The fall in oil and gas prices, which contribute half of the revenues to the budget, has become a serious challenge for the Russian economy and budget. Experts have been arguing that the sanctions against exporting technologies used in the oil and gas industry don't only slow down and make energy projects in the Arctic unprofitable, but can also reduce the rate of production from the Russian fields.
"The sanctions relate to new projects with a fairly large capital investment, particularly Russian shale and offshore projects. But by and large, if we are in a situation where the price of oil is hovering around $30 a barrel, you have to be mad to talk about the development of the Arctic shelf, where even the cost cannot be counted clearly,’’ the first vice-rector and head of the department of applied politics of the Financial University, Konstantin Simonov, told Vestnik Kavkaza.
Due to the Western sanctions, Russia is prohibited from being supplied equipment for offshore operations. Six months ago, ‘Rosneft’ reported that it would not start drilling the second exploration well in the Kara Sea earlier than 2018, although before the sanctions it would have happened in 2016 in partnership with Exxon Mobil. "But even if there were no sanctions, I am confident that the project of Exxon Mobil in the Kara Sea would not be realized, due to objective constraints at least,’’ Simonov says.
According to him, the situation with shale oil is also complicated: "When we are speaking about Western Siberia, there are also a lot of questions. The same collector of the Bazhenov Formation is shale formation. Many of our geologists believe that it is closer to what is called tight oil in the United States, to the development of which, by the way, sanctions are not applied. They relate only to shale oil. But still, this has led to the fact that in any case the companies want to have some insurance. We know that Total has frozen the projects of the Bazhenov Formation with LUKOIL. We also know that LUKOIL has announced a reduction of investments for this year. And these companies can be understood, because the tax burden on them is growing. According to the most conservative estimates, the oil and gas companies will have to pay a further 320-350 billion rubles because of the decision to freeze export duties, due to the raising of taxes on gas condensate. It is clear that if you withdrawn this money, you cannot rely on investments. It is obvious that, in this situation, to shift all of these investments onto the shoulders of western companies would not work either."
Simonov believes that we should not rely on Chinese investors: ‘It's not even that they are considering for a long time, understanding that it is necessary to bargain for better conditions. The problem is that we do not have the technologies that are necessary for the implementation of these projects."
Meanwhile, back in the summer of 2014 in Moscow it was decided to move rapidly on import substitution, to solve the problem of developers and manufacturers of the strategically important oil and gas equipment and services that fell under the sanctions.
According to Simonov, the sanctions could have a positive impact on the oil and gas sector: "It is also thinking about import substitution. In particular, there is a large-scale idea of creating an innovative polygon based on the same manifold of the Bazhenov Formation. There is no need to import anything for this project, as we need to create new technologies. The formation is rather unique, and it won’t be possible to take the technology from elsewhere and bring it to Tyumen. "
However, according to the expert, these kinds of problems won’t be solved quickly in the current economic conditions in Russia. "But it's not a question of sanctions. Rather, it is a question of price, and the overall situation, the government is looking for money, and companies are trying to save this money. Companies fear that if they ‘show’ investment, the Ministry of Finance may impose additional taxes on them. And that's a real problem,’’ Simonov says.
He is convinced that the overall price situation affects the oil industry much more than the sanctions.
‘’We should not count on the fact that the sanctions will be removed, it is not necessary, but if this happens it is unlikely that the situation will be much better," the expert said.
As for the loans, according to Simonov, the problem here is not so serious: "Some companies are not on the sanctions lists of the Europeans, others are trying to get out of them. There are some interesting attempts to get money from French banks through a cunning scheme. And the Chinese give money. It is more expensive though, but nevertheless. It is a little bit easier to negotiate with them about loans than on exploration and production of oil and gas."
Simonov described the following circumstance as good news: ‘’This spring it will be already two years since we have been living under the sanctions. It is a decent amount of time. There were expectations that we would completely fail the service business, since all the major Western service companies would begin to leave Russia. That did not happen. This is an important factor in terms of maintaining the level of oil and gas in the country. Some companies even want to expand their assets in Russia. I believe that the interest of foreign suppliers in the Russian market remains. This means a certain stability – the companies have been able to feel secure, no one has left the Russian market. Therefore, all the same, the policies of the regulators are much worse than the sanctions.’’
