Russian optimism about the country’s ability to restore and exceed pre-pandemic levels of oil production has grown considerably as the global energy crunch crisis unfolded in the third and fourth quarters, according to country’s energy minister.
In a first full interview since his appointment to the post in November 2020, Nikolay Shulginov told Moscow business daily Kommersant that the country’s oil and condensate production may rise to a plateau of 560.3 million tonnes (11.25 million barrels per day) in 2023 and 2024.
He dismissed suggestions of a decline in the importance of fossil fuels.
“It is too early to talk about the end of the oil era. We need to monetise our oil reserves [first]”, he said.
In 2020, according to the ministry, Russian oil and condensate production fell by almost 9% to 10.3 million bpd as the country implemented cuts according to the Opec+ agreement, and producers halted development wells at fields with high production costs.
New tax concessions under discussion
While the government cancelled some key tax privileges to the oil industry last year to boost budget revenues, Shulginov said that a joint working group of parliamentarians and representatives of the Energy and Finance ministries are now moving forward in discussing new tax incentives for country’s oil producers.
This discussion is focused on the expansion of so called netback tax mechanism to more fields in the country.
The netback tax mechanism reduces the number of direct taxes to be paid by producers at challenging high-cost assets and emphasizes the priority of the reimbursement of costs and investments in such projects.
Shulginov said Russian authorities see their task in ensure the “competitiveness of Russian oil and gas” on the global market.
At the same time, authorities should also foster legislative and structural changes in the industry to adapt it to low carbon environmental requirements, he added.
Attention to gas reserves
According to Shulginov, Russia should also move swiftly to monetise the country’s vast gas reserves.
Liquefied natural gas is seen a solution to this task, with the ministry opposing any proposals to introduce any export tax on current and future LNG shipments from Russia, as the country aims to export over 140 million tonnes of LNG to international markets after 2030.
Russian pipeline gas exports by state controlled monopoly Gazprom are currently taxed at the rate of 30% of the market value of gas sold.
Shulginov also underlined his support for the introduction of tax breaks for depleted gas field investments operated by state controlled gas monopoly Gazprom, despite opposition from the Finance Ministry.
He added that proposals to unbundle Gazprom to increase efficiency and competition in the country’s gas industry will be discarded, while the state regulation over its domestic prices stay intact.
“Gazprom will remain [in the shape as] it exists now”, Shulginov said.
Shulginov still supports a partial relaxation of the Gazprom’s monopoly over pipeline gas exports, with the ministry having positive view over a recent push by country’s largest oil producer Rosneft to obtain an annual pipeline shipping quota of 10 billion cubic meters of gas to Europe.
Russian Energy Minister Nikolay Shulginov sees improving outlook for fossil fuel industry.