It is possible that the industry is facing difficult times, but from the point of view of strategic interests this decision may turn out to be the right one.
The moratorium on tax support for oil companies is introduced until December 31, according to the Kremlin website. At the same time, by December 1, the government should conduct an inventory of oil projects and evaluate their profitability. Thus, the request of Rosneft for state support of its Arctic projects in the form of tax exemption of up to 2.6 trillion rubles was not satisfied.
The issue of benefits for mining companies is becoming particularly acute for the domestic economy. The industry, which provides more than half of state budget revenues, is in a stalemate. Three powerful factors work against it at once, which can lead, if not to a collapse, then to a gradual attenuation of activity.
First, analysts in Russia and abroad have unanimously predicted low oil prices, with its abundance, and not without reason. Shale oil production is getting cheaper, in deep-water fields at sea, new technologies promise a market surplus of oil with low prime cost. The prices above one hundred dollars per barrel will have to be forgotten, for example, according to experts from the Center for Energy Studies of the Moscow School of Management in Skolkovo and the Institute for Energy Studies of the Russian Academy of Sciences in the recent “World Energy Forecast and Russia until 2040”.
Against this background, leading industry experts say, the global oil market will already face a drop in demand by 2035 or even earlier. The rapid development of electric transport, the high energy efficiency of the new economy, coupled with energy conservation and, in general, the strategic focus of the world energy sector on the abandonment of fossil energy sources will hit primarily coal and oil.
Secondly, this scenario will be a sensitive blow for Russia because oil production here is not cheaper, but becomes more expensive every year. The Ministry of Natural Resources and the Ministry of Energy have repeatedly reported at government meetings that of all the remaining oil in the Russian interior, approximately 70% belong to hard-to-recover reserves. New major discoveries are long gone. I remember that Lukoil warned that the development of hard-to-recover oil requires prices of at least $ 80 per barrel. And if we consider that oil projects are long-term and pay off not earlier than seven to ten years from the start of investment, there is no commercial sense to invest in such production at prices around $ 60. There are no guarantees of price increases in the future, as analysts-scriptwriters show.
That is why the strategic line for the main Russian industry has become two directions: stimulating oil recovery in long-standing oil fields and asking for tax breaks from the state. The current level of production is supported mainly by drilling additional wells, commissioning previously bypassed areas and horizons in old fields, as well as technological methods of influencing the reservoir to intensify the flow of oil from the subsoil. And in the conditions of the so-called tax maneuver of the government, that is, an increase in the mineral extraction tax (MET) due to a reduction in export duties, the only salvation of projects requiring additional expenditures was point tax privileges for selected deposits. Existing benefits will be preserved, as promised in June, Prime Minister Dmitry Medvedev.
The third factor negatively affecting the Russian oil industry is international sanctions. If the embargo on the supply of technologies and equipment for the development of shale oil to Russia so far has had little impact on the work of the oil fields, which can work as usual, then the restriction of access to foreign sources of capital already affects the activities of our companies. Russian banks are not able to provide long-term loans on favorable terms, and long-term oil projects suffer from underfunding. In addition, with the exhaustion of reserves of “light” oil, project operators will have to seriously take on hard-to-recover oil from about 2025, which will require advanced production technologies, and these technologies are already banned due to sanctions.
In other words, everything suggests that oil production in Russia should be reduced. Back in September last year, Energy Minister Alexander Novak said at a government meeting that, while maintaining current trends and conditions, production will decline from the peak of 570 million tons expected in 2021 to 310 million tons by 2035. This means that the country will actually leave the ranks of oil exporters and will extract only enough to satisfy domestic needs. To delay the fall, say oil companies and their lobbyist Novak, the industry needs tax breaks.