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Gas industry

Kremlin Regains Control of Russia's Oil and Gas Industry

Strategic Insights

— 1 min read

The Kremlin has regained command of the Russian oil and gas industry, reversing privatizations from the last decade and silencing oligarchs. This marks a new era of resource nationalism, with the state potentially controlling up to 60% of Russia's crude production by the end of 2006. President Putin's reelection campaign focused on four national projects, including education, health, housing, and the army, but a fifth national project was announced last week: the gasification of Russia.

Key Takeaways:

  • The state could control up to 60% of Russia's crude production by the end of 2006, compared to just 15% a few years ago.
  • The new partnership between business and the state involves oligarchs funding four national projects: education, health, housing, and the army.
  • A fifth national project, gasification of Russia, was announced, with Gazprom setting aside 35 billion rubles ($1.2 billion) to bring gas to the vast regions in Russia that do not have access to gas.
  • The restructuring of the oil sector has left Russia with fewer, but bigger, companies that are able to do the government's bidding.
  • State oil giant Rosneft has absorbed most of Yukos, while Gazprom has acquired Sibneft and renamed it Gazpromneft.
  • Slavneft has been divided between TNK-BP and Gazprom, making the Russian half of the TNK-BP joint venture vulnerable to a takeover by Gazprom next year.
  • Lukoil, Russia's biggest producer, is behaving increasingly like a state company, and its traditional role as the Kremlin's standard-bearer abroad is being replaced by a more subservient relationship with the government.
  • Russian oil companies are implementing the country's energy strategy, including freezing domestic gasoline prices and pooling resources to ensure that farmers have enough fuel for plantings.

Statistics:

  • 60%: potential control of Russia's crude production by the state by the end of 2006
  • 15%: control of Russia's crude production by the state a few years ago
  • 1.78 million barrels per day: Lukoil's oil production as Russia's biggest producer
  • 2,000: number of filling stations in Lukoil's retail network in the US
  • 17%: ConocoPhillips' stake in Lukoil, which is being built up to a 20% maximum
  • 35 billion rubles: Gazprom's budget for the gasification of Russia
  • $1.2 billion: equivalent value of Gazprom's 35 billion ruble budget in US dollars

Sources:

  • PIW (Feb. 6, p. 7)
  • PIW (Mar. 27, p. 1)

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