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ENERGY POLICY OF RUSSIA

ENERGY POLICY OF RUSSIA. INTRODUCTION.

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ENERGY POLICY OF RUSSIA

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  1. ENERGY POLICYOF RUSSIA

  2. INTRODUCTION Russia, one of the world's two energy superpowers, is rich in natural energy resources. It has the largest known natural gas reserves of any state on earth, along with the second largest coal reserves, and the eighth largest oil reserves.Russia is the world's fourth largest electricity producer after the USA, China, and Japan. Russia exports 70% of oil produced, making it the world's leading net energy exporter as well as a major supplier to the European Union.

  3. PRIMARY ENERGY SOURCES GAS In recent years Russia has identified the gas sector as being of key strategic importance. The share of natural gas as a primary energy source is remarkably high compared to the rest of world. Russia has the world biggest natural gas reserves, mainly owned and operated by the Russian monopoly Gazprom, which produces 94% of Russia's natural gas production. OIL Russia is the largest oil producer in the non-OPEC countries, and second biggest in the world after Saudi Arabia. The biggest Russian oil company is Rosneft followed by Lukoil, TNK-BP, Surgutneftegaz, Gazpromneft and Tatneft. All oil trunk pipelines (except the one) are owned and operated by the state-owned monopoly Transneft; oil products pipelines are owned and operated by its subsidiary Transnefteproduct. COALRussia has the world’s second largest coal reserves, with 157 billion tonnes of reserves. ELECTRICITY PRODUCTIONRussia is the world's fourth largest electricity producer after the USA, China, and Japan. Roughly 63% of Russia's electricity is generated by thermal plants, 21% by hydropower  and 16% comes from nuclear reactors. Russia exports electricity to the CIS countries, Latvia, Lithuania, Poland, China,  Turkey and Finland.

  4. RUSSIAN ENERGY STRATEGY The Energy policy of Russia is contained in an Energy Strategy document, which sets out policy for the period up to 2020 The Energy Strategy document outlines several main priorities: - an increase in energy efficiency - reducing impact on the environment - sustainable development, energy development and technological development - improved effectiveness and competitivenessSo no it’s clear why Russia has tried to purchase a controlling stake in pipelines, ports, storage facilities, and other key energy assets of the countries of central and eastern Europe. Russia needs these assets to transport energy supplies to Western European markets, as well as to secure greater control over the domestic markets of the countries of the region. For instance, in several cases where energy infrastructure was sold to non-Russian firms, Russia cut off energy supplies to the facilities.

  5. ENERGY CHARTER TREATY There is a mutual dependence between Russia and the European Union. On the one hand, some EU countries, many of them in central and eastern Europe, are dependent on Russia for most or all of the oil and natural gas they consume. Moreover, EU countries are likely to become more dependent on natural gas supplied by Russia in the future, as deposits in the North Sea decline. But on the other hand, Russia’s economy is heavily dependent on oil and natural gas exports. And because of state monopoly in majority of energy companies these questions are controlled by the Russian Government and President.The Energy Charter Treaty is an international agreement which provides a multilateral framework for energy trade, transit and investments. Russia signed the document in 1994, but flatly refused to ratify its current revision. The Treaty framework includes the transit protocol, requiring Gazprom to permit third-party access to its export pipeline network. And it has been the main vehicle through which the Europeans have tried to get Gazprom to open up both its contracts and its networks to the same kind of regime. So Russia understands it and is not agree to ratify the Treaty.

  6. GAZPROM.THE VIEW FROM INSIDE

  7. WHAT IS GAZPROM? OAO Gazprom (English - Open Joint Stock ComlanyGazprom) is the largest extractor of natural gas in the world and the largest Russian company. Gazprom is unique for enjoying the advantage of being simultaneously an energy producer and supplier owning a potent resource base and a manifold gas transport infrastructure. Due to Russia's geographical location, the Company has the potential to become an energy “bridge” between the European and Asian markets by supplying its own natural gas and providing gas transit services for other producers.

  8. A BIT OF HISTORY The history of “big gas” in the Soviet Union began in 1946 upon commissioning of the Saratov – Moscow gas trunkline. Large natural gas reserves discovered in Siberia and the Ural and Volga regions in the 1970s and 1980s enabled the Soviet Union to become a major gas producer. Gas exploration, development, and distribution were centralized in the Ministry of Gas Industry, which was created in 1965. Under the leadership of the Minister of Gas Industry Victor Chernomyrdin, the ministry transformed itself into State Gas Concern Gazprom, which became the country's first state-corporate enterprise. The company was still controlled by the state, but now the control was exercised through shares of stock, 100% of which were owned by the state In 1993 the Concern laid the foundation for setting up Gazprom Russian Joint Stock Company, which was renamed in 1998 as Gazprom Open Joint Stock Company.

  9. PROCESS OF PRIVATIZATION In 1992 the organization became a jount-stock company and started to distribute shares under the voucher method: every Russian citizen received  vouchers to purchase shares of formerly state-owned companies.By 1994, 33% of the Gazprom's shares had been bought by 747,000 members of the public, mostly in exchange for the vouchers. 15% of the stock was also purchased and allocated to Gazprom employees. The state retained 40% of the shares, but the amount was gradually lowered to 38%. Anyway the Russian government has still had a control under the company till now.Trading of Gazprom's shares was heavily regulated, and the by-laws of the company prohibited foreigners from owning more than 9 percent of the shares.

  10. SUPPLYING GAZ TO EUROPE Gazprom is one of the primary suppliers of natural gas to European consumers and accounts for roughly one third of aggregate gas imports to Western Europe. Today Russian gas is supplied to 31 countries inside and outside the FSU. * Gas sales to Europe in 2008, bcm

  11. SUPPLYING GAZ TO BALTIC STATES AND CIS In 2008 gas sales to the CIS and Baltic States accounted for 96.5 billion m3. The biggest gas volumes are delivered to Ukraine, Belarus and Kazakhstan. * Gas sales to the CIS and Baltic States in 2008, bcm

  12. TERMS AND CONDITIONS OF EXPORTING GAZ Gazprom exports gas to Central and Western Europe mainly under long-term, up to 25-year agreements concluded as a rule based on intergovernmental agreements.From the Gazprom’s point of view, long-term arrangements are the basis for steady and reliable gas supplies. Only long-term deals can guarantee the producer and exporter returns on multibillion dollar investments in major gas export projects, and assure steady and uninterrupted gas deliveries for the importer in the long term.Long-term agreements with the key customers typically contain a “take or pay” provision, meaning that the customer agrees to pay for a certain minimum amount of gas even when a lesser amount was physically used.

  13. PRICEFORMATION FOR EUROPEAN COUNTRIES The price level for European consumers depends to a considerable extent on the cost of gas transportation services. Gazprom sells its gas at the border of the importing country to local distributors, who then supply it to consumers. The end-consumer price includes the cost of gas transportation via low pressure pipelines, the maintenance of which is several times more expensive than in Russia, and taxes.The Company’s international business activities are carried out in full compliance with the legislation in force in the countries of Gazprom Group’s operation. Recent changes in the European Union legislation aimed at liberalization of the gas market influenced both organizational issues of the business activities and contracts for gas supply to the EU member states. Executing the new regulations Gazprom’s companies removed the restrictions imposed on reselling the Russian blue fuel from the contracts.

  14. PRICEFORMATION FOR CIS AND BALTIC STATES In 2006 Gazprom completed a transition to the market based price setting principles for gas consumers in all of the CIS and Baltic countries. As a result, gas prices for the CIS region have grown two-threefold and are gradually reaching European levels. At the same time, when building price offers for each country, consideration is given to a degree of its integration with Gazprom’s gas business. Special attention is paid to developing market based cooperation with the major countries transiting Russian gas to Europe – Ukraine and Belarus.

  15. POLITICAL COMPONENT IN RELATIONSHIPS Because of the price formation questions the relationships between Gazprom and Belorussian and Ukrainian governments are quite difficult. There were some conflicts when Russia stopped transporting gas to these countries or Belarus and Ukraine switched off the gas and oil transition trough their territories. So European countries suffered although they meet their paying obligations.Gazprom belongs to the so-called national champions; a concept advocated by former Russian president Vladimir Putin, in which large companies in strategic sectors are expected not only to seek profit, but also to advance Russia's national interests. For example, Gazprom sells gas inside Russia considerably under the global market price as a form of subsidy to the public.Now it’s clear why such kind of conflicts are solved with the taking part presidents of the countries in negotiations. And that’s why the debts questions are controlled in the higher official level in Russia and of course in Ukraine and Belarus.

  16. THE NORD STREAM PIPELINE From this point of view the constructing the new gas pipeline under the Baltic sea is extremely significant. There are no transit countries for Nord Stream. This eliminates any possible political risks and reduces Russian gas transmission costs. In addition, there is an increasing of natural gas demand in the European market. Due to a direct connection between the world’s largest gas reserves located in Russia and the European gas transmission system, Nord Stream will be able to satisfy about 25 per cent of this extra demand for imported gas.In this regard, back in December 2000 the European Commission had assigned the Nord Stream project the Trans-European Network (TEN) status which was confirmed once again in 2006. This means Nord Stream is a key project aimed at creating crucial cross-border transport capacities with a view to ensuring sustainability and energy security in Europe.In April 2010 the Nord Stream gas pipeline construction was launched in the Baltic Sea. To be completed in 2011, construction of the first pipeline string will be immediately followed by the second string. In 2012 the second string will reach the German coast near the town of Greifswald. The whole length of the pipeline will be 1,224 kilometers.

  17. SOME MORE FACTS ABOUT GAZPROM The gas production volume of the company is around 14.5% of the global total. In 2009 the Group produced 461.5 billion cubic meters of natural and associated gas, 10.1 million tons of condensate and 31.6 million tons of oil. Gazprom owns the world's largest gas transmission system - trunklines length exceeds 160.4 thousand kilometers. As of December 2008 the total number of Gazprom Group’s personnel equaled 376.3 thousand people. The core business companies dealing with production, transmission, underground storage and processing of gas employed 221.3 thousand people.Gazprom is the largest joint-stock company in Russia. The total number of the Company’s shareholders is over 500 000. Financialhighlightsfor 2008: - Gazprom’s earnings (net of VAT, excise and other taxes) RUB 2,507 bln - Gazprom’s net profit RUB 173 bln - Gazprom’s capital investments (net of VAT) RUB 264 bln

  18. FAS CONTROL OF THE MONOPOLY Federal Anti-Monopoly Service of Russia is an authorized federal executive power body responsible for prevention, restriction and suppression of monopolistic activity and unfair competition. FAS Russia executes functions on developing and introducing legal acts and draft federal laws of its competence, control and supervision over competition at commodity markets, protecting competition at financial markets, control over the activity of natural monopolies and supervision over advertisement. On the one hand, FAS tries to control quite strictly the activities in monopolies and in Gazprom in particular. For example, last week it was news that the Service will not ask the Court to decrease the fines for overpricing for two companies Gazpromneft and Lukoil if they will not confess their infringement of antitrust law. Also FAS usually gives it’s agreement for acquisition new companies by Gazprom, like it was in the case with MosEnergo (huge Russian energy company) a few years ago.But on the other hand this control from FAS is quite formal, because the monopoly and the Service are subordinated to the government. Moreover, energy policy is prioritized in Russia so “energy questions” usually are solved in the highest level. Thus anyway the last word will be said by Russian president but not the Federal Antimonopoly Service.

  19. THANK YOU FOR ATTENTION! Prepared by Liubou Zhauniarovich

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