energy transition. This is why Rosneft is so pushy in breaking into the gas market. Gazprom understands there is a huge risk of unbundling, and for it to try and avoid it, in needs to be profitable day in and day out.

If you are Gazprom, you have to make your case stronger, and that means delivering what the state is expecting.

Gazprom will have a duty to do LNG projects in Russia. If your shareholders ask you do to something that isn’t profitable, you can come back and negotiate.

Of course it is easier to do in Europe, because Gazprom has a long history there, and Asians are tough bargainers. And when we compare this move to what’s going on in Europe, we see it’s a good for Gazprom. They are going to have a tendency to move towards Asia due to financing, sanctions, etc.

Will the Russian government support future LNG projects? How does this change with the 2013 law to “liberalize” the market, letting in new players Novatek and Rosneft to export abroad?

My understanding is that the Russia is creating competition between two national companies, Rosneft and Gazprom, and now Novatek.

It could be a good start. If you want liberalization of markets, this may be a good tool to use later on to move away from regulatory price. If you want to have a price of Russia that is reflective of the market.

Interestingly enough, the Russian government has opened the market to all the companies, and since this law, only one project. Did I pass a law for only one project, or am I going to tell the other companies that its time to deliver?

OK, last question. Do you think that St. Petersburg has the potential to be an LNG pricing hub?

Right now it is for a few players, but you have to start somewhere. You can use a hub as a pricing tool.

Gazprom Neft gains access to Sakhalin


Gazpromneft-Sakhalin, a subsidy of Gazprom Neft (itself the oil division of state-owned Gazprom) has received a license to explore and drill on Sakhalin Island, Russia’s budding LNG hub situated north of Japan.

The company got permission to drill and produce hydrocarbons from the Ayashsky shelf, part of the Sakhalin-3 project. The other two blocs in the Gazprom-operated project are Kirinsky and Vostochno-Odoptinsky.

The first exploration well is to be drilled oil going this summer and a 3D seismic survey has already been carried out over a 2.15 square kilometer area.

Gazprom Neft joins Russian energy giants Rosneft and Gazprom on the remote island in the Okhotsk Sea, where the companies respectively head up the Sakhlin-1 and Sakhalin-2 projects. Gazprom Neft’s first exploration well will be drilled this summer. The license, granted by Russia’s state subsurface agency, Rosnedra, is valid through July 2039.

The Ayashsky bloc, which Gazprom Neft estimates contains more than 100 million tons of oil or oil equivalent, is sandwiched between the already operating Sakhalin-1 and Sakhalin-2 fields.

This is the first time Gazpromneft-Sakhalin received a license in the Sea of Okhortsk. Previously, the company had only obtained licenses to drill in Arctic blocs.

8 Takeaways on Russian Oil and Gas from Putin’s Q&A marathon


Russian President Vladimir Putin held his annual end of the year press conference, fielding questions from journalists in a 3-hour Q&A session.

The full text can be found on the Kremlin’s website.

He answered questions from 32 journalists on a variety of topics, from the run-of-the-mill topics such as the economy , Russia’s diplomatic spats, to the bizarre themes, such as suggesting FIFA’s Sepp Blatter deserves the Nobel Peace Prize or endorsing Donald Trump for president.

But at Neftianka, we blog about oil and gas, so we compiled everything Putin said at this year’s press conference about Russian energy.

1. $50 per barrel oil is too optimistic

“Our calculations [for the 2016 budget] were based on the oil price of $50 a barrel. Now the price is $38. We will have to correct something there,” Putin said on Thursday.

Low oil prices have wreaked havoc on the Russian economy, which is expected to contract 3.7% this year. Putin says the forecast for economic growth of 0.7% in 2016, and 1.9% in 2017 are based on $50 per barrel oil prices.

2. Does the Russian government plan to privatize part of Rosneft, the country’s biggest oil company?

“This (large-scale privatization) is possible, and in principle we will continue this work,” Putin said, adding he wasn’t sure that the market conditions are currently optimal.

The Russian government owns a controlling stake in many of the country’s major oil and gas companies: Gazprom, Rosneft, and Bashneft to name a few. Many industry experts argue this makes them inefficient and subject to state interests, while others argue without government support, they would be worthless.

In 2012, the Russian government (which is headed by the Prime Minister, Dmitry Medvedev) announced their plan to sell off 12 large state-owned companies, including Rosneft.

Russia’s current Finance Minister, Anton Siluanov, supports the privatization of Rosneft, and said it could happen as soon as next year.

3. TurkStream

Negotiations on TurkStream, which was meant to replace the canceled South Stream, have been on hold since the downing of a Russian fighter jet over Turkish territory last month. The pipeline would have initially have had the capacity to transport 63 billion cubic meters of natural gas from Russia to Turkey under the Black Sea. The project, which would send a majority of the gas onto Europe and fill the gap of the failed South Stream, was slated to be finished as early as 2016.

At present, negotiations are stalled.

“We haven’t stopped on negotiations. We need written guarantees from the EC that the routes will be made a priority. But so far, we see nothing of that sort, and will not take any step that isn’t in our economic interest,” Putin said.

4. Nord Stream II

The expansion of Nord Stream, a pipeline that transfers Russian gas directly to Germany, would quickly and easily solve Gazprom’s dependence on delivering supplies through Ukraine.

Once expanded, the pipeline, which runs along the seabed of the Baltic Sea, will have the capacity to deliver 110 billion cubic meters of gas, or about 2/3 of Europe’s total yearly demand. Gazprom will build and operate the pipeline with Germany’s E.ON, BASF/Wintershall, Austria’s OMV, ENGIE of France, and Royal Dutch Shell to expand the pipeline.

However, the project has recently met opposition from some EU members who believe either 1) Germany will have too much power over natural gas or 2) it gives Russia too much control over EU energy affairs.

“Nord Stream and the future Nord Stream II were motivated by the demand for reliability, market-based operations, and high standards of legal and administration standards. If our Ukrainian partners do the same, we can work with them. If not we’ll look at alternatives,” the president said.

5. Ukraine transit

Nord Stream and TurkStream are meant to reroute Russia’s European gas exports away from Ukraine. Gazprom is pre-emptively expanding its energy network in Europe, because as of 2019 when its contract with Kiev expires, Russia may no longer send any supplies via Ukraine, its traditional conduit.

However, if TurkStream and Nord Stream continue to face obstacles, transit through Ukraine may continue.

“On a corporate level, during heated debates I personally heard someone saying we will stop the transit … I am not sure that we should cut transit through Ukraine,” Putin said.

6. South Stream

Before TurkStream and Nord Stream II, Gazprom originally planned to use the South Stream pipeline beneath the Black Sea to send its gas to Europe. The project was halted in mid-construction, because the European Commission and Russia couldn’t agree on terms.

“You know our views, we were ready to implement this project, but we weren’t allowed to. We were surprised by Bulgarians (who could have got $3 billion, plus 400 million euros in transit fees per year) who are acting against their economic interests.”

7. Yamal LNG

Putin is confident that Yamal LNG project will go ahead, despite major delays in future finance. The project is a joint operation by Russia’s Novatek, France’s Total, and China’s CNPC to ship liquefied natural gas from Russia to global markets.

“This is a needed project. Sales of LNG will grow and today, we are selling energy in the Far East, or on swap agreements (done by Gazprom), but this is a huge Chinese, French, Russian joint project that can go to all the foreign markets,” Putin said.

Putin also added that the port could become universal, and ship other various goods in addition to LNG, including cargo.

Only $10 billion of the $27 billion Yamal LNG project has been financed, and next $20 billion needs to be externally financed, mostly from Chinese Banks and the Silk Road Fund.

“Question of budget financing needs additional analysis,” was Putin’s response.

8. What about exploring new fields?

A majority of Russian oil comes from well-developed fields in Western Siberia, where resources are fast depleting, and industry experts companies aren’t prepared to fill the future production gap.

Exploration of new oil fields in Russia never stopped since the Soviet times, according to Putin, because, “nobody wants to kill the goose that lays the golden egg.” The Russian government stimulates exploration by both state-owned and private companies, Putin said.

The Impending Breakup of Gazprom, Russia’s Gas Giant

gazprom split neftianka

In October, Russian President Putin will have to make a decision on breaking up Gazprom, the country’s largest exporter of natural gas, RBC reported. The company will likely have to give other companies, such as Novatek, Lukoil, Rosneft, and Surgutneftegas access to their pipelines and gas storage facilities.

Russia’s Federal Antimonopoly Service (FAS) has long been working to break up Russia’s “national treasure”, and believes that liberalizing the export market will bring about more fair and competitive gas transport prices and tariffs.

The verdict on whether or not to divy up Russia’s national breadwinner is split. The company, which accounts for 8 percent of Russia’s economy, is seen as a source of pride for many Russians. In 2012, when Russians were asked where they would work if they could choose any large company, 44 percent said Gazprom.

If the company is split, Rosneft is clearly a winner, as it will be able to sink its teeth into the $400 billion gas deal Gazprom sealed with China in May 2015.

The FAS will soon submit a formal request to break up Gazprom to Russian Vladimir Putin’s presidential commission on fuel and energy sector, RBC reported citing FAS deputy head Anatoly Golomolzin.

According to Golomolzin, discussions are being initiated by Rosneft. If action is taken, Gazprom will also lose its monopoly on gas exports to China, and Rosneft will be allowed to send its oil to China via Gazprom’s pipelines.

Vladimir Blinkov, the lead researcher at the Russian Institute for Strategic Studies, has accused the FAS of ‘anti-Gazpromization’, alleging that the regulator has a conflict of interest in helping Gazprom’s competitors.

The split shouldn’t be a shock to anyone, Gazprom has been under attack since the 1990s. In 2007 then-First Deputy Prime Minister Dmitry Medvedev gave the FMS orders to look at Gazprom. In 2013, Russian President Putin signed into law amendments to the gas export law aimed to break Gazprom’s monopoly on foreign export, particularly LNG.

Even though Gazprom achieved revenues of 4.48 trillion rubles in 2014, is a relic of the Soviet Union and isn’t keeping up with its competitors in profit. While in 2014 Gazprom’s profits reached 157 billion rubles, Surgneftgaz posted 885 billion rubles in profits. Rosneft outpaced Gazprom in profits by hundreds of millions, and Lukoil, the country’s second-largest oil company, topped it by about 24 billion rubles.

Novatek and Rosneft will aggressively take advantage of the liberalized export market and begin the export of liquefied natural gas (LNG), especially to growing Asian markets.

The behemoth has failed to innovate, especially in LNG technology, since a majority of the company’s revenues (50%) are made in pipeline transport of natural gas to Europe, a very lucrative market.

Competitors Novatek and Rosneft are eager to get into the LNG market, and already have plans for LNG facilities. Currently, Russia only has one LNG plant in operation, the Sakhalin-2 project in the Far East, a joint project between Gazprom (50%), Royal Dutch Shell (27.5%), Japan Mitsui (12.5%), and Mitsubishi subsidiary Diamond Gas (10%). Despite falling demand from Asia, the terminal plans to produce 10.8 million tonnes in 2016.

Rosneft plans to launch its own LNG plant on Sakhalin with a 5 million tons per year capacity in 2020. ExxonMobil is a partner.

Novatek’s Yamal LNG project in the Arctic, once finished, will have a 16.5 million tonnes per year capacity. Novatek has partners with France’s Total and China’s CNPC.