New Government Policies Bolster Rosneft, Gazprom as Global Energy Balance Shifts

By Ben Priddy, March 14, 2013

WEB EXCLUSIVE, Moscow. The Russian government has announced two new initiatives designed to help national energy champions Rosneft and Gazprom adapt to shifting global energy balances, recent Russian press reports suggest.

Late last week Russia's Minister of Energy, Alexander Novak, announced a new government program to stimulate production growth of the country's challenging reserves and to open up new fields in hard-to-reach areas. Speaking at a meeting led by Prime Minister Dmitriy Medvedev on March 7, Novak outlined a series of priorities for the oil and gas sector designed to keep it competitive in light of shifting global energy balances. Among the key causes for concern to Russia, according to Novak, are declining energy import dependence in North America, the increasing rate of natural gas displacement by coal in Europe, the rising demand for energy in Asia-Pacific, and the globalization of LNG.

The "Energy Efficiency and Energy Growth" program foresees funding seven sub-programs aimed at modernizing Russia's domestic energy infrastructure and shifting the sector towards an eastern export vector by 2020. The new programs focus efforts on growth and modernization of Russia's electricity grid, oil and gas sectors, and the restructuring of the country's coal industry. According to the Energy Ministry's press release, the programs should aim to increase oil and gas supply deliveries to Asia, decrease energy intensity of the Russian energy-fuel complex (ТЭК), modernize its technological base, and create a more attractive investment climate. "Our program will enable the Russian fuel and energy sector to retain its leading position in the global oil and gas market," Energy Minister Novak stated. "Solving such problems will not only ensure revenue to the state budget, but…also jumpstart innovation and high-technology growth in the oil and gas sectors."

The highest priority, according to Novak, is stimulating the use of new technology to increase oil production at mature fields in West Siberia. "We plan to increase the oil extraction coefficient from the current 39 percent to 46 percent, at the same time increasing the utilization of associated gas to 95 percent in West Siberia by 2015," the minister said. A second major goal of the program is to stimulate oil and gas production in Russia's underdeveloped East Siberia, paving the way for a new Eastern-oriented oil and gas export hub.

Following Novak's announcement, business daily Vedomosti reported March 11 that Russia's insurance agency, "Eksar," is seeking a government loan guarantee of 500 billion rubles ($16.3 billion) to insure Russian state companies' investments in other parts of the world. Similar to the American Overseas Private Investment Corporation (OPIC), Eksar insures major energy and commercial investment projects in politically-risky countries. Eksar's general director requested the increase in funding from the state budget to support a forthcoming expansion of state companies' (Rosneft and Gazprom) energy projects in Africa, Southeast Asia, and Latin America, according to Vedomosti.

Dmitiry Medevev and the Ministry of Economic Growth are said to support the request, but the Ministry of Finance is questioning the necessity of providing such a large loan guarantee