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№ 6 (June 2009)

LIVE FROM MIOGE 2009: Shmal Says Russia Must Invest in Itself

Gennady Shmal, President of Russia’s Union of Oil&Gas Industrialists says that
Russia needs to invest more in itself if it wants to prosper, speaking at
the opening plenary of the 7th Russian Petroleum & Gas Congress.

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Gennady Shmal, President of Russia’s Union of Oil&Gas Workers says that
Russia needs to invest more in itself if it wants to prosper, speaking at
the opening plenary of the 7th Russian Petroleum & Gas Congress.

"I’ve been in this business a long time, and I can say that $70 per barrel,
which we are approaching now, will support our priorities," he said. "We
don’t invest enough. Companies like (Exxon-Mobil) commit $80 per ton to R&D,
and Russia commits $40."

The result, says Shmal, is that revenue collected in times of high oil prices
is squandered. "July 2008 was the highest price in the history of the world
market," said. "The average price in 2008 was $95 per barrel, our companies’
revenues were up, and there is no question how much those revenues
contributed to the state budget."

Shmal was among several panelists speaking during the plenary of the
Congress which was held alongside MIOGE, the Moscow International Oil and
Gas Exhibition, which has drawn some 1,000 exhibitors from 40 countries to
the Russian capital.

Seyed Noureddin Shahnazizadeh, Iran’s Deputy Minister of Hydrocarbons, took
his turn and proposed that in gas exports, Russia (with the world’s largest
volume of reserves) and Iran (ranked #2) should cooperate, not compete.

"In view of the strategic location of the Islamic Republic of Iran, bridging
the location between the Caspian Sea and the Persian Gulf, Iran and Russia
can play in an important role in further facilitating the transfer of energy
and meeting world demand," he said.

"However, besides the existing pipelines of CTC and BTC reaching the
Mediterranean Sea market, the growing market in China and India necessitate
that we diversify our routes and look for cheaper and safer routes to meet
consumers (demand)," continued Shahnazizadeh.

Vitaliy Ermakov, Head of Research at the Moscow office of Cambridge Energy
Research Associates (CERA), framed the tax and tariff problem in this way:

"If we look at other countries that use taxes successfully, we should look
at the UK and Norway," he said. "Canada and the U.S. have a system of
royalties that is very high. Russia is different in that it had lower
outlays for transport based on pipelines built during Soviet times. It is
also unique in that it must ship oil much farther, from, for instance,
Siberia, to a port, but it is also different because of Transneft, and the
Canada and the U.S. pay much lower transport costs." According to CERA’s
figures, U.S. companies pay about 60-cents per 100 km of oil pipeline in
fees, while Russian pipelines to Novorossiysk and Primorsk are 95-cents and
96-cents per 100 km, respectively.

Deputy Minister of Energy of the Russian Federation Sergei Kudriashov said,
"We need to return taxes and tariffs to their previous roles."
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