Russia's Energy Ministry Eyes Incentives for New LNG Projects

Πηγή: Downstream Today
By Russia & CIS Energy Newswire
March 19 2013

Russia's Energy Ministry is considering the possibility of introducing additional incentives, including discounts on duties, for new projects to produce liquefied natural gas (LNG), Energy Minister Alexander Novak told reporters.

"It will be possible to consider some incentives," Novak said.

He said the Yamal LNG project already enjoys a discount on the natural resource extraction tax (NRET), but stressed that such tax breaks will not be targeted and will be worked out for all new LNG projects.

Production of LNG must be encouraged because Russia faces the challenge of winning a place on the global LNG market, the minister said. "We have too small a share of this market. However, there is a niche for new supplies on the LNG market and we must occupy this niche," Novak said.

"There is a window of opportunity until 2018-2020. After this period, analysts estimate, supply will already exceed demand," Novak said, recalling that Australia, for example, plans to increase production of LNG by 40 million tonnes after this period.

The most realistic new LNG projects in Russia, Novak said, are Novatek's (RTS: NVTK) Yamal LNG, Gazprom's project to build an LNG plant in Vladivostok, and Rosneft's proposal to build an LNG plant on Sakhalin Island.

"We see this as one of the Russian LNG projects. Rosneft (RTS: ROSN) has a resource base in this region. Rosneft and its partner ExxonMobil must now work out everything in more detail and prepare more detailed proposals," Novak said.

Novatek in talks to sell stake in Yamal LNG

Novatek, Russia's biggest independent gas producer, is holding negotiations with South Korean, Japanese and Chinese companies on the sale of part of its stake in the Yamal LNG projects, Novak said.

"Novatek is prepared to reduce its stake in the project from 80% to 51%. It is offering a stake in the project to Korean, Japanese and Chinese companies. Competition for this stake will be very great," the minister said.

Novatek has already agreed with a number of Japanese companies - Tokyo Gas, Tokyo Electric, Marubeni and Mitsui - to form working groups that will "work out in greater detail the possibility of their joining the project," Novak said. "For we are not only offering gas supplies from this project, but also minority participation," he added.

Yamal LNG is expected to produce 16.5 million tonnes of LNG. The plant will be launched in three phases of 5.5 million tonnes per year each, at the end of 2016, 2017 and 2018 respectively.

Novak said the project will remain on schedule on the condition that a decision is made in the first half of the year on liberalizing exports of LNG. "We are working on this, in order to work out the issue of liberalization, provide additional possibilities for financing the project. I think that if we make this decision by the middle of the year, everything will be quite alright in terms of the timetable," the minister said.

He said Gazprom (RTS: GAZP) has not yet presented its proposals on the possibility of foreign companies participating in the Vladivostok LNG project. The company plans to hold a separate meeting with Japanese companies to discuss this topic.

These issues were discussed during a visit to these Asia-Pacific countries by a Russian delegation that included the management of Novatek and Gazprom Export, Novak said.

The $20 billion Yamal LNG project calls for the development of the South Tambei field on the Yamal Peninsula. Novatek has an 80% stake in Yamal LNG and France's Total owns the other 20%. Novatek said earlier that it plans to retain a controlling stake in the project, and did not rule out that a consortium of new partners, primarily such that could ensure the marketing of the product, might join the project.

Vladivostok LNG could produce 10 mln tonnes in 2020

Gazprom's project to build an LNG plant in Vladivostok could reach the stated production target of 10 million tonnes in 2020, Novak said. The first phase of 5 million tonnes per year is expected to be launched in 2018 and a second phase for another 5 million tonnes could start up in 2020, he said.

Therefore, with the launch of Yamal LNG, new LNG production capacity in Russia could reach 26.5 million tonnes by 2020. The CIS is expected to account for about 15% of total gas exports by 2020.

Gazprom's management board in February approved the rationalization for investment in the Vladivostok LNG project, which calls for building an LNG plant on the Lomonosov Peninsula in Perevoznaya Bay with three production lines of 5 million tonnes each. The resource base for the plant will be the Sakhalin, as well as Yakutia and Irkutsk gas producing regions. The target market will be the Asia-Pacific region.

Ministry proposes pipeline gas for Europe, LNG for Asia-Pacific

The Energy Ministry believes that Russian gas exports to Europe should be dominated by pipeline gas, while LNG should predominate in exports to the Asia-Pacific region, Novak said.

He said such an approach would make it possible to avoid having Russian gas compete on global markets, including if exports of Russian LNG are liberalized.

"For example, while Gazprom dominates in Europe and there is the possibility of increasing supplies of purely pipeline gas, there is no point in going there with LNG. There is the eastern market, where we don't have a pipeline, there we must compete. So in addition to Gazprom we should give other companies the opportunity to participate in this market," Novak said.

He said other proposals for tackling the problem of Russian LNG competing against itself on global market include the creation of non-commercial partnerships. There is also the possibility of issuing licenses for production of LNG that would specify export markets, the minister said.

"There can be various ways of coordination, there could a non-commercial partnership with oil and gas companies. It could be simply by way of permitting exports of LNG only with the issue of corresponding licenses to specific projects, and the licenses could specify the conditions of shipments. There is the option of going through a government commission," Novak said.

"There should be a strong mechanism here for coordinating the activities of all participants in the process, so that we don't have a situation where, to the detriment of the domestic market, we allow everyone to build LNG plants and everyone starts to chaotically ship to Europe or Asia," Novak said.

He said that his ministry would within a month complete an updated report on mechanisms for liberalizing LNG exports and tackling the problem of regulating this market. The proposals will consider granting certain projects the opportunity to export LNG.

"We're not talking about cancelling Gazprom's monopoly on gas exports. Gazprom remains the gas exporter by law, we are talking about the possible access of certain projects to LNG markets," Novak said.

The final decision on liberalizing LNG exports will be made by the Russian president.

The minister stressed that the global challenge in Russia's entry into the LNG market should not be fighting competition among Russian LNG suppliers, but competition with other global suppliers of LNG.

"Russia still only has 10% of the market, how can we compete internally here. Competition must be not among our projects, but with the projects of other countries that also plan to increase LNG exports, including Australia and Qatar," Novak said.

He remarked that not only is global demand for LNG growing, but so is the number of countries that are starting to use liquefied gas.

"In the last few years eleven countries have been added that have begun to build regasification terminals, and in the next few years there will be even more. The market will grow not only by volume of consumption, but also by number of countries. New countries are emerging - Argentina, Thailand. We need to occupy this niche and compete not against ourselves but for new markets," Novak said.

BP, Rosneft say they have signed off on TNK-BP sale

Πηγή: The Botswana Gazette
By AFP
Nov 23 2012

MOSCOW (AFP) - British oil major BP and Russian group Rosneft said Thursday that they have signed a final agreement on the sale by BP to Rosneft of half of the third biggest Russian oil company, TNK-BP, as part of a major shift in strategy by the British company.

"BP, Rosneft and Rosneftegaz -- the state-owned parent company of Rosneft -- have signed definitive and binding sale and purchase agreements for the sale of BP's 50 percent interest in TNK-BP to Rosneft and BP's investment in Rosneft," a BP statement said. 

The deal is still subject to approval by regulatory authorities and should be completed "in the first half of 2013," it added.

Once all parts of the complex transaction have been finalised, Rosneft is set to become one of the world's biggest oil companies while BP stands to gain crucial access to Arctic oil reserves.

On October 22, Rosneft announced that it had reached an agreement with BP and a consortium of Russian billionaires known as AAR to purchase their respective 50 percent holdings in TNK-BP, a lucrative oil producer that was mired in a dispute among its shareholders.

Under the terms of its deal with Rosneft, BP is to receive $17.1 billion in cash and shares giving it 12.84 percent of the equity in Rosneft.

BP also plans to buy a separate 5.66 percent stake in Rosneft from the Russian state for $4.8 billion, which along with a small stake of 1.25 percent that BP already owns, would give it 19.75 percent of Rosneft's equity in all.

That acquisition was "an integral part of the transaction," BP noted.

Rosneft added in a separate statement that it was also close to agreement with AAR on the acquisition of the other half of TNK-BP for $28 billion.

When the transactions have been completed, Rosneft is set to become the world's biggest oil company in terms of market capitalisation.

BP, which wants to reposition itself after the Gulf of Mexico oil spill disaster in 2010, would then own a major share of the Russian group and could thus have access to major exploration projects in the Arctic, analysts say.

Size Isn't Everything in Russian Oil

Πηγή: The Wall Street Journal
By LIAM DENNING
Nov 4 2012

The arrival of a new heavyweight usually unsettles smaller rivals—but not always.

Assuming Rosneft's $56 billion acquisition of TNK-BP happens, it would become the world's largest publicly traded oil-and-gas company by reserves and output. Its oil reserves and output will roughly match those of and BP combined.

But unlike diversified Western majors, the Russian state-controlled company's assets are concentrated in its own country. It hasn't competed aggressively for foreign oil assets in the way other national oil companies such as PetroChina have.

Nor is it likely to soon. Besides taking on more debt to buy TNK-BP, there is too much to do at home. While a decade of rising oil output and prices fueled the resurgence of the Russian economy and the Kremlin, a tougher future beckons. The International Energy Agency forecasts a slight decline in Russian oil output for the next two decades.

Even achieving this will require a step up in capital expenditure: $740 billion between 2011 and 2035. Russia's western Siberian fields—60% of the country's current output—are a declining Soviet legacy. Offsetting this with new fields in areas like the Arctic offshore will be challenging and, hence, expensive.

Lower exports and rising costs point to smaller margins for oil companies—and a smaller take for a state whose dependence on energy revenue has increased. Unless Russia can crack modernization and diversification for its economy, this represents a crisis in the making.

So a heavy burden rests on Russia's national oil champion to lead the charge in developing the country's next generation of resources. This was why Rosneft signed the original Arctic partnership with BP in 2011 that led to the TNK-BP deal. Indeed, for BP, the potential opportunity arising from Rosneft's need for foreign expertise is one rationale for selling its stake. Rosneft's need also lies behind other recent development deals with the likes of Exxon.

Bigger scale should help Rosneft take on some of these projects, especially in terms of getting financing in place and infrastructure built.

But further concentration of Russia's oil assets in large, state-backed firms raises concerns about efficiency. The stocks of Rosneft and its natural-gas counterpart Gazprom trade at persistent discounts to those of their Western and emerging-markets peers on price/earnings multiples, despite the companies' vast reserves.

Moreover, as a vibrant ecosystem of minnows and majors in much of the rest of the world demonstrates, the biggest companies aren't always the best tools for the job.

This is especially true because of Russia's need to enhance production from its older fields while also striking out for new frontiers. Elsewhere, it is often the smaller, nimbler companies that take on the mature fields from majors—who have bigger fish to fry—and squeeze more out of them. This has been the experience in older areas like the North Sea.

Smaller companies also have been at the forefront of America's shale boom. Unfortunately, Russia's longstanding tendency toward gigantism and state control saw larger oil firms swallow up smaller rivals over much of the past 15 years. Indeed, in "Wheel of Fortune," his new history of the post-Soviet oil industry, Thane Gustafson writes that small companies produce less than 5% of Russia's oil, and that share is declining.

Rosneft has partnered with Exxon to develop Siberian shale, but it remains to be seen whether two big integrated companies can replicate the success of the smaller U.S. exploration and production firms.

Rosneft's bigger scale is in some ways emblematic of the structural challenges faced by Russia's oil sector and economy. Far from being a threat, this latest shift in the landscape may represent an opportunity for western majors.

Exxon Mobil Teams Up With Russia In Arctic Oil Deal

Πηγή: Economy Watch

31 August 2011

Exxon Mobil has signed an Arctic oil exploration deal with Russian state owned oil company, Rosneft, in a strategic move ahead of industry rivals, BP. As part of the deal, Rosneft will be allowed access to oil reserves in the Gulf of Mexico and elsewhere.

The venture seemingly extinguishes any remaining chance of BP reviving its own deal, which lapsed in May, reported the BBC.

The agreement was signed on Tuesday in the presence of Prime Minister Vladimir Putin, a Rosneft spokesman said.

Prime Minister Putin said that it would also allow Rosneft to develop fields in the Gulf of Mexico and Texas, according to local media reports.

"New horizons are opening up. One of the world's leading companies, Exxon Mobil, is starting to work on Russia's strategic shelf and deepwater continental shelf," Putin said.

Under the agreement, the two firms will spend $3.2bn on deep-sea exploration in the East Prinovozemelsky region of the Kara Sea, as well as in the Russian Black Sea.

Exxon described these areas as "among the most promising and least explored offshore areas globally, with high potential for liquids and gas".

The two companies will also co-operate on the development of oil fields in Western Siberia.

Exxon spokesman Alan Jeffers told the BBC:

"(The Russian Arctic) is among the most promising and least explored regions for oil, that is why we are very interested. Exxon Mobil has developed an excellent working relationship with Rosneft (in recent years)."

Analysts agreed that the joint venture would allow both sides to spread the risks of operating in the Arctic and enables Rosneft to benefit from Exxon's superior deepwater drilling expertise.

BP's own Arctic deal with Rosneft - originally agreed in January - was scuppered by a legal challenge from the Russian co-investors in BP's existing Russian joint venture, TNK-BP.

"If this is essentially the BP deal, it is exposure to a pretty significant resource base," said Jason Gammel, energy analyst at Macquarie Research, adding it was a "pretty big win" for Exxon.

"There's a lot of risk that's involved in [the Kara Sea exploration]. BP was looking at several billion dollars of exploration expenditures up there."

Analysts said that Rosneft was known to be keen to push quickly ahead with its Arctic exploration plans after the BP deal fell through, with Shell also thought to have been in the running.