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Press review: China's global energy revolution and Moscow's moves in OPEC deal

May 19, 13:00 UTC+3 MOSCOW

Top stories in the Russian press on Friday, May 19

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© Ruslan Shamukov/TASS

Nezavisimaya Gazeta: Moscow pushing for OPEC deal extension

Russia’s Energy Ministry denied accusations that Moscow has failed to fulfill its obligations within the production cut agreement with OPEC. Following a related report by the Wall Street Journal citing the cartel’s unnamed representatives, Energy Minister Alexander Novak said that Russia’s oil production had been already reduced to the agreed volume by the end of April, Nezavisimaya Gazeta writes.

A source in the ministry’s press service told the publication that it is currently exploring the situation on the oil market and evaluating whether the present initiative between OPEC and non-OPEC states is effective. "The current analysis demonstrates that the excess of commercial reserves is dwindling quite fast, the reserves in floating storages and tankers have already dropped by half," he noted. According to the source, "this comes amid high growth rates of demand, which more than compensates the increase in production in those countries that are not participating in the voluntary measures on market stabilization, as well as high discipline on fulfilling the agreement as demonstrated by its participants."

Kazakhstan is another country that has been accused of violating obligations within the production cap agreement. The Central Asian state has been trying to gain the right to boost its output due to the development of new fields. The recent claim by its energy minister that Kazakhstan has no plans to automatically join the extension and wants a separate discussion over its role in the agreement, has added fuel to the fire. Potential friction between non-OPEC nations may sabotage the deal’s extension at next week’s meeting in Vienna, Nezavisimaya says.

Rustam Tankayev, General Director of InfoTEK-Terminal and a leading expert with the Russian Union of Oil and Gas Producers, called the agreement ‘flimsy.’ "Kazakstan is a small player, but it stance can influence the political playing field. It is unlikely the country will be granted an exemption, though it is likely to withdraw from the agreement. On the other hand, Russia is a key player, and the agreement will not be extended if it violates its obligations," he told the newspaper, adding though that Moscow "is extremely interested in the agreement," which leaves small chances that Russia will break it.

Meanwhile, some experts are concerned that Russian oil producers are facing losses because of the deal. "Companies have to obey since our administrative resources are much stronger than the market," Tankayev said.

According to research by VYGON Consulting, "companies will lose from 40 bln to 220 bln rubles, depending on the period of the extension, while the Russian budget will gain a total of 0.75-1.5 trillion rubles in 2017-2018. Tankayev assumes that oil giants, such as Rosneft and Lukoil, are suffering the biggest losses, while small and mid-sized firms renege on cutting production. Rosneft CEO Igor Sechin has already voiced a plan to ask the Energy Ministry to let the company quit its obligations related to the deal.

 

Izvestia: Government to float Sovcomflot privatization plan in 2017

This year, the Finance Ministry plans to raise 42.2 bln rubles from privatizing state assets, which is 100 bln lower than the budget law sets. Izvestia writes that the ‘major privatization’ will only consist of the sale of a 25% minus one share stake in Sovcomflot, one of the world’s largest shipping companies and a market leader in Russia, which means that the government is no longer facing an urgent need to sell state-owned assets.

The government has been planning Sovcomflot’s privatization, a company involved in hauling hydrocarbons and operational field support, for several years. The authorities planned to sell the company in 2015 for 24 bln rubles, but the deal was not closed. In 2016, it returned to the privatization list, but again the transaction was postponed. Deputy Finance Minister Alexey Moiseev said the government had dropped the idea to privatize VTB, the country’s second-biggest lender, until sanctions against the bank are lifted.

The current estimation of Sovcomflot’s stake stands at 24 bln rubles, though previously Moiseev said a total of 30 bln rubles could be raised from the sale scheduled for June. He also told Izvestia that the ministry still insists that the whole sum should be transferred to the budget. Earlier Economic Development Minister Maksim Oreshkin said that one-quarter of the raised funds could be spent on the company’s capitalization, with the remaining 75% share should be added to the budget.

“No decision has been made yet, though we’ve voiced our position regarding the issue, and it is the government who is to decide,” Moiseev told the publication.

Vladimir Tikhomirov, chief economist at BCS Financial Group, says that the global geopolitical climate and Russia’s unstable economic situation are the main factors that made the government scrap its privatization plans. “Though the Russian economy has recovered from the recession, it is still weak, which makes the situation not very attractive to investors. On the other hand, the geopolitical environment limits the range of buyers. Western companies and investors are cautious, and any attempts to enter the market for the stake will mean either a very low evaluation of the asset, or even the sale’s collapse due to the lack of buyers,” the analyst told Izvestia.

 

RBC: China’s success in mining flammable ice may turn out to be costly breakthrough

China’s experiment with mining combustible ice in the South China Sea started on May 10, has been successfully going for eight days in a row, Beijing has officially stated, lauding it as a major breakthrough that may lead to a global energy revolution.

This is China's first success in mining flammable ice at sea, after nearly two decades of research and exploration, though other countries, such as Canada and Japan, have made similar efforts to set up gas hydrate production, according to Vygon Consulting’s Maria Belova speaking with RBC business daily.

“A breakthrough may only be announced when any of the countries launches industrial production of gas hydrates. Japan plans to do it in 2018-2019, though it may take around seven years from the moment of its first testing,” Belova said. 

According to certain estimates, global gas hydrate reserves are extraordinarily higher than natural gas reserves, though it is hard to calculate precisely how much ‘flammable ice’ there is, with variations ranging from 2,500 to 20,000 trillion cubic meters, the newspaper writes. As of now, gas hydrate fields have been discovered outside the United States, Canada, Central America, Japan, South Korea, China, India, as well as in the Black Sea, Caspian Sea and South China Sea. In Russia, confirmed reserves are located beneath the Baikal, Black Sea, Caspian Sea and the Sea of Okhotsk, though no exploration operations have been carried out.

Gazprom, Russia’s top gas producer, has found it difficult to estimates the risks of China’s development of gas hydrate production technology. “No data providing any conclusions about this technology’s potential has been published,” the company’s official spokesperson Sergei Kupriyanov told RBC. Alexey Grivach, deputy head of the Moscow-based National Energy Security Fund, says this is a priming project, though feedback may only be expected within decades. “Today’s technologies do not make it possible to efficiently produce gas hydrates, not only because production is expensive, but also because it requires huge spending to supply the fuel to consumers,” he said, adding that China’s recent claim means the country has failed to develop shale oil production.

 

Vedomosti: Russia’s Natural Resources Ministry vows to subsidize utilities for recycling

The Ministry of Natural Resources has offered to subsidize housing and utilities payments to Russians who recycle waste, Minister Sergey Donskoi said in an interview with Vedomosti. Other departments offer an extra payment for financing separate collection infrastructure, he said, adding that he assumes it is more efficient to stimulate waste sorting through a differentiated tariff. The subsidy may vary in different regions, as well, the minister noted.

According to a note on drafting amendments to the law on waste submitted by the Natural Resources Ministry to the government (obtained by Vedomosti), regional operators only ensure disposal, processing and dumping, though this provides no waste sorting incentives.

The operators are not interested in engaging recycling into processing either, the note says. The Ministry assumes that the situation may be changed if conditions for waste sorting are created and preferences are introduced. Market watchers told the newspaper that the discount for garbage disposal may reach 50% of the tariff, and even go up to 60% in such cities as Moscow.

 

Izvestia: Russian animated flick to hit China’s silver screens

The Russian cartoon film feature Sheep & Wolves, a joint venture by the animation studio Wizart and CTB Film Company will be released in China in early October 2017, a source in Wizart’s press service told Izvestia.

The film, which was released in Russia on April 28, 2016, and raised 153 mln rubles on Russian and CIS markets, has obtained the status of an international (Russia-China) co-production. Flame Node Entertainment, which has the experience of cooperating with the Russian studio, will be the distributer, the source said. 

"Our Chinese partner has provided its expert estimation of Snow Queen 3 during the script writing and production stages, in order to adjust the product to the tastes of the local viewers, which slightly differ from the preferences of Europeans and Americans,” general producer Yuri Moskvin told the newspaper.

“The animation generated a solid outcome in Russia, in a number of European countries, and in Korea, which is yet more proof that a really good product automatically becomes universal, able to gain any market regardless of the initial specialization,” Moskvin emphasized.

 

TASS is not responsible for the material quoted in the press reviews

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