"Subsidies" to Russian Refineries Increased by Over 80% in the First Seven Months of 2024

In the first seven months of 2023, payments under the damping mechanism, reverse excise tax, and investment allowance amounted to 1.21 trillion rubles. For the same period in 2024, these payments reached 2.19 trillion rubles, reflecting an increase of over 80%. However, despite the rise in tax deductions, the Ministry of Finance still reported a substantial growth in oil and gas revenues for the budget. By the end of the first seven months, these revenues increased by 62%, totaling 2.58 trillion rubles in absolute terms.

Oil at the Core

The primary driver was the growth in revenues from oil production taxes. Collections from the Mineral Extraction Tax (MET) on oil exceeded the combined revenues from MET on oil and export duties by 73%, amounting to an additional 2.54 trillion rubles.

This year marked the completion of the tax maneuver, under which the Ministry of Finance phased out export duties on oil and petroleum products in exchange for a gradual increase in the MET on oil. As a result, the primary determinant of revenues from the oil sector has shifted from the size of the export discount to the actual production volume at the wellhead.

Additionally, there was a sharp reduction in the Urals-to-Brent discount this year. While the average price gap in the first half of 2023 was $27.3 per barrel, it narrowed to $14.7 per barrel in the first half of 2024, according to calculations by Open Oil Market based on data from the Ministry of Finance and the U.S. Energy Information Administration (EIA). Consequently, the Ministry of Finance employs a fixed discount of $20 per barrel under the Tax Code, which remains smaller than the actual discount prevalent in the first half of 2023.

Revenues from the Additional Income Tax (AIT) are also rising. In the first seven months, AIT collections more than doubled, increasing by 841 billion rubles. Formally, unlike MET, AIT depends not on the volume of raw materials extracted but on the revenue from their sale, minus extraction and transportation costs. In practice, however, the revenue used to calculate AIT liabilities is determined based on a fixed discount to Brent prices in global markets. This provides the Ministry of Finance with relatively predictable budget revenues while offering oil companies a more flexible taxation system than MET. Notably, the share of AIT in taxable oil production reached 52%, as cited by Alexander Novak in an April article for the journal Energy Policy.

Gas Exports

Revenue growth, although less significant, was also observed in the gas sector. Combined collections from MET on gas and export duties increased by 7% over the first seven months of 2024, amounting to an absolute growth of 66 billion rubles. This was partly due to the stabilization of gas exports to Europe.

According to the European Network of Transmission System Operators for Gas (ENTSOG), Gazprom's supplies to the EU (including transit deliveries to Serbia and North Macedonia) averaged 97 million cubic meters per day in Q1 2024 and 96 million cubic meters per day in Q2. For comparison, the same figures for the first two quarters of 2023 were 67 million cubic meters per day.

The physical growth in supplies offset the effect of falling gas prices in Europe. In H1 2023, the average price at the region's largest hub, TTF, was $504 per 1,000 cubic meters, whereas in H1 2024, it dropped to $336 per 1,000 cubic meters. Increased gas production also played a role: according to Rosstat, natural gas production in H1 2024 grew by 9.4% year-on-year, reaching 292 billion cubic meters.

Benefiting the Budget

As for the oil sector, according to EIA data, Russian oil production in July 2024 was 9.07 million barrels per day—close to the current OPEC+ quota, which caps Russia's oil production at 8.98 million barrels per day between June and September.

By December, Russia's quota will increase to 9.1 million barrels per day, suggesting that actual oil supply levels will remain near their current levels.

Another factor contributing to revenue growth could be changes in the calculation rules for the damping mechanism. The impact of this measure depends on the timeline for passing the Ministry of Finance's draft legislation.

Overall, the current year remains favorable for oil and gas budget revenues. The transition to a fixed discount, increased gas exports to Europe, and the growing share of AIT in taxable production have all contributed to revenue growth. By December, budget revenues are likely to return to 2022 levels (11.59 trillion rubles compared to 8.82 trillion rubles in 2023).

Sergey Tereshkin, OPEN OIL MARKET




Translated using ChatGPT

Sourse: https://itek.ru/analytics/bjudzhet-v-pljuse/