- •Contents
- •Foreword
- •Industry snapshot
- •Industry snapshot
- •Reserves
- •Oil output
- •Oil output
- •Gas output
- •Gas output
- •Refining
- •Refining
- •Upstream
- •Upstream
- •Oil output
- •Gas output
- •New wells
- •Well-stock management
- •Well productivity
- •Reserves
- •Reserves
- •Oil reserves
- •Gas reserves
- •Reserve replacement
- •Reserve replacement
- •Refining
- •Refining
- •Capacity, throughput, utilisation
- •Light products yield
- •Complexity
- •Complexity
- •Modernisation plans
- •Capex
- •Capex
- •Oil & gas sector capex
- •Crude exports
- •Crude exports
- •Crude exports by market, company and direction
- •Russian crude exports in the FSU context
- •Crude export proceeds
- •Refined products exports
- •Refined products exports
- •Analysis by product
- •Gas balance
- •Gas balance
- •Domestic sales
- •UGSS balance
- •Appendix I: Reserves classifications
- •Appendix I: Reserves classifications
- •Russian reserves definitions
- •Western reserves definitions
- •Appendix II: Pricing
- •Appendix II: Pricing
- •Monthly pricing trends
- •International crude oil pricing
- •Domestic crude oil pricing
- •Domestic product pricing
- •International gas pricing
- •Domestic gas pricing
- •Gas tariffs
- •Appendix III: Regulation and tax
- •Appendix III: Regulation and tax
- •Regulatory overview
- •Licensing
- •Environmental protection
- •Oil and product transportation
- •Transportation costs
- •Typical crude export route costs
- •Volume and price controls for gas
- •Tax regime
- •Mineral Extraction Tax (MET)
- •Crude-export duty
- •Excess profits tax
- •Specific taxes applied to natural gas
- •Taxation of offshore projects – special treatment
- •Appendix IV: Sanctions
- •Appendix IV: Sanctions
- •Summary
- •Appendix V: Who’s Who
- •Appendix V: Who’s Who
- •Key policymakers
- •Company heads
- •Disclosures appendix
vk.com/id446425943
Transportation costs
Crude via Transneft
Renaissance Capital
20 June 2019
Russian oil & gas
Following Russia’s financial crisis in 1998, Transneft’s tariffs (and costs) declined markedly in real terms. In 1999, domestic tariffs were increased by 30% YoY, vs approximately 36% inflation in the Russian Federation. During that year, a separate investment tariff payable on all crude exports of $1.43/t was introduced. This came into effect on 1 May 1999, but was suspended on 31 December 1999. The investment surcharge aimed to raise money for the construction of the Baltic Pipeline Systems (BPS).
In 2000, the FEK (predecessor of the Federal Tariff Service, FTS) increased Transneft’s tariffs on six occasions, which was justified by the need to raise capital for two main projects: the first phase of the BPS, and the construction of the Baku-Tikhoretsk pipeline (bypassing Chechnya). In 2001, only a single tariff increase was allowed, which took effect on 11 January 2001.
New tariffs and a new tariff structure went into effect on 21 February 2002. Handling and dispatching tariffs rose 13%, and a single rate was set for all deliveries to domestic and Customs Union member-state customers and for other export shipments. At the same time, pumping tariffs levied on domestic deliveries rose significantly, so that the tariffs for both categories of oil transportation services became equivalent. Handling and dispatching tariffs were raised further in October 2002, by approximately 17%, entailing an average tariff hike of 9.3%.
Following the sizeable tariff growth in 2000-2002, Transneft did not seek a tariff increase in early 2003. However, the FTS approved a small rise in pumping charges, resulting in 0.6% higher tariffs on average, effective 1 May 2003. The FTS also approved a 9.5% tariff hike, effective 1 July 2003. Also of some significance in 2003, the FTS approved a contract between Transneft and LUKOIL that temporarily raised pumping tariffs along certain pipeline stretches in West Siberia, to finance capacity expansions on specific lines
– this was the kind of arrangement with the oil companies that Transneft had been seeking for some time.
Effective 1 January 2004, the FTS approved an average rise of 8.6% for pumping tariffs, and some individual fee increases related to BPS, including handling operations at the port of Primorsk. The FTS also approved an average tariff increase of about 5.2% with effect from 1 September 2004.
The FTS granted an 11.2% average increase from 1 January 2005. Later, the FTS approved a surprise increase in Transneft’s handling and dispatching tariffs, effective 1 June 2005, which boosted the average tariff 8.3%. The extra revenue was reportedly allocated for expansion of the pipeline system, to catch up with growing demand for export capacity.
On 1 January 2006, crude pipeline tariffs increased by an average of 9.4%. Pumping tariffs rose about 27%, while dispatching charges increased just 1.6%. Transneft requested a further increase in the summer months, and the FTS granted a 2% increase in pumping tariffs from 1 October 2006, justified by the need to cover interest charges associated with loans taken out to build the ESPO pipeline.
On 1 January 2007, Transneft’s handling and dispatching fees rose by 8.7%, on average, roughly matching the rate of increase that Transneft had sought. This component of tariffs represents revenue designed to cover system-wide financing, and the rise would again seem connected with the financing requirements for ESPO.
Current regulation is effectively tariff indexation
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vk.com/id446425943
Renaissance Capital 20 June 2019
Russian oil & gas
On 1 January 2008, the pumping and dispatch components of Transneft’s 2008 basic tariff increased by 6% and 33%, respectively. We calculate that this translates into about a 22% average growth rate in the basic tariff, given the 40/60 split between its two components. The average loading tariff (which is charged in addition to the basic tariff) was reduced by 20%, but its share in the total tariff is low. The combination of these changes brings the average increase to 19.4% – close to the 20.1% requested by the company. The FTS stated that an increase in ESPO pipeline construction costs was the key reason for this tariff increase.
In 2009, the FTS approved increases of 15.7% for both the pumping and dispatch components of Transneft’s basic tariff from 1 January 2009. The average loading tariff went up by 6.2%. We calculate that the overall tariff was therefore increased by approximately 15.5%, again close to the 16.2% requested by the company. In addition, FTS approved a further 4.4% tariff hike from 1 July 2009.
In 2010, Transneft’s average pumping tariff rose three times: by 15.9% from 1 January
2010; by 3.3% from 1 August 2010 and by 9.9% from 1 December 2010. While the government warned at the end of 2010 that there would not be any tariff increase in 2011, it failed to live up to its promise and raised Transneft’s tariffs twice, by 2.85% on 1
September 2011 and a further 5.0% on 1 November 2011. In 2012, the tariff was increased once, by an average of 5.5% from 1 October 2012, and was not changed during either 2013 or 2014.
On 14 March 2014, the government issued Decree No. 377-p, stipulating that Transneft’s tariff growth during 2015-2017 would be equivalent to 90% of the expected inflation rate, while the share would increase slightly to 90-100% of the forecast inflation during 20182020. Accordingly, Transneft’s average tariff was raised by 6.75% from 1 January 2015, by 5.76% from 1 January 2016, by 3.6% from 1 January 2017, by 4% from 1 January 2018 and by 3.87% from 1 January 2019.
In Figure 129, we show the scale of the rise in tariffs from the low point in 1998. Since 1998, unit tariffs have climbed substantially, in dollar terms, to $0.83/100 tonne-km in 2019, but are still below the 2017 average of $2.25/100 tonne-km for US interstate pipelines. As a percentage of the domestic oil price, Transneft’s average tariff now accounts for about 5%, having declined from 2009 highs of 12%. Still, this is substantially higher than the 2% share of the transportation cost in the US, and provides incentives for Russian crude producers to look for alternative transportation routes, such as privately-owned ports outside the Transneft system, and to seek special treatment from the government for new routes (such as through the subsidised tariff for the ESPO pipeline). The relatively high share of transportation costs for Russian oil producers is bound to continue to put pressure on the future growth rates of Transneft tariffs, in our view.
We believe Transneft’s tariffs are fair from an economic perspective
Figure 129: Transneft's tariffs
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Revenue per bbl, $ |
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Revenue per 100 t-km, $ |
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5.00 |
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4.50 |
4.54 |
4.53 |
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4.50 |
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4.00 |
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3.74 |
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3.73 |
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3.50 |
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2.94 |
2.87 |
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3.11 |
2.97 |
2.90 |
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2.60 |
2.60 |
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3.00 |
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2.29 |
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2.50 |
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2.02 |
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1.75 |
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2.00 |
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1.43 |
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1.39 |
1.41 |
1.38 |
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1.15 |
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1.16 |
1.13 |
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1.50 |
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0.86 |
0.99 |
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0.92 |
0.89 |
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0.89 |
0.85 |
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0.71 |
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0.77 |
0.75 |
0.83 |
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1.00 |
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0.57 |
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0.62 |
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0.42 |
0.43 |
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0.44 |
0.53 |
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0.28 |
0.31 |
0.36 |
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0.18 |
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0.50 |
0.13 |
0.14 |
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0.00 |
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1998 |
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019E |
Source: Company data, Renaissance Capital estimates
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vk.com/id446425943
Products via whatever means available
Apart from being crude long, Russia also refines much more crude than it needs. This results in very sizeable refined product exports, as discussed in the Refined product exports section of this report (page 92). We detail a typical cost structure of Russian diesel exports in Figure 130.
Figure 130: Refined product export costs vs export margins, $/t
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Diesel export margin |
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Diesel pipeline/rail costs |
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400 |
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Diesel shipping costs |
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Diesel export duty |
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300 |
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200 |
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100 |
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- |
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(100) |
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(200) |
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(300) |
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(400) |
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Aug-04 |
Nov-05 |
Feb-07 May-08 Aug-09 |
Nov-10 |
Feb-12 |
May-13 |
Aug-14 Nov-15 Feb-17 |
May-18 |
Note: Domestic product prices are ex-VAT and excise. Export product prices are West Mediterranean quotes.
Netback calculated after CIF-to-FOB adjustment, export duty, and typical transportation costs from Perm to Novorossiysk.
Source: InfoTEK, Argus, Bloomberg, Renaissance Capital.
Renaissance Capital
20 June 2019
Russian oil & gas
138