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Russian Energy Policy

Russia's Oil & Gas Export Revenue

2000$ 52 B$ 26
2001$ 52 B$ 23
2002$ 56 B$ 24
2003$ 74 B$ 27
2004$ 100 B$ 35
2005$ 148 B$ 51
2006$ 191 B$ 61
2007$ 220 B$ 69
2008$ 300 B$ 92
2009$ 200 B$ 41
2010$ 275 B$ 75
2011$ 320 B$ 105
2012$ 325 B$ 115
2013$ 325 B$ 97
2014$ 325 B$ 101

The growing decarbonisation of the global energy sector will soon begin to cap the flow of money to the Kremlin’s coffers from oil and gas. As Tatiana Mitrova noted, "Russia is one of the more glaring examples of the potential losers in this geopolitical transformation. Indeed, countries like Russia, heavily dependent on hydrocarbon export revenues, will need to adapt their foreign policy to a world economy less reliant on their supplies. Hydrocarbon exports will no longer be a bargaining chip in international negotiations, and “geopolitical” energy projects (like many gas pipelines) will not be able to provide additional geopolitical arguments and power to the reserve holders." From 2015 to 2017, the oil and natural gas industry in Russia generated up to 40% of federal budget revenues. The decrease in export incomes will inevitably and negatively affect the country's economy.

Russian oil production reached a post-Soviet record in 2012, despite predications at the beginning of the year that output would fall. Data from Russia's energy ministry in Moscow shows oil and gas production grew at least one percent last year to reach a high of 10.4 million barrels per day. Russia had established its previous post-Soviet record in 2011 when output stood at slightly more than 10 million barrels per day. The current oil output rate outpaces that of Saudi Arabia and secures Russia's position as the world's biggest oil producer. The oil and gas sector accounted for roughly half of all budget revenues in Russia. But the government was still trying to change that by diversifying the economy in the hopes of shedding Russia's dependence on the global price of oil.

Russia is heavily reliant on hydrocarbon exports, with hydrocarbons accounting for some two-thirds of the country's exports overall. In 2006, revenue from hydrocarbon exports comprised around 50% of the Russian federal budget. By another estimate, in 2007 the federal budget depended on oil and gas taxes for somewhere between 45% to over 60% of revenues. And by 2010 hydrocarbon revenue accounted for at least 46% of the federal budget. The oil and gas industry accounted for almost 50 percent of the state’s income in 2011, and Rosneft’s tax bill ran to about half its $92 billion revenue.

The Russian government forecast the 2012 budget deficit will amount to 1.5 percent of GDP or about 900 billion rubles but Deputy Finance Minister Tatyana Nesterenko said in March 2012 that higher oil prices could help Russia reduce the deficit, or even bring in a surplus, by the end of the year. The May 2012 amendments to the 2012 budget submitted to Russia’s parliament envisage raising the average oil price projections from $100 per barrel to $115 per barrel.

But the oil and gas industries are on the brink of a crisis evident in the inability to sustain medium term production growth. The production crisis is most acute in the gas industry. The Russian state could then face significant problems in affording the benefits granted during the Putin years, such as increased pensions.

When the price of oil hit $100/bbl in early 2008, Russia was earning about $800 million each day from oil and gas exports - about $250 million per day more than it earned in early 2006. If oil were to average $100/bbl over the full year, with the usual gas price catch-up, that would mean an extra $90 billion in total revenue, and about $70 billion extra for the budget. Over the first seven and a half years of Putin's presidency, Russia earned $900 billion from oil and gas exports, and by the time the new president was sworn into office, the total had swelled to $1 trillion.

In 2006, Russia's real gross domestic product (GDP) grew by approximately 6.7 percent, surpassing average growth rates in all other G8 countries, marking the country's seventh consecutive year of economic expansion. Russia's economic growth over these seven years was driven primarily by energy exports, given the increase in Russian oil production and relatively high world oil prices during the period.

(RIA Novosti) - Russian oil and petrochemical exporters posted a 45% decrease in revenue in the first nine months of 2009 to $129 billion, the finance minister told the lower house of parliament on 21 October 2009. "Oil and petrochemical export revenue dropped by 45% in the [first] nine months," Alexei Kudrin said. He said Russian crude exporters earned $249 billion in the same period of the previous year. The country's benchmark Urals blend averaged at $57.4 per barrel from the start of 2009 through October 15, while it was $106.4 in the same period of 2008, Kudrin said, adding that the federal budget had lost 1.6 trillion rubles ($54.8 bln) in revenues due to the fluctuation.

Russia's economy is heavily dependent on oil and natural gas exports, making it vulnerable to fluctuations in world oil prices. According to an International Monetary Fund (IMF) study, a $1 per barrel increase in Urals blend oil prices for a year was estimated to raise federal budget revenues by 0.35 percent of GDP, or $3.4 billion. In order to manage windfall oil receipts, the government established a stabilization fund in 2004 worth. By the end of 2006, the fund was expected to be worth almost $80 billion, or about 7 percent of the country's nominal GDP. Raw materials, such as oil, natural gas, and metals, dominate merchandise exports and account for over two-thirds of all Russian export revenues. Although estimates vary widely, the IMF and World Bank suggest that in 2005 the oil and gas sector represented around 20 percent of the country's GDP, generated more than 60 percent of its export revenues (64% in 2007), and accounted for 30 percent of all foreign direct investment (FDI) in the country.

Kremlin policy makers continue to exhibit an inclination to advance the state's influence in the energy sector. Taxes on oil exports and extraction are still high, and Russia's state-influenced oil and gas companies are obtaining controlling stakes in previously foreign-led projects. State-owned export facilities have grown at breakneck pace, while private projects have progressed more slowly or have been met with roadblocks by state-owned companies or by various government agencies.

As Russia's oil and gas sector accounted for more than 40 percent of its export revenues [as of 2006] and comprised a major share of the world's undeveloped energy resources, it held tremendous potential for foreign as well as domestic investment. Whether this potential is realized depends on the receptivity to such investment by the Russian government, which increased its role in the sector starting in 2003.

Production Sharing Agreement (PSA) legislation was adopted in 1999, but PSA amendments to the tax code passed in mid-2003 sent a very mixed message. The amendments provided a firmer foundation for three already operating projects and a few new projects supported by domestic companies, but greatly restricted the possibility of future PSA projects. PSAs did not appear likely to re-emerge as a tool for attracting investment, as the Putin government viewed existing agreements unfavorably. The best public evidence of this view was the negative comments made by senior Russian officials in late 2006 in the context of the government's environmental investigation into the Sakhalin-2 PSA project.

In January 2007 the Kremlin moved the administration of all offshore oil and natural gas deposits to state-controlled Gazprom and Rosneft. Experts said the move was designed to deter foreign investors from acquiring large stakes in the deposits. Shelf deposits will be allocated through contests, rather than auctions, where technological and environmental criteria will prevail over cost.

With the forced sale of Yukos's assets, Sibneft's de-merger with Yukos, Gazprom's subsequent purchase of Sibneft, and ConocoPhillips' purchase of twenty percent in Lukoil, the oil and gas landscape changed substantially from 2002 to 2007. The industry no longer exerted extensive influence on the government but, on the contrary, it was the government that appeared to have reasserted some control over oil and gas firms. It had become conventional wisdom that foreign investors who want to do business in Russian energy now must work through the state companies Gazprom (gas) and Rosneft (oil), although ConocoPhillips enjoyed a significant and growing relationship with private oil company Lukoil.

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Page last modified: 23-08-2021 19:03:11 ZULU