Russian Oil and Gas Industry: News

Russia’s Ivanov ‘Not Happy’ With Oil Above $100, Prefers $80

Oil prices above $100 a barrel are discouraging Russia from diversifying its economy, Deputy Prime Minister Sergei Ivanov said.

Ivanov said the current price was unsustainable and that Russia’s budget will fall into a deficit when it drops. He would prefer oil and gas prices to be “around maybe $80 per barrel,” which is a “more realistic” level.

“When the gold rain is pouring on your head, you are not motivated to diversify,” Ivanov said in an interview yesterday in Miami, where he was speaking at the Everest Capital Emerging Markets Forum. “I wouldn’t say I hate high oil and gas prices, but I am not happy with them.”

Oil today climbed above $111 in New York for the first time in 30 months. Crude for May delivery rose $1.25, or 1.1 percent, to $111.55 a barrel at 11:10 a.m. on the New York Mercantile Exchange.

Higher oil prices have helped boost Russia’s international reserves to $504.5 billion, the most since 2008. The cost of protecting Russian bonds against default also fell to its lowest level yesterday since August 2008, according to data provider CMA.

Once prices fall, running a long-term budget shortfall is not an option for Russia, Ivanov said. “We can’t live for long with a deficit budget. We are not like the” U.S., he said.
Space, Nuclear

He said that even with high oil prices, the country was taking steps to diversify, including investing in technology industries, space and aviation programs, and nuclear energy.

Ivanov stopped in Miami after meeting with U.S. Secretary of State Hillary Clinton, Trade Representative Ron Kirk and several lawmakers to discuss Russia’s entrance into the World Trade Organization.

The “political window of opportunity” for Russia to enter the WTO may “start to close down” at the end of the year as the U.S. and Russia enter election years, Ivanov said. He is hopeful an agreement will be reached before then, he said.

Ivanov said Russian arms exports, which doubled to $10 billion in 2010 over the previous five years, may rise to $10.6 billion to $11 billion this year.

Ivanov, 58, was appointed first deputy prime minister in 2007 after serving as the country’s defense minister since 2001, according to the Russian government’s website. The former KGB officer was regarded as a potential successor to then-President Vladimir Putin before the 2008 election.

Ivanov also said he would resign as chairman of the board of Rosavtodor, a federal toll-road operator, and United Aircraft Corp., an airplane manufacturer, after Russian President Dmitry Medvedev called for government officials to step down from their posts at state-owned companies and be replaced by independent directors.

“I will leave with a light heart because apart from those two boards I have lots of other fish to fry,” he said. Whether the independent directors will improve corporate governance “remains to be seen” he said.

Austin wrote:

Russia’s Ivanov ‘Not Happy’ With Oil Above $100, Prefers $80

Oil prices above $100 a barrel are discouraging Russia from diversifying its economy, Deputy Prime Minister Sergei Ivanov said.

Ivanov said the current price was unsustainable and that Russia’s budget will fall into a deficit when it drops. He would prefer oil and gas prices to be “around maybe $80 per barrel,” which is a “more realistic” level.

“When the gold rain is pouring on your head, you are not motivated to diversify,” Ivanov said in an interview yesterday in Miami, where he was speaking at the Everest Capital Emerging Markets Forum. “I wouldn’t say I hate high oil and gas prices, but I am not happy with them.”

Oil today climbed above $111 in New York for the first time in 30 months. Crude for May delivery rose $1.25, or 1.1 percent, to $111.55 a barrel at 11:10 a.m. on the New York Mercantile Exchange.

Higher oil prices have helped boost Russia’s international reserves to $504.5 billion, the most since 2008. The cost of protecting Russian bonds against default also fell to its lowest level yesterday since August 2008, according to data provider CMA.

Once prices fall, running a long-term budget shortfall is not an option for Russia, Ivanov said. “We can’t live for long with a deficit budget. We are not like the” U.S., he said.
Space, Nuclear

He said that even with high oil prices, the country was taking steps to diversify, including investing in technology industries, space and aviation programs, and nuclear energy.

Ivanov stopped in Miami after meeting with U.S. Secretary of State Hillary Clinton, Trade Representative Ron Kirk and several lawmakers to discuss Russia’s entrance into the World Trade Organization.

The “political window of opportunity” for Russia to enter the WTO may “start to close down” at the end of the year as the U.S. and Russia enter election years, Ivanov said. He is hopeful an agreement will be reached before then, he said.

Ivanov said Russian arms exports, which doubled to $10 billion in 2010 over the previous five years, may rise to $10.6 billion to $11 billion this year.

Ivanov, 58, was appointed first deputy prime minister in 2007 after serving as the country’s defense minister since 2001, according to the Russian government’s website. The former KGB officer was regarded as a potential successor to then-President Vladimir Putin before the 2008 election.

Ivanov also said he would resign as chairman of the board of Rosavtodor, a federal toll-road operator, and United Aircraft Corp., an airplane manufacturer, after Russian President Dmitry Medvedev called for government officials to step down from their posts at state-owned companies and be replaced by independent directors.

“I will leave with a light heart because apart from those two boards I have lots of other fish to fry,” he said. Whether the independent directors will improve corporate governance “remains to be seen” he said.

GarryB wrote:No point in doing anything now while the price of oil is high.

Wait till it starts falling again and then do something.

Having oil 200 dollars a barrel is not good for Russia either.

GarryB wrote:
Most of the time that merely results in foreign interests owning large portions of your most profitable companies for a reduced return.

Sell off non strategic non infrastructural assets of course, but market forces have proved to be unreliable because the focus is making a profit and most of that profit heads overseas.

In practical terms privatisation means selling off assets for a short term gain... and considering the price of oil at the moment that is not really necessary.

Austin wrote:

Well Privatisation is good in some sectors because it induces competition , why do you think India managed to grow its economy so rapidly , how do you think China did , due to reforms and privatisation.

GarryB wrote:In areas where profits are good why share it with the private sector?

Gazprom will produce 200 billion cubic meters of gas and 10 million metric tons of oil in a new hydrocarbon development program for the Russian continental shelf to 2030 approved by the energy giant's board of directors, Gazprom said on Tuesday.

The adjusted program adopted by the Gazprom management committee in early March, projects an increase in Gazprom's offshore deposit reserves by over 11 billion metric tons of fuel equivalent to 2030 and also excludes the energy giant's gas output under the Sakhalin-II oil and gas project off Russia's Pacific Coast.

Total hydrocarbon reserves on Russia's continental shelf are estimated at about 100 billion metric tons of fuel equivalent, of which gas accounts for about 80 percent. The larger part of hydrocarbon reserves (over 80 percent) are concentrated in the Barents, Pechora, Kara and Okhotsk Seas. Offshore deposits in the Barents and Kara Seas abound in gas and gas condensate while the Pechora Sea largely contains oil and the Okhotsk Sea has oil and gas reserves.

The company's plan for the Barents Sea includes development of the infrastructure of the giant Shtokman gas condensate deposit and its satellites. The firm also plans efforts to develop the Prirazlomnoye and Dolginskoye oil fields in the Pechora Sea.

Operations in the Severo-Kamennomysskoye and Kamennomysskoye Sea fields offshore the Ob and Taz Bays will lay the foundation for developing a field cluster. The Sakhalin shelf will see comprehensive development of fields located within Gazprom's licensed areas (Sakhalin III project), the energy giant said.

Russia’s state-run energy giant Gazprom is set to increase its liquefied natural gas (LNG) deliveries to India up to 7.5 million tonnes per year.

The LNG will come from Gazprom`s plant on the Pacific island of Sakhalin.

The sides are expected to sign a respective 25-year contract in the coming months.

Russian Deputy Prime-Minister Igor Sechin said on Tuesday following the seventh round of the China-Russia energy negotiators’ meeting that Russia will finalize a 30-year deal with China by the 10th of June to supply a total of 68 billion cubic meters of gas annually. Commenting on this will be our guest Neal McKinnon, global macrostrategist at VTB Capital in London.

As we know, Russia and China have enjoyed a close economic relationship since the middle of 2000s, so how would you describe the economic cooperation between these two countries at present?

I think there is a significant degree of economic cooperation between China and Russia; both countries have been key leaders in terms of economic growth over the last year or two years, as far as the global economy is concerned, and both countries are key commodity producers and certainly in recent years there has been increase in cooperation in terms of joint ventures, trade relationships, and investment relationships between Russia and China.

Russian Deputy Prime-Minister Igor Sechin who oversees energy issues in the government, says that Gasprom and Chinese national petroleum cooperation will soon prepare a commercial contract, adding that the deal span will be at least 30 years. But as we know so far the bodies have failed to reach a final agreement on gas prices, so what results can be expected?

Certainly I think that it is very positive that there are these negotiations taking place. And certainly the issue with the natural gas prices is an important one, I think that the current discussions can make progress, there are also discussions under way in other countries as well, and certainly with the very large increase in oil prices that we have seen over the past year – that means that natural gas prices, which tend to follow the price of oil, are an important linkage. I am certain at the moment that there are countries’ meeting in Egypt, tomorrow one day meeting of the gas exporting countries and these discussions on the relationship between natural gas prices and oil prices are certainly high on the agenda, and it is likely that contract prices will probably rise by around 15% in the next 3 or 6 months. So the price of gas is going up and it is certainly an important consideration for any discussions between the leading gas producing companies.

Russia and China may also reach an agreement by the end of 2011 to build a joint oil refinery and as China’s energy chief said the countries planned to extend cooperation in retail oil products sales, so how do you think this cooperation is going to develop?

I think that certainly it is not surprising that there are these discussions. China is an important commodity demander globally, giving the move towards organization and modernization of the Chinese economy. China is certainly a big buyer of oil, it has been increasing its storage capacity because if the very large additions to the power network in China, so it makes commercial sense for Russia to have these discussions, for Russia is an important producer, and certainly I think it is very constructive, I would hope, that before too long we will see some progress that will be to the advantage of the Russian economy.

Some experts believe that Beijing sees its giant neighbor to the west rather as a little more than a source of energy and other commodities to feed China’s rapidly growing economy, and the economic relationship between Russia and China is unlikely to change any time soon. Can you comment on it?

I think that it is important to remember that both Russia and China are important economies on the world basis, they both enjoyed fairly significant economic growth and now they play an important role in the production of commodities particularly oil and gas. I think that going forward it makes sense to try to improve the trade relationship; I think both countries will benefit from that. I would hope that certainly over the next 12 months or so we will see important progress on all these discussions.

Russian politicians declare from time to time that the country seeks to totally re-orientate its natural gas exports away from Europe towards China, but this doesn’t seem realistic at this point as Gasprom is bound by long-term commitments to western customers. What do you think of that?

Certainly there is no doubt that western European countries like Germany, for example, are important customers for Gasprom and for Russian commodity and energy producers generally, it is highly unlikely that this relationship is going to change, Germany is an important economy, and certainly the strongest manufacturing economy in western Europe, so it makes sense for Russia to maintain its relationship in the same way that it makes sense for Germany to ensure that there is continuing supply. But China is clearly a growing economy, and a very important economy, and it also makes sense for Russian companies like Gasprom to look towards China in order to build commercial relationships. I don’t think that these are mutually exclusive considerations, I think it makes perfect business sense to try and expand business generally and look towards the new growing economies like China that will be profitable for Russian companies in the long-term.

Can Russia consider Chinese companies as an alternative to BP as we know that the deal between BP and Rosneft collapsed earlier in May, and now Rosneft has to look for another partner?

This is a very good question. It certainly is a possibility that Chinese partners could step into the breach; certainly there is no particular reason why it is a problem. It is always up to the two parties involved, but in principle my opinion is that there’s no particular reason to prevent such a relationship and partnership from taking place.

Thank you very much for your commentary. Thank you for joining us!