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Monday, February 19, 2018

The single hydrocarbons market will give money to all the countries of the EAEU

The Eurasian economic Union creates a single market of hydrocarbons. While short – term interests of participants of Russia and Kazakhstan on the one hand and Belarus on the other – the opposite, in the long run everyone will benefit, and quite significantly. Russia in this sense will especially help Kazakhstan and its cooperation with China.

The leaders of the EAEU countries reached an agreement in principle and endorsed the concept of a common hydrocarbon market in 2025. The development of the concept was very difficult. At the last meeting under intergovernmental agreements in Yerevan were serious disagreements, but they managed to settle, said first Deputy Prime Minister Igor Shuvalov.

“Each participating country will have to sacrifice short-term ambition for the medium-term benefits”

The differences concerned mainly the concept of formation of the oil market, whereas in the gas market, the parties are all satisfied.

But with respect to the determination of prices of oil each member had a vision. So, Belarus has proposed to set the price of oil for export between member countries of the EAEU is not above the cost price calculated on the basis of quotations of international price agencies minus the costs of delivery of oil outside of the EAEU and export duties. The Russian energy Ministry opposed them, as this would mean the regulation of prices. Whereas in the Treaty the EAEU provides that the rates for hydrocarbons should be based on market principles. Kazakhstan also believes that oil prices should be formed based on market mechanisms and fair competition. Contradictions explained – Russia and Kazakhstan to sell oil, while Belarus buys.

At the next meeting in 2017, the Eurasian economic Commission (EEC) will present for the approval of heads of EEU program of formation of common markets of oil, oil products and gas, Chairman of the EEC Board Tigran Sargsyan.

According to him, all three approved of the concept – on oil, oil products and gas – is built on the same scheme. “In accordance with the concept, the energy companies of the allied countries receive non-discriminatory access to oil infrastructure partners, will be able to buy oil and petroleum products without quantity restrictions at the market price without export duty, which will be formed including at exchange auctions”, – said Sargsyan about the basic principles of the concepts on the example of the oil market.

So, according to the Eurasian economic Union, a common market of gas means the transition to equal income prices and ensuring equal access to pipelines for those who is not the owner of this GTS. Also, the concept of gas it is proposed to consider the possibility to use national currencies in mutual settlements of the EAEU, as well as to make a convenient access to natural monopolies.

The benefits of the single market

Vladimir Putin praised the benefits of establishing a single market of hydrocarbons in the Eurasian economic Union. “Today we will take another step towards the creation by 2025 of a single hydrocarbons market, what we talked a lot and argued at the time. Take appropriate documents that provide for equal conditions of competition throughout the EEU, which will give the combined effect in the gas industry more than $ 1 billion, and in the oil – up to 8 billion dollars a year,” said the President, speaking at the enlarged meeting of the Supreme Eurasian economic Council.

The single market of oil and gas will allow the EEU countries to move away from the strict binding to the world prices for energy and to make the market more competitive, says associate Professor of the Department of Economics of the mineral complex rggru Vladimir Abramov. “In the presence of a more competitive market oil producers will largely dictate the price in the market more objectively and on the basis of their costs of production raw materials”, – he declared to TV channel “MIR 24”.

“The system of the markets of oil and oil products the EAEU is not the only mechanism of control of trafficking of some of the mass of commodities, but also a tool to maintain national currency rate, gold and foreign currency reserves and the implementation of social programs”, – stated in the report of the experts of the Institute for economic strategies of RAS UN “the Formation of common market of oil and oil products of the NNPP: the Foundation of the Union of the island of stability in the stormy ocean of global speculation. The report’s authors – professors and academics – the General Director of the Institute for economic strategies of RAS UN Alexander Ageev, and his Deputy Yevgeny Loginov and General Director of Agency new strategies”, Alexander Raikov.

What is a common market of oil and oil products? In fact, it is about creating integrated electronic trading, where Russia and other EEU members will be able to establish for buyers of their conditions of supply, transportation and storage of hydrocarbons within the borders of the single economic space, the Eurasian economic Union. A single market it will be easy to integrate in the world, providing the admission of the foreign companies for auction.

The single hydrocarbons market of the EEU increases the efficiency of the process of “monetization” of value added from commodity exports partners, experts say.

The important thing is that in the future single market will help to smooth out price fluctuations. “The most important advantage of the proposed mechanism is the ability to withstand surges of prices external to the EEU, that is, world’s, markets. These jumps can be either random (combination of factors), and intentionally organized (in a speculative and/or geo-economic purposes)”, – stated in the report.

Given the importance of revenues revenues from the sale of hydrocarbons, we are talking about the national security of friendly countries through joint regulation of a common market of oil and oil products by member States of the EEU, think of professors and academics. “These advantages outweigh any disadvantages,” sure they are.

These same mechanisms must be implemented when creating a single gas market.

Russia’s haste is unprofitable

Why is the EEU countries are not in a hurry to create a single market of hydrocarbons? Because each party gets both the benefits and the need to sacrifice something for the sake of the General idea and future benefits.

“A single market of hydrocarbons and is equally advantageous and disadvantageous to all. Each participating country will have to sacrifice short term loss for medium term benefits. Because of this, in my opinion, this project will slip for a long time”, – said Natalia Milchakova, the Deputy Director of analytical Department of “Alpari”.

For example, the single market of gas and electricity (it is planned to create by 2019), means common rules, tariffs and rates in all three countries, and it concerns not only exports, but the situation inside the EEC. The common market will allow Russia to avoid the “gas conflict” like the one that is now observed with Belarus.

Belarus wants her for Russian gas was exactly the same price as in Russia, and with the deduction of shipping charges. Moscow believes that Minsk has yet to pay for the transportation. And the common market of gas for Belarus is now would be handy. Russia hopes that by the time of formation of the common market nine years later she still will align the cost of gas within Russia, will make equal profit rates in comparison with export. Then from the point of view of gas prices Minsk, little will get from participation in this Union. However, the absence of any advantages does not give.

The same story is characteristic of the oil market. Oil prices domestically, lower export supply. Conventionally, if it is to create a common market of oil and gas, and to cancel export duties for partners, it will mean only losses for Russia – and huge profits for Belarus. Therefore, Moscow needs time to smooth out these price extremes.

If Belarus hopes that will be able to import gas and oil from Russia at lower prices, Russia and Kazakhstan as exporters of hydrocarbons are pursuing very different goals. First and foremost they are interested in easy access to the infrastructure of each other.

For example, explains Milchakova, if now have already created a common market of gas, Russia would automatically receive access to the gas pipeline “Kazakhstan – China”. Kazakhstan 2014 delivers natural gas in its pipeline to China, but he did not have enough gas to fill a full capacity of 10 billion cubic meters, only half. Gazprom also has something to load infrastructure. On the other hand, Kazakhstan in the creation of a common market will automatically have access to the infrastructure of Gazprom, as well as access to the European gas market.

“But Kazakhstan has no sufficient volumes of gas to become a competitor of Russia on the European market,” said Milchakova. On the other hand, Gazprom is, of course, a competitor of Kazakhstan in China and Southeast Asia. “While he has not built the pipeline infrastructure for export to China, Gazprom would fully load the Kazakhstan pipeline and simultaneously to press Turkmenistan as a significant player on the gas market in South-East Asia”, – says the expert.

Finally, the effect of billions of dollars will occur due to additional General infrastructure transportation and storage of hydrocarbons. In addition, thanks to the uniform rules of the EEU is the same Belarus will not be able behind Russia to re-export petroleum products without paying Russia a fee and selling them to the West under the guise of chemicals. “The challenge of developing common rules in the EEU, the prevention of such schemes and the exclusion of the possibility for such re-export foreign goods by any of the members of the Union. This is achievable by establishing a uniform price mechanism, the common rules of regulation of tariffs”, – said Milchakova.

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