It's Important for Russia to Increase Petroleum Exploration Efficiency and Extraction Level

11 january 2018

The submission to the State Duma of the bill on additional revenue tax completes a certain stage in the internal debates about how to best tax the petroleum industry, write the Analytical Center experts in the new issue of the Energy Bulletin.

The analysts note that the shift towards taxing net revenue aims to promote investments while ensuring steady federal budget revenues despite volatility in the petroleum prices. The new presidential administration may work with a more stable taxation system for the industry (which would be a compromise for the companies), which would ensure the same high level of federal budget revenues. Some difficulties are bound to be run into when the new rules go into effect, given the differences between old and new mining fields and between regions and companies. As petroleum production stabilizes in Russia (under the agreement between the OPEC and Russia) it's important to ensure that petroleum exploration and petroleum extraction are more efficient. The global trend towards energy efficiency will also play an important role in assessing the viability of the new system, the analysts believe.

The experts believe that the competition between fuels is playing a significant role in the modernization of the automotive fleet. Estimates suggest that electric vehicles used as urban taxes and acquired at a price of RUB 1.2–1.7 million apiece can pay back within 2–4 years. "It's an important kick-off point for assessing the future of electric vehicles in our country given that somebody makes the required investments in charging stations. It should be noted that Russia does have public demand for improved urban environments and it does have reliable power supply. It should also be noted that at the moment manufacture of batteries still comes at a high cost in CO2 emissions, meaning that electric vehicles are not really as clean as they are said to be," the analysts write. There are currently about 1.5 billion motor vehicles on the roads around the world and technical progress may soon completely change the economics of how new these vehicles are going to be replaced.

The adoption of the standards and regulations of the EU Energy Community backed by investments and the commonality of regulations. Even though practical implementation is lagging behind (especially for natural gas), it is also bound to affect Russian projects, the experts note.

For more see the bulletin New Step towards the Petroleum Taxes Reform in Russia.

For other issues of the Energy Bulletin, see the Publications section.