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Rosneft Renews Fight for Gas Export Rights

Copyright © 2021 Energy Intelligence Group

High gas prices in Europe and its own big gas ambitions in Russia have prompted state-controlled oil major Rosneft to step up its campaign to win access to higher-margin pipeline gas exports. Gazprom, another state-run major, enjoys a monopoly on piped gas exports, which it doesn't want to share with anybody. But letting third-party gas into its export pipelines might reduce the EU’s regulatory pressure on Gazprom's controversial Nord Stream 2 pipeline project, according to one of Rosneft’s arguments set out by CEO Igor Sechin in a letter to President Vladimir Putin in August. This position on Nord Stream 2, although not new, looks timely and potentially hits the right notes at a time when Gazprom is about to complete construction of the troubled 55 billion cubic meter per year pipeline, but might face an up to 50% capacity utilization cap unless it complies with EU antimonopoly regulations (NC Aug.26'21). It's not the first such letter by Sechin to the Kremlin, which has so far refused to agree to change the rules for Russia's lucrative piped gas exports. Lofty Ambitions Sources close to Rosneft tell Energy Intelligence the full utilization of Nord Stream 2 is not the main purpose behind the company's campaign. The letter was mainly driven by Rosneft’s gas development plans and its desire to get higher margins from exports. Rosneft was selling gas domestically at about $49 per thousand cubic meters in the first half of this year, while European prices have recently approached $600/Mcm. Rosneft plans to increase its gas production -- 31.05 billion cubic meters in the first half of 2021 -- by 10 Bcm in 2022, following the launch of additional capacity at its Rospan gas subsidiary and the production start-up by the Kharampurneftegas joint venture with BP next year (NC May20'21). To get rights to gas exports, Rosneft is even ready to pay mineral extraction tax (MET) more than three times higher than Gazprom's MET rate. Rosneft asks Putin to allow it to export 10 Bcm/yr to its own customers in Europe under an agent agreement with Gazprom, which won’t break the latter’s monopoly, Moscow business daily Kommersant reported. The key question, however, is whether the EU regards such an agent scheme as compliant with its third-party access rules. Even if it formally does, Brussels might still view it as the same Russian gas that it believes can be used as a weapon, but from the Kremlin’s other pocket, one industry source says. Theoretically, Gazprom could sell gas on behalf of other producers as one of the ways to comply with third-party access rules, according to Katja Yafimava, senior research fellow at the Oxford Institute of Energy Studies. “Gazprom, acting as a single export channel for gas produced by other suppliers within Russia, is the maximum what Europe could hope for or expect from Russia,” she argued. The key issue in the EU will likely be who has the title to the gas, not who legally exports it, Kim Talus, director of the Tulane Center for Energy Law, said. The title change from Gazprom to Rosneft can be just after leaving Russia’s territorial waters, as the EU rules will only apply in German waters, or for the last 50 kilometers of the 1,200 km offshore pipeline. Nord Stream 2 Still Unresolved Rosneft’s scheme still cannot solve the Nord Stream 2 regulatory conundrum this year when Gazprom seeks to launch the pipeline, simply because Rosneft doesn’t have the gas to export at the moment. Gazprom will still have to find its own solution, after the German court rejected derogation from the EU antimonopoly rules for Nord Stream 2 last week. It appears to be betting on an independent transmission operator unbundling model, where the pipeline operator could remain its subsidiary but must prove its operational autonomy. Another model is independent system operator where it would have to sell control over the operator, although the pipe itself could remain in its ownership. Nord Stream 2 AG in June applied for certification as an independent transmission system operator in Germany. The German regulator now must by October outline draft conditions on unbundling, third-party access and tariffs for it, according to Yafimava. The European Commission will then have four months to issue a legal opinion, and the German regulator two months more to issue a final decision. National regulators usually follow the commission’s opinion to avoid infringement proceedings but it’s not necessary to do so, Talus said. Vitaly Sokolov and Nelli Sharushkina, Moscow, and Jaime Concha, Copenhagen

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