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Putin return will not rock Russian energy policy

Vladimir Putin’s inevitable return to the top of Russian politics will not alter the country’s energy policy, deputy energy minister Anatoly Yanovsky told yesterday’s International Energy Agency (IEA) ministerial meeting

PRIME Minister Putin will stand for the presidency in next year’s elections – a poll he is widely expected to win. Russia’s president, Dmitry Medvedev, is expected to become prime minister, a role he occupied during the last Putin presidency.

Energy policy was controversial under Putin’s presidency. He oversaw a turbulent period which included the Yukos bankruptcy – and sale of its assets to state-controlled Rosneft and Gazprom – as well as the first gas war with Ukraine, which brought huge disruption to European gas supply during a harsh winter.

“Advocacy of any policy, including energy policy, should manifest itself in the stable rules of the game, which should be realised and understood by all participants,” said Yanovsky, adding: “A change in government will not lead to different rules.”

He said Russia already has a legal framework for encouraging foreign investment and is also planning tax cuts for the huge Shtokman gas project in the Barents Sea, in which France’s Total and Norway’s Statoil are partners. “I’m sure we will find optimal conditions to implement the project,” he said. When asked when the tax cuts will be announced, he said between a month and six weeks.

A final investment decision is expected on the much-delayed Shtokman project this year, which would include pipeline exports to Europe and a liquefied natural gas plant. The Shtokman field holds estimated gas reserves of 3.9 trillion cubic metres.

Ukraine gas contracts

Yanovsky expects Russia’s gas contracts with Ukraine to remain unchanged. “All existing contracts are settled,” he said, adding that all contracts allowed for periodic renegotiation.

Since the sentencing of former Ukrainian prime minister Yulia Tymoshenko to seven years in jail, doubts have been raised over the legality of the oil-indexed gas-supply contracts she signed in 2009 with Putin. She was jailed for overstepping her powers and signing contracts unfavourable to Ukraine – the sentence has been widely criticised for being politically motivated.

Despite arbitration lawsuits by European utilities, Russia intends to stick doggedly to its oil-linked gas contracts. Spot gas prices have been below oil-linked contracts for the last few years, with customers demanding a larger, lower-cost, hub element to be incorporated in pricing.

But Russian export monopoly Gazprom defended its position. “Two and a half years of low spot prices in Europe have created the illusion that gas has lost its link to oil forever. This is not true,” claimed Gazprom deputy chairman Alexander Medvedev. Long-term oil-linked contracts are the only way to ensure investment in expensive infrastructure projects needed to guarantee supply security, he insisted.

Medvedev backed this view by claiming that even the US gas market – the biggest in the world – is distorted. “US gas prices are so low, they do not cover operational costs. This situation won’t last for long,” he said.

Long-term gas contracts are also the reason why a cartel of gas-producing countries, in the style of Opec, would not materialise, Yanovsky said. “Countries exporting gas are primarily guided by contract obligations, which are not subject to any entities, rulings or decisions,” he said, adding that the Gas Export Countries Forum is unlikely to expand beyond its advisory role.

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