Gazprom, Rosneft Thwart Private Sector, Seal Shelf Monopoly

By Galina Starinskaya, March 28, 2013

A new lap around the racetrack by private producers  seeking rights to develop the Russian shelf ended with a victory for Rosneft and Gazprom – again. The state-owned companies, who already hold 80 percent of the oil and gas resources on the continental shelf, try to shut out the private companies. Experts believe that this monopoly would delay development of the Russian shelf.

On January 15, Novy Urengoi welcomed the meeting “Prospects of Development of Russia’s Continental Shelf” chaired by Dmitry Medvedev, Russia’s Prime Minister. For private companies, it was literally the last chance to get the right to develop the offshore fields. For several years now, they are trying to change the legislation – most recently the group that includes LUKOIL, Surgutneftegaz, Bashneft and TNK-BP, lobbied the government in April last year. But to no avail. Currently, according to the Russian law “On Subsoil”, a company can get a license for a shelf deposit provided that it had been established according to Russian legislation, has at least five years’ experience in developing Russia’s continental shelf, and has over 50 percent state stake (Article 9). Only Rosneft and Gazprom meet such razor-thin requirements.

The government meeting in Novy Urengoi decided that so far there is no need to break the monopoly of state companies. Rosneft and Gazprom, who are totally against sharing the shelf, are happy. “Gazprom will work on the shelf and won’t give its work to anybody else,” the head of the gas giant, Alexei Miller, was heard saying at the meeting, adding that he sees no reason for the transfer of licenses. Gazprom believes that in terms of providing reliable operation of the Unified Gas Supply System (gas supply to Russian consumers and by long-term overseas contracts), there is no need to expand circle of continental shelf subsoil users.

However, the Ministry of Environment on the side of private companies. The Minister Sergei Donskoi says that the monopoly on the shelf will result in state companies’ concentrating on the most promising targets, which is not more than 10-20 percent of the original license area. In turn, this means that the rest of the site (from 70 to 120 sq. kilometers) will be unused, even unexplored properly, for a minimum of 10 years. To accelerate shelf development, other Russian oil producers must be called in, holds the minister. He offered to give such producers, including through auctions, the offshore fields that are not claimed by the state companies. Private companies could run, for example, a pre-licensing multi-client seismic shelf surveys, selling the information afterwards.

If the company were to discover a shelf deposit, it would then be entitled to exploration and production license. Here, the state could work out some option arrangements, to give the state company the right to enter the project as a partner, on some standard or mutually agreed conditions. Even this kind of tenuous offer would satisfy private companies.
In his turn Igor Sechin, the head of Rosneft, who believes that shelf liberalization would