A match all to be played at home
While Rosneft gains more and more economic value, surpassing its historic rival, Gazprom, in Russia the confrontation between the 2 companies is escalating, eroding the Moscow energy giant's monopoly that allows it, being unique in the country, to sell gas abroad

In April this year, Rosneft’s capitalization exceeded, albeit by only a few million dollars, that of Gazprom, therefore Rosneft has become the most expensive Russian oil & gas company. Since 2010, Rosneft’s capitalization has grown by 700 billion rubles, while Gazprom has lost 1,000 billion. This fact, however, does not change the relationship between the 2 Russian giants, but probably adds an element of "jealousy." As recently as October 2015, Rosneft Chairman Igor Sechin had asked Vladimir Putin for the possibility of allowing the company to sell 7 billion cubic meters (bcm) of gas per year to Europe, to its shareholder BP (which owns 19.75% of Rosneft). The point is that the monopoly for the sale of gas abroad is in the hands of Gazprom, which historically holds that privilege, as a company founded by the old Russian Ministry of Oil and Gas. In return for this monopoly, which produced large revenues from sales abroad, Gazprom has had to support social development programs and "sponsor" the price of gas for the Russian people. In the meantime, the world economic and geopolitical situation has changed. Oil prices have plummeted and, subsequently, so have gas prices, which follow those of oil in long-term contracts, with a delay of a few months. Although it is no longer a "golden deal", exporting gas therefore remains advantageous. On various markets, including that of Europe, Gazprom has started to find new competitors, such as sellers of American shale gas (not to mention the strong development of renewable energy, which has caused the use of combined-cycle gas plants in Europe to hit rock bottom). If, added to this, are certain objections raised by the European antitrust for Gazprom’s dominating position, it can be understood why the Russian government has started to think of a more valid solution. One of these concerns that possibility of allowing other Russian companies, such as Rosneft or Novatek, to sell their gas directly to Europe. This would resolve the dominance issues for Gazprom, but it would likely create too much competition between the Russian companies themselves.

Difficult liberalization prospects

In early April, Igor Sechin wrote a letter to Putin in which he noted that BP is ready, in perspective, to buy between 25 and 50 bcm of gas per year from Rosneft, if the company could manage to sell it directly or through its joint venture with Gazprom. The outcome of Sechin’s letter, and whether or not Putin signed it, remains unclear. On May 6, Russian Energy Minister Aleksandr Novak spoke about this situation, saying that "the government wishes to maintain, for the time being, only one export channel," and that the export agreement between the 2 companies is their competence. This position was confirmed on May 10 by Russian Deputy Prime Minister Arkadij Dvorkovich (who oversees the energy industry):"the government does not discuss the liberalization of gas exports, and does not plan to change the laws in order to allow Rosneft to export gas abroad". Dvorkovich added: "I know that Rosneft and Gazprom are, between them, discussing the possibility of selling gas. If Gazprom wishes to become Rosneft’s agent, it can do so. But I am not sure it wants to." In fact, Rosneft has proposed this solution: Gazprom buys Rosneft’s gas and sells it on to BP in the UK, paying Rosneft the sale price, minus transport costs. It is a solution that Gazprom naturally seems to be rejecting. The main reason for the rejection is the fear of competition between the 2 companies, and the lowering of export prices, which are currently already low enough.

The logistics obstacle

Another reason is a lack in terms of transport: "We are now recording a positive deficit in capacity, since companies are withdrawing less gas than that included in their long-term contracts. If, however, we would like to take all ordered gas, we may not have sufficient capacity for others". Experts predict that Gazprom could grant the possibility of selling gas abroad, to others, and the head of BP’s economic sector, Vladimir Drebentsov, is completely convinced of this: "The words of the government can be interpreted as a permission de facto aimed at independent producers for exports abroad."  It is, however, naturally in Drebentsov interest to think this way. In any case, other independent Russian producers, such as Novatek, are also looking at this discussion with great interest, trying to gain an advantage from it. However, it appears that the result of this depends on the signature of Russian President Putin.