Center for Strategic Assessment and forecasts

Autonomous non-profit organization

Home / Economy and Finance / Markets: estimates and projections / Other
Russia risks to remain without the oil
Material posted: Publication date: 31-05-2020
The international energy Agency expects a decline in global oil demand in 2020 at $1 trillion. And reduce investment in the oil industry by about a third. If Russian oil and gas to this fall, given that in Russia and the industry in General, and especially the exploration of new reserves already under-funded for many years?

Deputy Prime Minister Yuri Borisov said that Russia needs "to move away from the oil needle".

The idea is not new: this has been discussed for at least ten years. However, from 2015 to 2019, about 64% of Federal budget revenues was provided by the production, transportation and use of mineral resources. Moreover, 82% are directly on the aisle tarasowy sector. And in a crisis it has spawned great hopes. But will there be enough strength and resources? Or the needle has already blunted itself?

The accounting chamber auditors note that in recent years there has been a lack of growth of oil and gas reserves. But not because they are in Russia. The problem is – in previous years the domestic mining sector has been seriously underfunded. Especially in terms of exploration.

"For the entire period of the so-called "declarative principle", and it exists since 2014, the search and evaluation of deposits of solid minerals were involved in just 21.5 billion rubles – just over 9 % of the total expenses of subsoil users for this purpose. Meanwhile, in Canada investments exploration companies are from 31.3 to 44.5 % annually," – describes the situation of auditor of the accounts chamber Mikhail Men.

"Another very important question – search reserve. This needs to be addressed, because the backlog, which was formed in Soviet times, ends. And now the formation of a search reserve has become a strategic goal for the next few years," adds the General Director of Rosgeologia Sergey Gorkov. In the SP note: the potential "search reserve" for increasing the mineral resource base is limited because of insufficient geological exploration of mineral resources. Today middle-scale mapping covered only 24.1% of the country.

But according to experts, while maintaining the same order of financing of geological studying of bowels on a residual basis the prospects for the industry are disappointing.

"How can it be otherwise, when a comprehensive geological survey is funded only 10% of the required level?", – commented the doctor of economic Sciences, member of the Expert Commission on subsoil use of RAS Boris Khakimov, "the Search for new deposits in areas without a good geological maps are almost blind, with low efficiency. For example, with an annual production of 500 million tons of oil, we are opening about 50 smaller deposits in the year with total reserves of about 100 million tons. Simply put, re-produce only 20% of extract".

Until 2002, the reproduction of the mineral resource base was provided by contributions of subsoil users, some of whom were enlisted in the Federal budget and are directed only to the financing of geological exploration works in the framework of the state order. The rest of the expenses fall on the shoulders of the market participants.

However, in 2020 the scheme has changed – "celiku" was canceled. With 50% of the deductions taken into account in the rate of the severance tax, the remaining 50% is left to the mining companies for self-financing of exploration without any responsibility for how the task was to use abandoned funds. In the end, doing it mainly large companies. "The rest, due to the fact that they do not have own funds for financing such works do not show interest in investing in exploration, the impact of which is possible in 10-15 years", – stated in the SP.

To interest business

According to Deputy Minister of natural resources, the head of the Federal Agency for subsoil use, Yevgeny Kiselyov, funding for exploration is now one of the most important issues. The "Toolkit, which was formed in the framework of the application system, allowed to increase extra-budgetary financing rate not less than 7-8 % per year. However, this mechanism is not supported by the possibility of raising money from the market," he explains.

It is clear that the degree of risk of investments in this business are extremely high. It's not interest rates, not industrial production, where it is possible to calculate the possible risks. "Here the risk is much higher. Therefore, at this stage we think it is extremely important to create venture funds to support our unionism companies," – said Kiselev.

Business ' interest in investing in exploration sector is more concerned with the exploration of mineral resources, their geological and economic assessment. But that's the problem. To begin with, a unified methodology for the evaluation is still no, say auditors. And no other is needed to perform the current tasks of regulations and laws. Key "Law on subsoil" was adopted in 1992, and is periodically fine-tuned. But still hopelessly outdated.

"The current regulatory basis for the development of the industry does not meet modern requirements. Not adopted a number of priority laws aimed at improving the investment attractiveness of subsoil use, ensuring the reproduction of mineral resources base, rational use and protection of bowels. Not fully regulated licensing issues, estimation of undiscovered mineral resources and their classification", – underline the auditors.

The second problem is weak private investment in geological studies, especially in the early stages. One of the main obstacles for investors becomes too long process of obtaining permits for geological study of subsoil. Wait for the right paper have from 180 to 300 days.

According to the accounting chamber from 2015 to 2019, as a whole the volume of financing of geological studying and reproduction of mineral resources of 1.8 trillion rubles, an increase over this period by 1.2 times. With 90 % financing – the money of subsoil users. And the volume of unexecuted budgetary assignments for this period has increased 17 – fold to 5.1 billion rubles, of which 96.2% are necessary on "Rosgeologiya".

According to Sergey Gor, one of the reasons for this situation – again, excessive sluggishness of the state machine: "Here the main problem is long term contracts. For example, last year a Government order was released only on July 3. In fact, we have the whole season couldn't start work. And some of them, for example, in the Arctic, we can conduct only in the summer." Another reason – the state of "Rosgeologia": the depreciation of its fixed assets is, according to Gor, 95%.

Tax cuts

Another problem that drew the attention of the chamber, is the abundance of tax mechanisms of regulation of subsoil use. According to the JV in 2018, the share lightroomo oil production has reached about 50 %, and in 2035 it is projected the figure to 90%. "More than two-fold increase provided oil companies with incentives has not led to a comparable increase investment. Evaluation of the effectiveness of the measures taken to date have not been conducted", – underline the auditors, pointing out that official statistical information on the amount of taxes not received in the Federal budget in connection with an application for benefits, received only 10 points out of 37.

"Now we are seeing some cuts on the court, formed the Ministry of energy, Ministry of industry and companies. It is necessary to resolve", – commented Valeriy Kiselev, "In accordance with the decisions taken 18 September 2018 at the meeting of the Government of the Russian Federation, Rosnedra currently conducting an inventory of oil fields with reserves of more than 5 million tons in terms of economic efficiency of their development in the current fiscal environment. The results of this event will analyze the use of tax incentives".

The figure in the bowels

The regulatory framework, streamlining of taxation, attraction of private investors, of course, important. But there is another aspect of technology. "Further development of the geological industry lacks advanced technologies, investment attractiveness, modern regulation, digitalisation and openness of geological information", – stated in the Bulletin of the accounts chamber. In fact, auditors are strongly advised to include in the national project "Digital economy" event on the digitalization of the accumulated array of geological studies. In addition, it is proposed "to create the conditions for innovative technical and technological development of the geological industry, the introduction of advanced methods of forecasting and search of mineral deposits". In General, to update the methodology.

In fact, technology will allow to increase oil recovery at the production at the existing fields, and enable development of previously uneconomic inventory classes in the regions of traditional production, said the head of Department of strategy and innovation "Gazprom oil" Sergey Vakulenko.

"From the point of view of the economy full cycle to the fiscal section, these measures can ensure the growth of reserves of the country with a significantly lower cost than a search in new remote areas and construction of new infrastructure, creation of new production centres from scratch. These methods allow you to extend the life of existing production regions, to provide long-term employment in these towns. On this basis, public policy should support technological methods of increment of the resource base along with the search," – says Vakulenko.

But "upgrade" of existing enterprises also need money, and considerable. And just now not enough. And soon, perhaps, will be even less. If the IEA expects a decline of investment in the global oil industry at 32%, the forecast of the Moscow school of management SKOLKOVO is even less optimistic.

"Because of the significant decline in oil prices, according to our forecasts, global investment in exploration and production in 2020-2021 years will be reduced by 45 %, which will also affect the Russian subsoil users", – said the expert on oil and gas markets school Catherine Grushovenko, adding that a significant decline in demand and prices in commodity markets, particularly oil, requires additional analysis of the problems and to formulate new recommendations for the further development of the mineral resource base in Russia.

"In long-term scenarios of world energy development can greatly change. In particular, many experts are now seriously considering the possibility of accelerating energierecht," explains Dr. Grushovenko.

The chamber on global energoparitet not yet spoken, but refer to the forecast of the forum (the Forum of gas exporting countries), according to which the growth in world energy demand by almost 30% natural gas is the only hydrocarbon resource, which will increase its share in the global energy mix from 23% to 27% by 2050, ahead of coal by the end of 2020-ies and equaling the oil by the end of the forecast period. The share of oil in global energy balance will decrease from 32 to 26 %, the share of coal from 26% to 18%. That is, in the next 30 years, the mining industry, will continue to serve as an important source of wealth and the time to restore order in the depths. Regardless of how the process will go to "dismount the needle."

Olga Misuragin


Tags: Russia , oil

RELATED MATERIALS: Economy and Finance