Wojciech Jakóbik Blog

At the end of January 2015 there was a leak toVedomosti, a Russian language business daily, that the presidential center in Russia is planning a reshuffling of personnel in several key energy companies. It would aim to replace the current managers with political officers. Alexander Novak, the current minister of energy of Russia, would also gain a place in Gazprom’s management. Rosneft’s information confirms that the Kremlin is starting to control this sector more directly.

Novak joined the management of Gazprom on February 5th 2015. On March 6th, Rosneft announced a list of candidates for the Board of Directors, which included Alexander Novak. The Kremlin needs its men inside key organisations in order to continue the implementation of political projects that do not fit the increasingly more difficult economic conditions of the Russian Federation, especially at a time of Western sanctions and falling oil prices.

The Chinese minister of foreign affairs, Wang Yi, declared on March 8th that by the end of 2015, his country will sign a contract with Russia for the delivery of around 30 billion cubic metres of gas per year from western Siberia through the Altai pipeline. If signed, this will be the second contract following the one signed in May 2014 for the delivery of around 38 billion cubic meters of gas per year through the Power of Siberia pipeline, which distributes the raw material from the deposits in eastern Siberia. Altai is more important because it diversifies Gazprom’s outlets. Deliveries from western Siberia currently reach Europe, but in the face of decreasing interest in Russian gas from the Old Continent, in the future these deliveries of gas could be partly shifted towards the Middle Kingdom. Both investments are in the preparatory phase, and without access to Western capital (as a result of current sanctions) they will need significant subsidies from the Chinese side in order to be implemented. From Gazprom’s economic point of view, these pipelines only bring losses. For the Kremlin, however, they are tools for implementing a political goal – becoming independent from Europe, and that is why Novak is supposed to watch over the Board of Directors.

Read also: Kremlin policy is working against Gazprom’s interests. Quick Questions to Ilya Ponomarev

Perhaps the Chinese will provide the necessary means for the implementation of gas connections leading to their country. The vice prime minister of Russia, Arkady Dvorkovich, said on March 2nd that the government is ready to consider any offers from Chinese investors about accessing the deposits on a 50-50 basis. In the Arctic deposits, however, the Chinese can only have a minority share (51-49). By doing this, the Russians are agreeing to transfer a part of the control over strategic deposits to their southern neighbor. In this situation there could possibly be some objections from Gazprom and Rosnieft.

As a positive example of Chinese-Russian cooperation, Dvorkovich pointed out that collaboration between Rosnieft and CNPC is a part of the joint venture Vankorneft, which uses the deposits of the Vankor field, from which was extracted 21.4 million tons of oil and gas condensate in 2013. In October 2014, Rosnieft signed a contract to sell 10 percent of its stocks in its subsidiary company Vankorneft to one of China’s largest oil companies, China National Offshore Oil Corporation, which is a subsidiary of China National Petroleum Corporation. The company hopes to operate on the Vankoroil deposits, which the Russians have not yet opened to any foreign capital. It is one of the biggest deposits in Russia, estimated to contain around 500 million tons of oil and 182 billion cubic metres of natural gas. Maybe Alexander Novak on Rosnieft’s Board of Directors will take care of any potential transaction to sell shares to the Chinese.

On the other hand, on February 26th 2015, Gazprom’s subsidiary company – Gazprom Neft – finished testing in four boreholes in the Bazhenov formation, which uses the deposits of the Priobskoye field. These helped to confirm the existence of oil in the formation. It used hydraulic fracturing, which is a method used in extracting hydrocarbons from shale gas deposits. Chinese support would be needed there in obtaining shale gas deposit know-how, which exists in the West but is currently not available to Russia because of the sanctions. The Chinese will likely approve of any possible cooperation. Despite Gazprom Neft’s problems, the Dagong Global Credit Rating agency, which is recognized only by China, graded Gazprom Neft as an AA long-term credit rating with a stable perspective. However, unlike its parent company Gazprom, the company did not obtain the highest rating of AAA because of the sanctions and the decreasing value of the ruble. Nevertheless, the Bazhenov deposits are not an Arctic project and therefore not a subject to the minority share mentioned by the vice prime minister, Dvorkovich.

Read also: Business vs. Foreign Policy. Commentary for New Eastern Europe

It seems that the Russian energy sector, subordinate to the political goals of the Kremlin, is preparing for the entrance of Chinese capital. The Chinese, who know about the difficult situation in Russia, are using an agreement to strengthen their position in the future. . In order to prevent a loss of influence in Europe, the Russian Federation is becoming dependent on the Middle Kingdom. Maybe it will manage to lessen the dependence of its companies on the European market, but the biggest winner of all as a result of these changes will be Beijing, which is already starting to profit from Gazprom’s turn towards Asia.

Translated by Marlena Kister

Source: New Eastern Europe