The big winner in the gas price war is Russia

Berlin The oil price is at a seven-year high and gas prices are soaring that the utility Eon is currently not offering any new gas tariffs. Inflation is reaching new heights due to the sharp rise in energy prices, and consumers have to pay more and more for gasoline and heating. But that applies above all to Europe. But there is a big winner in the neighborhood: The world’s largest oil and gas exporter is making huge special profits.

The Kremlin can count on $ 125 billion in tax revenues from the export of oil and natural gas alone, says Dmitri Marintschenko, Senior Director of the Natural Resources and Commodities Group at the Fitch rating agency. That is 50 billion dollars more than in the previous year and is even above the export income for the Russian treasury in the pre-Corona year 2019.

In the end, the Russian state revenue from energy sales could be even higher than the already forecast 70 percent increase: So far, the Russian Ministry of Finance had calculated at 70 dollars per barrel of crude oil (instead of 43 in the previous year) and 320 dollars per 1,000 cubic meters of gas (versus $ 143 in 2020). The gas price rose to more than $ 1,900 on October 6th, and a barrel of North Sea Brent crude recently reached over $ 80.

Fight for Gazprom’s export monopoly

The Russian state benefits most from oil exports: because they make up 75 to 80 percent of the income from all energy exports, as the oil companies are particularly heavily cashed in when prices are high. The Kremlin-controlled Gazprom group, which has a monopoly on gas exports by pipeline, can keep large sums of money. Gazprom boss Alexei Miller is a longtime confidante of Vladimir Putin. But the CEO of the mostly state-owned oil company Rosneft Igor Sechin is just as well wired to the head of state. And so he is already demanding to be able to export natural gas soon.

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This could even be necessary if the Federal Network Agency implements EU law and allows the controversial Baltic Sea pipeline Nord Stream 2, but prohibits full use of the gas pipe from Gazprom as part of the third energy package. Then Rosneft could fill half the capacity of 55 billion cubic meters of natural gas annually. There is already massive resistance in the European Parliament against this “horse-trading”. The EU Commission has already warned the Federal Network Agency, which has to make a decision on the commissioning of Nord Stream 2 by mid-January, to comply with all EU gas market regulations.

Putin lures the Europeans

Putin, however, is putting heavy pressure on Europe with a lure offer, which is groaning under the exorbitant energy prices: The commissioning of the pipeline will “considerably reduce the tensions on the European energy market and that will have an impact on gas prices,” the Kremlin chief promised in the event of a quick one Approval from Nord Stream 2. At the Russian Energy Week in Moscow on Wednesday, Putin again accused the EU of having set up “administrative hurdles” against the Baltic Sea pipeline.

He was aiming at the so-called third energy package of the EU, which provides for a separation between network or pipeline operators and the suppliers of electricity or natural gas (unbundling). Putin wants to overturn this regulation in order to keep Gazprom – which both owns the operating company Nord Stream 2 AG and the natural gas to be pumped through it – its export monopoly and to eliminate competition.

Putin, however, decides that the fact that Russia is using oil and gas as political weapons is “just nonsense,” he claimed in Moscow.

Fight against European rules

For some time now, Russia has also been fighting the ban on binding long-term contracts for gas supply contracts in which prices are fixed over the long term as well as the quantities to be delivered. If the ordered quantities are not needed, a cancellation fee must be paid (take or pay). The EU had stopped this for reasons of competition law.

But Russia is now luring the EU back to long-term supply contracts in order to drive supposedly cheaper in the current high price phase. Bulgaria, the poorest EU member, should serve as a gateway: “Bulgaria is still a poor country”, justified the Russian ambassador in Sofia, Elena Mitrofanova, when she signed a long-term supply contract with Gazprom for lower gas prices. “In view of the rise in spot market prices for gas at space level, stable long-term contracts are of great importance,” Mitrofanova emphasized to the Bulgarian government.

Gazprom wins – Russian workers don’t

One sure winner of the European gas crisis is now almost certain: Gazprom. Its CFO Ivannikow assumes that the world’s largest gas company will pay “at least 36 rubles dividend” (equivalent to EUR 0.42) for the current year in view of the sharply increasing profits from gas sales, after EUR 12.55 in this and the previous record year 2018 with 16 , 61 rubles. Over half of this goes to the Russian government.

The vast majority of Russians, however, have none of it: “Oil and gas revenues are rising sharply, but the incomes of the citizens of Russia are falling,” says Anton Bykov, senior analyst at the brokerage house Esperio in Moscow. Although the Russian gross domestic product has grown by an average of two percent annually for a decade, also due to the expansion of the extraction of raw materials, incomes today are at the level of ten years ago, real incomes have even shrunk.

The revenue avalanche, which is triggered by the high energy prices, cannot be used to stimulate economic growth: all revenues from oil exports above $ 43.3 per barrel do not flow into the state budget and thus into possible investment programs – but are siphoned off into the National Prosperity Fund. A state box for bad times.

More: What role Gazprom is playing in the face of rising energy prices

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