Summary of Working Paper No. 102-1998

III.07.7, “Analysis and Evaluation of Economic Conditions of Energy Prospects Implementation of the Yamal-Nenets Autonomous Okrug”

By V. Kryukov, A. Tokarev, and V. Schmat, Institute of Economics and Industrial Engineering, Novosibirsk, Russia

The overall objective of the present research consists in identification of economic conditions and preconditions necessary for the realisation of the potential profitability of the energy potential of the Yamal-Nenets Okrug. The analysis of the expenses of hydrocarbons transportation via the NSR in comparison with similar parameters of transportation via trunklines is carried out. Two possible scenarios were taken into consideration - “Southern” (provides connection of the developing fields with existing oil and gas trunklines) and “Northern” (using the Northern Sea Route).

The analysis has shown that major factors promoting the establishment of a new transportation "corridor" according to the "Northern" scenario are:

dependence on the monopoly position of existing oil and gas transportation systems (represented by JSC “Transneft” and RJSC “Gasprom”);

high degree of deterioration of existing oil and gas trunklines (first of them were constructed more than 25 years ago) requires enormous additional investments;

limitation of capacities of efficient export-oriented trunklines and facilities which could not be solved in the near future.

At the same time, implementation of the "Northern" scenario of hydrocarbons transportation is connected with many difficulties caused by the factors of high technological and financial risk. The latter, in particular, is connected with the necessity of significant investment into transportation infrastructure (regardless of any selected technology) and expected instability of the world market of hydrocarbons.

General result of evaluation of the variants of transportation is that:

development of the local oil and gas projects with rather low levels of production in the "Northern" scenario of oil transportation is quite close to the "Southern" scenario in terms of costs;

transportation of gaseous hydrocarbons in the "Southern" scenario from the point of view of direct costs minimisation is more favourable than in the “Northern” scenario.

The efficiency of the "Northern" scenario of natural gas transportation could be increased only with the increase in oil delivered for transportation. Economic result comparable with the "Southern" scenario, can be reached only in the case of gas production level close to 5 billion m3 (and the respective level of transportation work).

To increase the competitiveness of the "Northern" scenario of oil and gas transportation, it is quite important to introduce a flexible system of taxation, insurance and ice-breaking fees. Application of flexible schemes of taxation and granting tax exemptions is caused by the high social and economic importance of the project. Here, the losses of budgets of all levels resulted from reduction in direct tax revenue could be compensated by the bigger multiplier effect on the entire economy.