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

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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.