Russia Mulls New Tax on APG
Russia’s finance ministry has proposed a new levy on production of associated gas at oilfields, to help pay for tax breaks at one of the Russia's biggest oilfields, Moscow-based Kommersant reported on October 14.
State-owned oil companies Rosneft and Gazprom Neft operate separate sections of Priobskoye, one of Russia’s largest oilfields first developed in the 1980s. Rosneft requested last December to pay rubles 46bn ($716mn) less annually in mineral extraction tax (MET) at the field over the next ten years, arguing the support was necessary given the high water content in its oil. Following suit, Gazprom Neft then asked for a rubles 13.5bn deduction in annual tax at the site.
To cover some of the budget deficit this will cause, the ministry wants to impose a tax of rubles 385/1,000 m3 of associated petroleum (APG) gas, released as a by-product of oil extraction, according to Kommersant. Around 87bn m3 of APG was produced in Russia in 2018, suggesting the new levy will bring in around rubles 33.5bn in revenues each year.
Rosneft and Gazprom Neft together produced around 54bn m3 of APG last year, but the new charge would also affect other major oil companies such as Lukoil and Surgutneftegaz, which extracted 11bn m3 and 9bn m3 respectively.
The proposed tax could undermine Russian efforts to clamp down on flaring. The country is still struggling to meet its target of utilising 95% of all APG produced, in part because fines for flaring are seen by companies as a manageable cost. Rosneft and Gazprom Neft are among the worst offenders out of the country's leading producers, utilising just 84.4% and 77.7% of their APG last year, according to their own estimates. Lukoil and Surgutneftegaz, in contrast, achieved utilisation rates of 97.4% and 99.6% respectively.