Will Ukraine and Europe be able to cope without Russian gas? How will the scandal with the supply of turbines from the German company Siemens to Crimea end? How significant are the sanctions imposed by the United States and the European Union against Russia for the Kremlin? And why did Turkey refuse to introduce them - without recognizing the annexation of Crimea?

We talk about this on the “Day Show” on Radio Krym.Realii with Russian economic analyst, oil and gas market specialist, partner of the RusEnergy information and consulting agency Mikhail Krutikhin.

- Mikhail, you took part in the Gas Forum, which was held in Kyiv the other day. Tell us about it.

This is the third forum, it takes place every year. A very interesting event - it discusses not the political component of Ukraine’s “gas relations” with the outside world, but technical details, problems with promoting legislation, financing, and attracting foreign investors. That is, they discuss very practical things and invite specialists - Ukrainian and foreign. With deep regret, I can say that at none of their forums was there anyone from Moscow, from Gazprom, which would have been very useful for the Russian gas company. There was no one even from the embassy and permanent mission (of Russia - KR).

- How noticeable is Ukraine’s refusal to buy Russian gas for Russia - economically and politically?

Politically it was very serious. To see how a country, which supposedly (as it sounded in Russian propaganda) is completely dependent on Russian gas, shows independence... Soon it will be almost two years since it does not buy Russian gas at all. Now in Russian propaganda they present that Ukraine, when buying reversed gas, is buying the same Russian gas. But, excuse me, they don’t buy from Russia. This gas crossed the border, it was bought by some traders in Europe, it is mixed with Norwegian, former liquefied natural gas, it does not have a label on each molecule. This is a purchase from a European trader, not from Russia. For Russian politicians, this situation seems humiliating.

There have been attempts to force the Ukrainian side to pay for what they are not buying, under the “Take or Pay” clause of the contract. But the arbitration court said that due to a radical change in the market situation, this provision does not work and Naftogaz of Ukraine should not pay any money to the Russian Gazprom.

- Can European countries manage without Russian gas?

This is a great question. Two years ago, the European Commission decided to conduct a so-called stress test and see what would happen to European consumers. There were several scenarios. The first is that Russia completely stops gas supplies to Europe. The second is if supplies are stopped only through Ukraine. The third - if there is a very cold winter. Fourth - if there is no solidarity between European states regarding the transfer of gas flows. It turned out that even in the event of a complete cessation of Russian gas supplies, most European countries would manage just fine without it. Some countries are suffering - Bulgaria, Slovakia, Finland depend on Russian gas almost 100%. And if you take Hungary, they only need 26% of gas in the coldest times. And Western Europe manages without Russian gas.

- That is, in Europe they understand that Russia, having closed the gas valve, can use it as a lever of pressure?

Certainly! But this is a double-edged sword - you can also be defeated. At the end of 2014, by political decision of the Russian leadership, the volume of gas that Gazprom supplied to Europe was sharply reduced. To the minimum under the contract - so that European countries do not sell gas to Naftogaz of Ukraine. And Gazprom lost $4 billion because it did not sell this gas. And Moscow realized that they were punishing themselves, and began supplying gas in the same volumes.

- The sanctions that the United States and the European Union have imposed on Russia - how significant are they for the Kremlin?

Politically, they did not influence politics, but economically, they played an unpleasant role for Russia. In particular, they made it more difficult for oil and gas companies to access Western loans. Now Gazprom is forced to spend its own money on the construction of gas pipelines, such as the Power of Siberia or the so-called Turkish Stream. This is billions of dollars. In the second quarter of this year alone, Gazprom’s debt increased from $35 billion to $53 billion. If things go like this, Gazprom may end up bankrupt. He is now actively eating up his savings, because there is nowhere else to get money. This also affected some gas production projects in Russia, but not all.

Let's talk about the situation with Siemens and the turbines that were brought to Crimea bypassing sanctions. The German company began a lawsuit, demanded that the turbines be removed from the peninsula, and announced a restriction of cooperation with Russian companies. How far can this go?

I'm embarrassed to even look at this. Quite a respectable, decent company... But I can’t believe that they didn’t know about the fate of these turbines. Russian and European media warned about this - that they (the turbines - KR) would be sent to the peninsula. This is a big mistake for Siemens - now they are putting a good face on a bad game, but it seems to me that the Russian side will not give them any turbines. Here a problem arises: they must be maintained, the operation of the turbines must be controlled by Siemens controls and software. And how this will happen is still a mystery: will they be able to work in conditions where Siemens will boycott this work.

This raises the question about the famous import substitution, which was talked about so much in Russia after the introduction of sanctions. In what areas is import substitution possible?

From the point of view of the oil and gas industry, it is impossible. If you process oil, you need catalysts - and they are all imported. If you are going to go to the shelf, the equipment is imported. Now about 60% of equipment in oil and gas is imported. You can, of course, assemble something, drill the old fashioned way, install some pumping machines... But if we take, for example, the Ekaterina drilling rig, which is used in Yamal, it seems to have been made in Yekaterinburg, but in Russia They only made a triangular frame for it. It is loaded with from Canadian to Romanian equipment, and what is Russian is very difficult to understand.

Generally speaking, the import substitution program is a failure - it cannot be done 100%.

Relations between Turkey and Russia are interesting in the context of the Russian annexation of Crimea: Ankara declares support for the territorial integrity of Ukraine, but refuses to impose sanctions, purchases Russian natural gas and discusses with Russia the terms of construction of the Turkish Stream gas pipeline. Do you think Russian gas is more important for Turkey than supporting Ukraine?

I think they are trying to sit on two chairs. Either the Russian side is going to supply them with missile equipment to intercept air targets, or something else... Turkey now has a very advantageous position in gas trade - they may or may not allow the second line of the so-called “Turkish Stream” to enter their territory " They will launch the first line, but the second line, which the Russian side is going to send towards the European Union, across the border of Bulgaria or Greece, is a big question. And Turkey is in a good position for negotiations.

Gazprom has already spent $17 billion to prepare supply routes for the organization of this southern route, bypassing Ukraine. And he will spend even more - the offshore part of this gas pipeline is currently being laid. And the Turks have much more gas than they can consume, plus there are still plans ahead to receive gas from Iraqi Kurdistan and Israel - Turkey does not need so much gas, they do not know where to put it. And in Russia they also don’t know where to put the gas, and they are trying to “sell” it to someone through Turkey.

After the annexation of Crimea, the Russian authorities use the equipment of the Ukrainian enterprise Chernomorneftegaz to produce gas on the Black Sea shelf. Naftogaz of Ukraine filed a claim with the tribunal at the Permanent Court of Arbitration in The Hague for about $5 billion. If the court rules in favor of Ukraine, what does this mean for Russia?

I think that the decision of the Arbitration Court must be implemented; this is a kind of arbitration. But what is alarming is that Russia has already adopted several legislative acts that say that Russian laws have an advantage over international ones. Which violates the constitution (of Russia - Kyrgyzstan), of course. But this is not the first time for us - our constitution has been violated in many respects. This will be a political decision.

- Can Russia stop living off natural resources?

No, he can not. A year and a half ago, a group of experts who made forecasts in global energy and Russian energy until 2040 tried to understand what export substitution could look like for Russia. They didn't find anything.

A well-known expert on how the Ministry of Finance’s tax ideas will contribute to fraud, on a “good solution” for Tatarstan and Tatneft’s friendship with MNK

There is six times more “paper” oil in the world than real oil, and when this bubble bursts, the price will fall, says RusEnergy partner Mikhail Krutikhin. In an interview with BUSINESS Online, he told what exactly Donald Trump is going to do in the American oil industry and how it will affect the market. The expert also explained why shale is unprofitable in Russia, and it’s time to bury offshore projects, and why Saudi Arabia actually decided to freeze production.

“$45 PER BARREL IS A REALISTIC ESTIMATE”

— Mikhail Ivanovich, recently Russian Finance Minister Anton Siluanov said that we can achieve a deficit-free budget with an average annual oil price of $60 per barrel. How realistic is it now to see such prices at the end of the year? Will the $100 levels at which the 2013 and 2014 budgets were set ever be reached? What is a fair price level today?

“I have the impression that the high price that is now observed is, after all, a temporary phenomenon. It is determined more by the feelings of speculators in the paper market, rather than by the real demand and supply of physical oil. If you look at physical oil, there is some suspicion, not only from me but also from very respectable observers, that the price will be higher than last year. Last year, the year before, it was on average about $45 per barrel of Brent. From the very beginning of the year, I assumed that after all the jumps and hysteria with OPEC, the temporary increase in prices would smooth out, go down and settle down again at $45 per barrel. I think that this can happen, there are serious chances for this to happen. Although I do not rule out that the average price may even rise by 5 dollars.

- And yet, what is a fair price in the current conditions?

- And a fair price is one at which they can buy. According to Marx, what one is willing to pay is what it should cost. And here it is necessary to distinguish between physical oil and “paper” oil, the virtual volumes of which are approximately six times greater than in reality. And each oil derivative changes hands 3 thousand times, and some say up to 6 thousand times, and from this the price on the “paper” market, although it reflects a little the situation on the real market, but not completely. I focus on supply and demand. Ultimately, this will win, and the reduction in supply that is still happening in the market now at the behest of Saudi Arabia and some others will not compensate for the insufficient demand in the market. We slightly exaggerate the demand of China, India and some other countries. I think that by the end of the first half of the year the trend for the year will become completely clear. I suspect $45 a barrel is a realistic estimate. Maybe a five more.

— OPEC has improved its forecast for global oil demand in 2017 by 0.22 million barrels per day to 95.81 million barrels per day.

— There are forecasters who cannot be trusted: they absolutely do not get where they need to go. In first place is OPEC, in second is the International Energy Agency based in Paris, which also changes its forecasts every three weeks. But if OPEC is interested in certain forecasts in the interests of cartel participants, then the International Energy Agency clearly has not entirely competent experts. Therefore, let's not focus on the forecasts made by OPEC or the International Energy Agency. Here you need to look, for example, at the Platts or Argus agency, which monitor the movement of physical oil volumes.

— So there are no reasons for increasing demand for oil?

— They exist, but in terms of volumes they are not as significant as OPEC shows.

Photo: Viktor Filatov, RIA Novosti

“SAUDITS NEED TO RAISE PRICES TO SELLSAUDI ARAMCO"

— How long do you think the OPEC agreement on freezing production will last? Are all countries implementing the agreement fairly? In general, what is the role of this organization in the world now, how viable is it, since in 2015 they practically began to bury it?

— OPEC, of ​​course, is no longer a cartel. The only one that can really influence supply and demand issues is Saudi Arabia, which has significant slack to move up and down in volumes, and the rest follow. We see that major market participants - such as the USA, Norway, Mexico - do not comply with this agreement. Russia also does not comply, despite all the statements of the Ministry of Energy. The agreement can be viewed from one very cynical point of view - Saudi Arabia has an IPO planned for Saudi Aramco next year. Therefore, they need to at least temporarily raise the price of oil and this company in order to position themselves profitably and sell at a profit. Until next year, they will do whatever they want with verbal interventions, messages about a regulated premium or, conversely, a discount - everything to keep the price as high as possible. Whether it will work out or not is another question, but they have one task, and everyone else thinks that they are helping the high price, although they also receive benefits. It is no coincidence that Russian oil is now trading higher than it should be. As a result, the Russian budget will still receive additional cash flows.

— You say that Russia is not particularly keen to reduce production. Should she even strive for this?

— Russia has a unique situation. Firstly, the Ministry of Energy and the government in general have absolutely no tools or levers to quickly influence production, consumption and exports. They can try to change the tax system, the duty collection system or some benefits, but this takes a lot of time. There is nothing to quickly change oil flows, these are empty words. But the oil companies promised: “Let us do it for you, since you want it so much, we will reduce production.” What actually happened? For example, Gazprom Neft said that it was actively reducing production, but in fact, in the cold winter, tankers carrying oil from the Novoportovskoye field and Prirazlomnaya froze. Lukoil said that for preventive maintenance those wells that will not freeze in winter will be closed, but in the first quarter there is already a lot of preventive maintenance going on, and so production in Russia is being reduced. So the reduction in production occurs naturally or on paper. We have had a lot of fraud in the history of the oil industry, and it continues.

And it is now profitable for oil companies to extract as much oil as possible from those fields that were put into operation a long time ago. It seems that the oil company is adopting a large investment program in which it says that such and such a part will go to the search and exploration of new reserves, and the other will go to production drilling, increasing the oil recovery factor, to new methods, etc. But in reality There is a shift in the investment program. Very little is allocated for prospecting and exploration wells, since there is a big risk that they will not find anything, but simply lose money, and if they find it, then the profit will be in 10 - 15 years at best. And since the planning horizon is now very short due to the economically unstable situation, companies do not want to invest money that someone will receive for them in 15 years.

So something like this happens. For example, Rosneft decided to reduce the distance between wells, that is, to make a tighter grid in many fields. They report on this very beautifully: “New shafts are being cut, well repairs are underway, after which it will begin to produce more, new methods are underway, waterflooding, and formation stimulation.” However, all this happens where the field operates from 30 to 70 years. They are driving as much oil as possible, because no one knows what will happen in two or three years. This is what the Russian oil industry does.

The entire increase in production is a few new projects that can be counted on one hand, the rest is the intensification of production at old fields. Companies have a vested interest in pumping more oil. But it doesn’t work out - we see tiny increases, with the exception of a few companies, for example, Bashneft made significant increases last year and the year before. Or they add those projects on Sakhalin that operate under production sharing agreements. In Tatarstan, some companies are also increasing production at old fields; there are technologies with which they can work quite successfully. They are also adding companies to new fields, where investment decisions have been made long ago and money has been invested, such as the Irkutsk Oil Company. But Rosneft, excluding Bashneft, allegedly increased by only 0.6 percent last year, and that was because it intensified production at old fields. Let's say you made a discovery, you were lucky, but it was small. Why do I say lucky? Last year, 54 discoveries were made - these were either some new horizons, or deposits in old fields, or tiny deposits.

“AMONG THE DISCOVERED DEPOSITS THERE IS OPEN FEATURE”

— Continuing the topic: the consulting company IHSMarkit in its report concluded that 2016 was the poorest year in terms of the number of discovered oil and gas fields - only 174. Why is drilling becoming unprofitable?

- So these deposits are tiny. Who will develop these? Recently, one comrade from Lukoil on Facebook described his experiment with an attempt to calculate the profitability of a small field with 3 million tons of reserves. No matter how he thought, everything turned out unprofitable. Moreover, the tax system now is such that it does not stimulate, and oil companies only want to get more money now, and then they don’t care - even if the grass doesn’t grow.

And then, among the discoveries that are made, there is outright fraud. Previously, we invited specialists from the CDC to consult ( central commission for mineral reserves — approx. ed.), they knew how to shortchange any deposit. We believed them unconditionally, because in order for the company to protect the reserve it discovered, it was necessary to undergo serious protection from these specialists. And they were incorruptible, they assessed the reserves objectively. And suddenly something completely incomprehensible begins to happen. This began with the discovery by Rosneft of the Savostyanovskoye field in the Irkutsk region. They drilled one well and announced the discovery of gigantic reserves. This is bullshit, because giant reserves cannot be discovered with one well. To estimate and show the deposit, it is necessary to drill not one well, but several. Then we first suspected that this office was not as objective as we thought. The second case was with the discovery of the Pobeda field in the Kara Sea, which Rosneft declared almost the Klondike of oil. What happened? We drilled a well with ExxonMobil money. They drilled it to the level to which they were supposed to drill, but then sanctions hit. And instead of testing this well, ExxonMobil had difficulty obtaining special permission from the State Department for three weeks to abandon this well. The well has not been tested. At this time, the CDC, at the request of Rosneft, says that a field with gigantic reserves has been discovered. And experts who worked at this field say that the cores extracted during drilling contained oil effusions, that is, droplets. But no one there has seen the volumes of oil that will cover Saudi Arabia. It was pure fraud. So the Pobeda field, which Sechin proudly announced to everyone, is complete bullshit.

However, deposits, of course, are being discovered, but there are no large ones. One can only dream about Romashkinsky, as Gennady Shmal says ( President of the Union of Oil and Gas Industrialists — approx. ed.). There are no such deposits.

— How will this be reflected in the future?

- And the prospect is terribly interesting. We have two seemingly independent forecasts about what will happen next with Russian oil. One of the forecasts was recently presented by BP; it concerns global energy until 2035. They said that if in 2015 Russia produced 11.1 million barrels per day (they take into account condensate and oil - they give more than our official figures), then in 2035 there will be 12.2 million barrels, that is, production will increase. They don't look beyond 2035. We begin to ask: why will it increase? They say that Russia has low costs and low cost of oil at already operating fields; with the help of new technologies, it is possible to increase production, increase efficiency, and improve oil recovery rates. But we must take into account that BP experts and economists report to their shareholders; they need to show that in Russia all investments were made correctly, efficiently and that bright prospects await them in the future. We need to make allowances for this desire.

The second forecast was published at the end of autumn last year by a group of Russian experts led by Tatiana Mitrova (Head of the Department for Development of the Oil and Gas Complex of Russia and the World, Institute of Energy Research of the Russian Academy of Sciences — approx. ed.). Nobody paid them; they undertook the research on their own initiative. They only received a little help from the analytical center under the Russian government - they were given some data on global energy. These experts made a forecast until 2040. In Russia, it turns out that the peak of production will be in 2020 - 2025, and after that it will begin to decline. They have not found commercial reserves that can then provide increased production at any oil price. When I talked to them, they said that production would fall quickly. Another friend from the Central Development Commission (CDC) says that after 2020 the decline will be about 10 percent per year.

It's hard for me to say how it will be. But I'm now looking at the state of stocks that can be profitable. BP says that reserves, which are profitable at $20 per barrel, will last for 20 years. Okay, that's enough. How many will there be? Maybe there will be two barrels left. This is not taken into account.

There is another forecast that was given at the end of 2014, when oil prices just began to fall. At that time, the document “General Scheme for the Development of the Russian Oil Industry until 2035” was being prepared; it was supposed to become an integral part of Russia’s energy strategy. This document has not yet been adopted. But when experts collected data from companies about how much they could produce by 2035, what their plans were, and compiled them into one diagram, they got a terrible picture - in 2035, oil production in Russia should be 276 million tons. Despite the fact that our production now is about 550 million tons. That is, production will be reduced from 10.5 - 11 million. barrels to less than 6 million. barrels per day. This result can be partly explained by the fact that oil companies deliberately lower their forecasts in order to squeeze new tax breaks out of the government. But I think the experts have caught a completely natural trend. They say that in Russia 67-70 percent of the remaining oil is hard-to-recover reserves. According to Leonid Fedun from Lukoil, the cost of this oil should be approximately $80 per barrel, which means that the prospects are very bad.

Let me give you another forecast as an example. The Rystad Energy company from Oslo calculates oil almost by well, they correct American statisticians and say interesting things. They looked at what the price of oil should be in order for new projects to work, on which they had not yet made a decision. In Saudi Arabia it is 25 dollars, and in Russia it is 110 dollars. But they stipulate that this includes hard-to-recover reserves and the Arctic shelf, where profitability will generally be at $150 per barrel. When I compare these forecasts and figures, I do not become more optimistic.

— By the way, will we ever see a price of $110 per barrel again?

— The same Rystad Energy, which calculates the profitability of American, our, and other wells, has had changes in its forecasts over the past year. If earlier they thought that by 2020 the price of Brent oil would rise to $100 or more, then a few months ago they were already talking about $90, and now, apparently, they are inclined to lower the price of oil even more. It will still increase a little: the economy is developing somehow, but, unfortunately, it is not developing as we would like. Firstly, I do not believe in China, that it will need a lot of energy resources. Secondly, I do not believe in India and “black” Africa.

There is a lot of fraud in China. There, in early January, they publish GDP data for the previous year, which strangely coincides with all the plans of the party and government. It is impossible to calculate everything so quickly. So this is incorrect data, unreliable. They report that they have a 6.5-7 percent increase in GDP, but when calculated by independent experts it turns out to be 3.5 percent. I do not exclude that by 2018, China's real GDP may go into negative territory.

— So China is no longer growing?

— There is growth, but on paper. It's a bubble. Talk to our China specialist Alexander Gabuev ( Director of the Asia Program at the Carnegie Moscow Center — approx. ed.), he will show you what a Chinese bubble is and how it is inflated. The head of a Chinese province needs to ensure social peace and increased investment four years before rotation. How do they provide them? One says that he is building an international airport, and across the river in another province another one is building the same airport. No one needs either one or the other. But on paper it's a great investment.

Early last year I was in Beijing and talked to economists. They say they have 50 million apartments built that are empty, and another 50 million apartments are being built that will also be empty. And all this with money from state banks, which issue wonderful loans. China is not what we think, a completely different country.

Photo: Sergey Elagin

“SURPLUS OIL WILL GO TO EUROPE, WHERE THE PRICES FOR BRENT WILL BE DOWN”

— You recently said that today a “paper” oil bubble is inflating, which is 6 times larger than real oil. “Apparently, this bubble should burst within a month or two,” you said. Still waiting for it? Where it leads?

— So far I see that prices are jumping, they have been at the level of 55 - 56 dollars for a long time, but the movements are very nervous, sometimes they jump up and down by 2 percent. This shows that there is a game going on between the guys who are exchanging pieces of paper. This is not real oil that is traded on the market.

When the bubble bursts, the price of oil will go down. I think in the short term the price should fall to 40 - 45 dollars per barrel. But we also have a medium-term perspective, which is strongly related to the policies of the new American president, who will also affect prices.

— Donald Trump said that the United States intends to stop purchasing oil from OPEC countries and become energy independent.

- Not only he, at one time Barack Obama also spoke about this: “How can we buy oil from those who consider us their enemies?” He did little in this direction, but Trump has already begun to do so with his decrees on the construction of the Keystone and Dakota Access oil pipelines, which are very beneficial not only for the domestic life of America, but also for exports. They will have a major impact on increasing American exports and reducing imports, despite the resistance of Indians and environmentalists.

Trump is going to introduce a protective duty on foreign oil. It will be very interesting. Firstly, in the USA, despite the increase in production, the price of oil may rise, which will give a huge boost to the industry in the States, this will be beneficial for the Americans themselves. Secondly, excess oil will go to the same Europe, where Brent prices will be driven down. Next, Trump plans (and is likely to do so) to open up the licensing of federal lands on land and open up access to the Outer Continental Shelf. According to American geologists, these territories contain almost three times more oil than those that are subject to licensing. And the discovery of new US reserves will lead to the United States seriously influencing the global oil and gas picture.

— The story with Iran has begun to unfold again. If this country is again reclassified as a pariah and is subject to sanctions, will oil prices begin to rise in price?

“I don’t think they will introduce new sanctions; this is not beneficial to anyone, including the Americans.” It's impossible to predict here. Now many companies are at a low start. The French Total has projects, they are waiting for certainty to start them. There you need to invest up to 100 billion dollars to do something good. Huge reserves continue to be discovered in Iran, which means they have great potential, especially for gas. About 75 percent of this gas will be injected back underground to maintain pressure because oil can be sold for more than gas.

— Then maybe you see some other potential conflicts that could affect the situation of oil supplies from Arab countries and Africa?

— The region there is explosive. If some madman fires a missile at a tanker right in the Strait of Hormuz, then the price of oil, I don’t even know where, will skyrocket.

— What is the likelihood of such a situation?

- It's always possible. A third of all the world's oil flows through this place. If something goes wrong, it’s clear what will happen.

“I wouldn’t like to offend Belarus, but they have a very funny strategy in the field of Russian oil and gas” Photo: kremlin.ru

“WITH BELARUS IN TERMS OF OIL AND GAS IS PURE CHARITY”

— Now let's talk about the Russian-Belarusian oil and gas conflict.

— I wouldn’t like to offend Belarus, but they have a very funny strategy in the field of Russian oil and gas.

— How long will this conflict last?

- He is political. But what can we say when it only begins through political means? At one time, when friction began over the transit of gas and oil through the territory of Belarus, in January 2007, Transneft offered to give Belarus 18 million tons of oil per year, and send the rest through the Baltic Sea. Putin wrote “I agree” on this plan and set the date - January 11, 2007. Although nothing worked out then.

If we reach a political agreement with Belarus, everything will be fine. For our leaders, very often what is more important is not some commercial considerations, because there is nothing commercial with Belarus in terms of oil and gas, pure charity. It is more important for them to show that there is some kind of Eurasian Union, customs unity, etc. This appearance is often more important than the real state of affairs. Now the Belarusian leadership can play on this: if you want to preserve your so-called union, then give us benefits again.

— Do you think Russia will give in?

“And I’ve already given in many times.”

— Don’t you think that, pardon the expression, Lukashenko is simply bending Putin?

“And more than once he bent over backwards, of course, and did not do what was required of him politically. For example, he did not recognize South Ossetia and Abkhazia. He has a completely different attitude towards what is happening in Ukraine, not like Moscow. So all the concessions are coming from the Russian side so far in order to maintain the appearance of the so-called Eurasian Union. This is puffing out our cheeks: we are almost again restoring the great and mighty Union.

Photo: kremlin.ru

“THE MINISTRY OF FINANCE’S TAX IDEA OPENS A GIANT FIELD FOR SCAM”

— Let's return to Russia. At the Gaidar Forum, Siluanov said that it is necessary to switch to an added income tax in the oil industry from 2018, and the Ministry of Energy insists on introducing a tax on “financial results” instead of the mineral extraction tax. What is your position? How should the tax system in the oil industry be changed?

— In Russian conditions, proposals to introduce this tax in one form or another - either a tax on added income, or on a financial result - I think will work poorly, and this is dangerous for the industry. Because they assume that the company will only pay tax when it has recouped its costs. In general, it is a very good idea to not tax all the oil that a company produces, whether it is profitable or unprofitable, but to move specifically to taxing profits. But if you look more closely, it doesn't work. It is very easy for companies, especially large ones, to inflate costs on paper or in reality in order to prolong this period. This opens up a huge field for fraud. In those countries where something similar exists, for example, in Norway, they are gradually trying to move away from this system, as they see that companies are inflating their costs and postponing the tax period until later.

Not everything is in order with the Russian tax system, and I don’t see a way out yet. According to the head of Lukoil, in 3 years the tax system in the oil industry was changed 22 times. There is nothing good about this; we don’t see any stability with these experiments either. Probably, this bad tax, which is called the export export duty, should be abolished (since not all our companies export), and the mineral extraction tax should be differentiated. But again in Russian conditions a gigantic difficulty arises. At one time, we had differentiated taxes from field to field, but there was scope for corruption - it’s very easy to bribe some controller who needs to be told: “Please write that we have difficult production conditions, difficult-to-recover oil, very cold,” — then the tax changed. Therefore, at one time a flat mineral extraction tax scale was introduced. Now it has spread through numerous benefits, either for East Siberian fields or for hard-to-recover reserves. But something needs to be done about this. The whole question, of course, is in administration.

If you look at the American system, there is strict accounting for each well. There is an opportunity there, by installing instruments and roughly determining the conditions, to objectively see how much can be taken from this well, under what conditions it will be profitable and what to do commercially with it. There is almost an automated accounting system. In Russia, this can also be done; we have both computer equipment and software for this. But, unfortunately, this is hampered by the reluctance to structurally change the entire tax system, as well as the reluctance to make tax administration take into account each well.

— What is the fate of our Arctic offshore projects, half-forgotten by the media? Should they be considered a priority today, as was previously stated?

- They don’t exist and never will. Expensive. Why go to the shelf, where the cost of production is $150 per barrel? Who should we sell this oil to now? When ExxonMobil started a project with Rosneft in the Kara Sea, it was a whim of the richest oil and gas company in the world, which could well have spent money on it. They allocated more than 3 billion dollars for Russian projects and spent 1 billion; this well alone cost them 600 million dollars. It's just curiosity. No one could know if there was anything there, but they could afford it. Commercially, this project is designed for such a distant future, when prices suddenly become insane.

— But you said that there wouldn’t be crazy prices.

- Not yet. When the project was conceived and when money was invested in it, firstly, the prices were quite high, and secondly, it was really curiosity. They wanted to work in the Black and Kara Seas. They were interested.

— So now the projects have been shelved?

- Arctic - no. I remember when in 1993 - 1994 there were wonderful programs of the Ministry of Natural Resources - licensing of areas on the Arctic shelf in the Barents Sea. Everything was planned out, all the sections. But there is nothing.

— The Arctic Forum will be held in Arkhangelsk at the end of March. As I understand it, they have high hopes for the development of the Arctic.

- Why? Both Murmansk and Arkhangelsk would like this. But I don’t see such prospects at current prices and despite the fact that there is a lot of cheap oil in other regions.

Photo: Ilya Pitalev, RIA Novosti

“WE HAVE VERY FEW FIELDS THAT CAN BE CALLED SHALE”

— What is the fate of the shale revolution: did it win and yesterday’s “revolutionaries” integrated into the existing system? Or is shale still just a small cherry on the big oil cake?

- They have integrated into the system. Shale developments determine the increase and decrease in production; they act as a buffer. It seems that the Americans’ production at ordinary fields is either going up or down a little, but everything that is going up and down depending on the market is precisely “shale.” Recently, when we look at statistics for some zones, production is falling, for example, in Eagle Ford, but in Permian ( Eagle Ford and Permian - Texas shale fields - approx. ed.), on the contrary, is growing strongly. Large companies are already beginning to take an interest in this zone and invest in it, where good production is coming from. I think the prospects here are serious.

— Why doesn’t Russia do anything in this direction?

- What for? The thing is that we have very few deposits that can be called shale. In the Orenburg region there are indeed shale rocks similar to American ones, but there are not so many of them. And the fact that we have low permeability is not necessarily “shale”, it’s completely different. Moreover, in Russia there is the Bazhenov Formation - a geological formation in Western Siberia, where, as geologists say, there is no less oil than in those horizons from which production traditionally takes place. For some reason, our Ministry of Natural Resources included this formation among the commercially extractable ones and unexpectedly increased the estimate of the reserves. How can such reserves be included somewhere when, according to independent geologists, more than 2-3 percent cannot be extracted from Bazhen - neither by ours, nor by Western or Eastern technologies? The head of Surgutneftegaz said last year that they had invested in 11 projects and had already lost 3 billion rubles on Bazhen. There is also a domanik ( type of oil shale — approx. edit. ) and various hard-to-extract, low-permeability rocks that can provide some value, but you have to invest and it’s not cheap to develop them. And Bazhen will not give anything at all. There are “fun” rocks - clayey siltstones, in which oil is located, as it were, in small bubbles. If wells are drilled in sandstone or limestone, oil from other rocks, layers from the same horizon seeps into this reservoir. But here there are no pores between them, nothing seeps through. I got into a bubble, a fountain comes out of there, and after three days it’s gone, or after three months. This means we need to look for another bubble. At the same time, the oil there is very tricky, uneven: sometimes it has the usual composition, and sometimes it’s the so-called mother oil - this is not yet oil in our understanding. It’s not easy to get this oil from there; you have to drill a well every meter - it’s expensive.

— At the very beginning of our conversation, you said that it is profitable for companies to pump oil from long-developed fields. But there is a theory that oil is a renewable resource. How do you feel about her?

- There is such a theory. Since I have no geological education, I cannot say for sure. In some cases, for some reason it is confirmed. For example, a long time ago it was necessary to extract everything that was possible from the Romashkinskoye deposit. Some wells are plugged, and then after a few years they are uncorked, and from there there is almost a fountain of oil. Where did she come from? Some say that new oil originated in the depths, others say that it leaked from other horizons. I don't know. My knowledge is lacking here. But there are quite a lot of cases of revival of crafts that were abandoned long ago.

— What do you think can replace oil for a person? And will anything replace it? People often talk about “green” technologies and thermonuclear fusion.

— Here I believe the guys from BP, who say that until 2040 nothing will replace oil. In energy production, the proportion will be approximately this: 30 percent oil, 30 percent gas, 30 percent coal, but the remaining 10 percent will be hydro, nuclear and other resources. And those three will remain until 2040.

- And then?

- Nobody looks in there.

- They say it's hydrogen.

- That would be good. But it's the same as with electric cars. For example, in Norway, an electric car is great, there are a lot of them there, because they have clean electricity, they generate it at hydroelectric power stations, they do not burn hydrocarbons. And in Singapore, a person who buys an electric car pays a huge fee, actually a fine, because all the electricity there comes from dirty coal. That is, a person who buys an electric car contributes to air pollution in Singapore. As for hydrogen, you also need a lot of electricity to get it from water or something else.

“Tatneft does not have a drop in production like the others, although most of the fields are old” Photo: BUSINESS Online

“IT IS NOT IMPOSSIBLE FOR POLITICAL REASONS TO OFFEND THE WHOLE REPUBLIC”

— As you know, a significant part of Tatarstan’s reserves is heavy, high-sulfur oil. Taking this into account, assess the republic's prospects in the petrochemical and oil sectors. Which direction should she go?

— I know that there are plans, real projects. I can only be enthusiastic about this. We recently made a report for one very large international client on the prospects of Russian petrochemicals with an emphasis on the European part of Russia; Tatarstan there was one of the main promising areas where petrochemicals with export potential could be developed. This is really commercially profitable; it is worth developing it instead of driving your own “heavy” oil, which will not be so expensive if you drive it separately. These will be net losses compared to the current situation, when cheap oil is produced and exported on Urals paper. Those who should be exporting “light” oil are losing, but in Tatarstan they are gaining due to the fact that there is no quality bank. The quality bank system was developed back in 1996 or 1997. Transneft introduced it a long time ago, the system works, everything is calculated, but the companies do not transfer money to each other. It is impossible, for political reasons, to offend an entire republic by depriving it of a large part of its income. The result is subsidies from other oil companies. If the industry produces petroleum products and does not export “heavy” oil, then this is just a good way out of the situation.

— How highly do you rate Tatneft’s actions over the past three years?

— Firstly, they do not have a drop in production, like the others, although most of the fields are old. Second: Tatneft works wonderfully in alliances with small oil companies. This is very good, because if there are small deposits that large companies will not develop, it is necessary to rely on entrepreneurs who are willing to take risks and engage in innovation. Then it would be very nice. But, unfortunately, these companies in Russia are corralled, they are discriminated against.

— How can their role be increased?

“I am very afraid that with the current structure of management of the industry and the economy, this is hardly possible, because even by law, large companies have an advantage in access to resources, infrastructure, and export opportunities. It is impossible to compare us with the Americans for a very simple reason - in America, if a person has several acres of land, then all the mineral resources that are under them are his property. And in Russia, a person who has land can grow radishes - 3 centimeters is his, and then no more. The whole “shale revolution” happened not only because two technologies were combined - horizontal drilling and hydraulic fracturing; we have also been using hydraulic fracturing since 1947. But land ownership is the second factor that helped the “shale revolution.” If we introduced licenses into circulation: that is, opened a deposit, you can sell the license, but now we have to sell the entire company... But there is no free circulation of reserves and licenses. Many obstacles arise. Unfortunately, everything is so bureaucratic that it is difficult to hope for the destruction of this structure, for the emergence of land use relations like in America, which even in Europe are not everywhere.

Mikhail Ivanovich Krutikhin born in 1946. In 1970 he graduated from the Institute of Oriental Languages ​​at Moscow University. Candidate of Historical Sciences.

1970 - 1972 - military translator in Iran. For 20 years he worked at TASS - in the Middle East department and in the bureaus, and headed the branches in Lebanon and Egypt.

In the 1990s - deputy general director of the PR agency Alter Ego, editor-in-chief of the Russian Petroleum Investor magazine.

Since 2002 - partner and leading analyst of the consulting company RusEnergy.

They dropped to their lowest level since mid-November last year. However, already on the morning of March 15, oil of standard grades began to rise in price. The price of May futures for Brent crude oil rose by 0.754% to $51.74 per barrel, and the price of WTI crude oil rose by 0.452% to $48.62 per barrel.

Jumps in oil prices were associated with the news that in February, Saudi Arabia, contrary to OPEC expectations, increased oil production by more than 263 thousand barrels per day - up to 10 million barrels. At the same time, the Saudis assured that they are striving to stabilize the world market, and are also working closely with OPEC members and 13 other states, which have reduced oil production by 1.8 million barrels per day since the beginning of 2017.

The site discussed the situation on the oil market with Mikhail Krutikhin, a partner of the consulting company RusEnergy:

– What will the price of oil be in the near future?

- In the near future - I don’t know. I can make a forecast for a year, for six months, that is, based on average indicators. But since it can jump up and down by unpredictable amounts, the near future is not for forecasting.

– Then what is your forecast for six months?

– Oil should still go down in the second quarter at least, since there is an oversupply in the market relative to demand. And speculation in this market should go in the other direction: now this “bubble” in paper oil – [the “bubble”] of futures and other derivatives – is supported by the feelings of speculators, and not by the ratio of fundamental indicators, that is, supply and demand. This must end soon. First, the United States is taking more and more measures to encourage mining development. Secondly, the Federal Reserve is expected to decide to increase the interest rate, which will allow us to see a more expensive dollar, which means that the price of oil measured in dollars will also be lower. All indicators look towards lower oil prices.

– How low can she go? Some experts, for example, talk about $40 per barrel.

– It definitely won’t drop to $40 during the first quarter. But during the second quarter such jumps are possible.

– Has the OPEC agreement helped to somehow stabilize the situation with oil prices?

– In the form of verbal interventions. There were false announcements that production was being reduced, that something was being frozen. But in reality it turned out that this was empty chatter. Everyone is fighting for their market niches: all OPEC members and non-OPEC members continue their previous tactics. In terms of verbal interventions, oil slightly increased the paper market. But this will end soon, because everyone understands that no one will comply with or extend this agreement.

– You said that the United States continues to increase oil production. And some are even talking about a new stage in the shale revolution in the States.

– This is not a new stage of the revolution, but those who extract oil from shale horizons are in very good condition. Now the average cost of a barrel of oil, which should provide them with a profit in the United States, is about $38 per barrel. They feel comfortable, resume production, calmly hedge risks and develop their business. In addition, the United States is taking steps to build new strategic oil pipelines that will strengthen the position of American oil as an export commodity. New areas for exploration and production are opening up. There is a slight decrease in the severity of environmental laws, and a possible abandonment of the Paris Environmental Agreement. So everything points to an increase in oil and gas production in the United States.

– You also mentioned a likely increase in the interest rate of the US Federal Reserve System. In this regard, he predicted a weakening of the ruble.

– Naturally, if the dollar becomes more expensive, the ruble will weaken. The ruble is artificially supported mainly by the carry trade [an investment strategy in which funds borrowed in the national currency of countries with low interest rates are converted into the national currency of countries with high interest rates - approx. ed.], as well as some actions of the Central Bank and Russian bankers. But the ruble should not be worth so much, since Russian exporters lose in all respects when the ruble is too expensive.

– Last year I thought that for a dollar they should give about 100 rubles. This is a very bold forecast, but it would be a fair price.