If you’re a petrostate coping with plunging crude prices and you have to choose between funding future oil projects to keep your output up or, on the other hand, paying pensions, what do you do? Well if you’re Russia, you put pensions over your energy future: Moscow has decided to deny billions of dollars in state financing for four new projects for state-owned oil company Rosneft. The FT reports:
Rosneft last year asked for more than $40bn in support from the [National Welfare Fund (NWF)], but later trimmed its request to just five projects requiring Rbs301bn ($4.3bn) of state financing. […]
The fall in the rouble and closure of western capital markets to Russian companies has triggered a scramble to secure financing from the $75bn fund, which supports the country’s pension system. […]
The decision to refuse all but one project reflects the growing pressure on Russian government resources as oil prices slide to six-year lows. Russian business daily Vedomosti earlier this month quoted a government official saying that the NWF should be preserved as a “piggy-bank in the event of a crisis”.
Earlier this month Rosneft chief executive Igor Sechin announced that the company would be shifting its focus away from the development of new fields towards boosting production in existing plays, essentially capitulating to the price pressures of a bearish market and a lack of financing due to Western sanctions.
Seemingly besieged on all sides, Rosneft turned to the state for comfort and isn’t walking away with much. Production in Russia’s massive oil fields is stagnating, and neglecting investment in new projects now will have large and lasting consequences for a country so reliant on oil and gas revenues.