Another very promising hydrocarbon resource in Russia is methane hydrates. The world’s first discovery of free gas under a bed of methane hydrates occurred in 1967, at the Messo-Yakha field in the Yamal-Nenets Autonomous District. Since development began in 1968 using original technology, the field has yielded over 423 MMCF of gas, and since then, over 220 methane hydrate deposits have been discovered. Specialists estimate that natural methane hydrate gas reserves are at least a hundred times greater than in explored gas fields, and Russian scientists believe that research into geologic hydrocarbon pools in the Dolganskoye series will not only eliminate discrepancies in estimating the formation’s gas reserves, but permit assessment of possible pools of heavy crude and methane hydrates and the prospects for discovery of oil and gas pools in Lower Cretaceous and Jurassic deposits.
In all, according to current expert assessments, the Russian Federation’s present supply of oil reserves would last 36–40 years at current rates of consumption, and that of gas would last 75–80 years. Furthermore, the country has all the prerequisites to further increase oil and gas production volumes over the next 30 years. The country’s economic interests will largely be met by further development of the Western Siberian Province, Eastern Siberia, the Timan-Pechora Province, and the continental shelf. These hydrocarbon resources are a valuable heritage of the multiethnic Russian nation and the principal reserve for development of the country’s crude mineral complex over the medium and long term.
The Investment Climate in Russia
The status and problems of the Russian oil and gas industry steadily remain at the center of attention of leading foreign print and electronic media. These often contain statements that, in the past decade, the government has steadily increased its involvement in the Russian oil and gas industry, which could ultimately end in complete nationalization of the industry. And all this could supposedly lead to an exodus of foreign investors from Russia and a substantial slowdown of investment processes.
As chairman of the Energy Policy Committee of the Russian Union of Industrialists and Entrepreneurs, this author has had to answer questions from Western journalists on numerous occasions on the supposedly forthcoming nationalization of the industry. As this author has emphasized repeatedly, these are unfounded and frivolous opinions, without the slightest basis in fact.
In fact, the Russian oil and gas industry no longer has any state-owned companies in the pure (classical) sense. For example, the state does hold a 50.02% interest in the authorized capital of Gazprom, the leader of the Russian oil and gas industry, which is fourth in the world in market capitalization with $354.6 billion, while the remaining stock is held by a wide range of strategic, institutional, and individual investors, including foreign stockholders with interests amounting to 7.448%. Burckhard Bergmann, chairman of the Board of E.ON Ruhrgas AG, a major German corporation, sits on the Gazprom Board of Directors.
If we look at the ownership breakdown of a key Gazprom subsidiary, Gazprom Neft, we see a similar picture. Gazprom itself holds a 75% stake in the company, while 20% is held by a consortium of the Italian corporations ENI and Enel. The Gazprom Neft Board of Directors includes representatives of foreign stockholders: Marco Alvera, senior vice president for deliveries and portfolio investment development of ENI S.p.A Moscow Milan, and Stefano Cao, ENI senior director for production.
The authorized capital of Rosneft, which the Western media persist in calling “state-owned,” is 105,981,778 rubles 17 kopecks (10,598,177,817 shares of common stock) after consolidation of 12 subsidiaries. The government, through Rosneftegaz, owns 75.16% of the company’s authorized capital, with the remaining shares held by a broad range of strategic, institutional, and individual Russian and foreign investors. Until recently, the American financial corporation Citigroup held a 110-million-share interest in the company, or about 1% of its stock, based on a market capitalization of about $98 billion. Rosneft’s Board of Directors includes Hans-Joerg Rudloff, board chairman of Britain’s Barclays Capital, and US citizen Peter O’Brien is a company vice president. Incidentally, data from an independent audit of oil and gas reserves by DeGolyer & MacNaughton showed the company had proven reserves of 2.669 billion tons (17.694 billion barrels) of oil and 27.7 TCF of natural gas per the PRMS classification as of December 31, 2008. Thanks to the large volume and high efficiency of geologic exploration, its proven hydrocarbon reserves increased 2.8% in 2008, to 3.364 billion tons of oil equivalent (TOE), or 22.307 billion BOE.
With respect to the Transneft Pipeline Joint-Stock Company, which is also often characterized as wholly state-owned, it turns out that the state does not hold a 100% interest at all, but 75%, and the remainder of the preferred stock belongs to private stockholders. Transneft’s acquisition of Transnefteprodukt, which transports petroleum products within the Russian Federation, is now being finalized.
The above examples clearly show that although the Russian government owns some portion of the total shares of Gazprom, Rosneft, Transneft, and many other companies, this absolutely does not hamper the management of the oil and gas business on market commercial principles and in the interests of product consumers and stockholders.
Idle statements by certain Western media on the reduction of foreign investment activity in the Russian oil and gas industry due to extension of ever-stricter government control over the hydrocarbon assets of Russia’s economic growth are equally exaggerated.
The energy policies of leading nations have, above all, always been based on a well-thought-out and intelligent energy strategy that includes both an economic ideology that is distinguished by its long-term sustainability, and specific numeric indicators for fuel and energy industrial development vectors. We should clearly understand, in turn, that only a powerful state with an effective administrative system can support both the normal functioning of a fuel and energy market and the institution of private property in the industry.
Recently, a favorable investment climate for foreign investors has been forming in Russia at an accelerated pace. The Russian government’s policy is based on the principle that investments are what the oil and gas industry needs to reach a qualitatively new level.
With clearly defined investment strategies, foreign investments have now become an important component of programs to modernize the Russian oil and gas industry. For example, at its October 11, 2007 meeting, the executive board of Gazprom took special note of the fact that attracting foreign partners to corporate projects can be regarded as an effective mechanism for achieving strategic objectives and, in particular, for reinforcing the vertical integration of the company’s business.