Russia’s gas giant, Gazprom, may face difficulties in or even abandon its Power of Siberia 2 pipeline project, the so-called western route to China, along with the Far Eastern pipeline from Sakhalin, Nezavisimaya Gazeta writes on Friday citing analysts. This comes after reports that negotiations between Moscow and Beijing on new contracts for Russian gas pipeline supplies have reached a stalemate. With doubts hanging over potentially overestimating gas demand and prices, China has taken time-out to explore the LNG market potential, and may even revise its plans to switch from coal to gas. The western route of supplying Russian gas to China has been more thoroughly developed as the memorandum on preliminary conditions for annual deliveries of 30 bln cubic meters of gas has already been sealed, and the plan is to ink the contract by the end of this year. However, the drop in global oil prices has disrupted those plans as gas export contracts are pegged to the price of crude, the newspaper says.
In mid-May, China announced what it called a major breakthrough that may lead to a global energy revolution - it successfully mined combustible ice in the South China Sea. It was reported that a total of 120 cubic meters of flammable ice was produced. "In a situation when China says a new energy revolution is about to take off, it would definitely slow down any new contracts since the Chinese need time to grasp how profitable this new type of production is," Ivan Kapitonov, a senior fellow at the Energy Policy Sector of the Institute of Economics of the Russian Academy of Sciences, told Nezavisimaya. "We’re a facing a situation of uncertainty, and if China starts its own gas production, Gazprom should be brace for a price war and price rollbacks, which are not promising for routes not yet constructed and they may even have to abandon it," he added.
Vyacheslav Kulagin, Head of Oil and Gas sector development, Department for Russia and the World at Energy Research Institute of the Russian Academy of Sciences, agreed that the best thing for now is to take a break and keep a close eye on changes in the market before making decisions on particular projects. "It is necessary to continue talks and monitor the market situation. It is irrational to sign new contacts at whatever the cost because any agreement should be made only on appropriate terms," he said. In addition, Kulagin said, “it would be a great trigger for GDP growth if local demand is covered by currently imported products.” “Obviously, Russia has potential here, but whether it might be realized along with potentially coming out the winner, depend much on the state,” he added.
The Energy Ministry has suggested sticking to fiscal stability in the oil sector over the next 4-5 years, Deputy Minister Kirill Molodtsov said in an interview with Vedomosti business daily. Previously, plans were in store to raise the tax burden on Russian oil companies in addition to the mineral extraction tax through 2019. The measure was announced in 2015 when the government faced budgeting difficulties, while oil producers were less affected because of devaluation and the specifics of the tax system, despite a plunge in oil prices. Now that the current budget is based on $40 per barrel oil price, the ministry considers the added hike to be excessive, and proposed leaving the oil tax unchanged at this year’s level of 150 bln rubles ($2.7 bln).
According to Molodtsov, the scenario conditions for 2017-2019 are more favorable than those in the budget, which means that without extra tax hikes it would be possible to guarantee more oil revenues and minimize the negative influence on the production sector, which in turn will raise investor confidence. Rosneft, Russia’s top oil producer, is interested in keeping a stable tax regime, which would allow it to carry out investment projects, a source in the company told the publication.
Two federal officials told the newspaper that in early 2017 when oil-producing nations agreed to the OPEC production cut deal, pushing oil prices up, the Energy Ministry offered to keep the additional tax unchanged for 2018. For oil companies, the positive effect of the recent oil price hike following the agreement between OPEC and non-OPEC states is seriously neutralized by the bite of rising taxes, the ruble’s revaluation and lower production, Denis Borisov, Director of the Moscow-based Oil and Gas Centre at EY told Vedomosti. However, some experts are skeptical about the Energy Ministry’s proposal, saying that the country still has a 13-digit budget deficit, while additional revenues from the oil production freeze only cover 15% of today’s plunge in oil revenues compared with 2014.
Russian airlines are struggling to retain pilots, as their crews are slowly being bled dry as a result of an outflow of aviation professionals to Asia, particularly to China and Korea, Kommersant says citing industry players. More than 300 of the “most experienced pilots, who have an excellent command of English” have departed for the region over the past two and a half years, and another 400 such pilots are gathering together documents with the same aim, one of the sources said. Among the companies that have been forced to deal with this new trend are S7, Ural Airlines, Volga-Dnepr and Vim-Avia, the newspaper writes. This pilot ‘brain drain’ might also be behind one of the reasons for Vim-Avia’s recent massive pilot program flop as 12 seasoned pilots quit the company simultaneously, one of the sources said.
The airline confirmed to Kommersant that some pilots left for China, India, and Vietnam. The reason given for the outflow of pilots was "of an economic nature," Vim-Avia said since the Asian states have managed to create a favorable environment for attracting air staff from overseas. There are no restrictions and quotas for foreign pilots in the region, with a liberal system that makes it possible for recruiting agencies to search for staff in Russia and other countries. Also, the company said, foreign companies bear no costs on pilot training and have no retirement and social security obligations, which enables them to offer professionals higher salaries and better benefits.
The latest Voronezh-type warning radars currently developed by Russian engineers, are cheaper to be produced, RTI Deputy General Designer Dmitry Stupin, one of the creators of the new system, told Izvestia."We use high operational readiness technologies, which has allowed us to both cut down on the time spent on construction and the resource costs several-fold,” he explained, adding that the stations are cheaper to service and less energy-consuming. PAVE PAWS (Precision Acquisition Vehicle Entry Phased Array Warning System) developed by the US is the closest analog, he added.
When asked whether the United States could pull off a sudden massive missile strike that Russia would be unable to counter, Stupin replied that no nuclear strike could be done just out of the blue. “All activities for organizing an attack are far from being easy, which implies a great deal of effort that cannot be hidden,” he said, adding that the warning system would provide information about the number of objects, their targets and their location in due time.
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