The Ministry of Finance proposed to cancel the MET on Yamal gas for the production of ammonia and hydrogen

The Ministry of Finance has proposed introducing a zero mineral extraction tax (MET) for the extraction of gas in Yamal and Gydan, which is used to produce ammonia and hydrogen in new projects. The relevant draft law, developed by the ministry, was published on December 8 in the database of draft regulations.

The document explains that projects put into operation after January 1, 2025 will be considered new. The Ministry of Finance decided to amend the Tax Code (TC) of the Russian Federation after an “analysis of law enforcement practice,” the explanatory note specifies.

Among oil and gas companies, only “Novatek“. Vygon Consulting consultant Artem Lebedskoy-Tambiev confirms that this is the only such project that was “under active development”.

Earlier, it was about the creation of the Ob gas chemical complex (Ob GCC) in the port of Sabetta with a capacity of 2.2 million tons of ammonia and 130,000 tons of hydrogen per year. It was assumed that the Verkhnetiuteyskoye, Zapadno-Seyakhinskoye Neytinskoye and Arkticheskoe deposits in Yamal would become the resource base for it. The launch of the first line of the plant was scheduled for 2025, the second – for 2027. But in October of this year, the co-owner and chairman of the board of the company, Leonid Mikhelson, said that the final investment decision on the project had not yet been made, and, probably, it would be postponed against the backdrop of strengthening anti-Russian sanctions after the start of the NWO in Ukraine.

In a single complex with the Obsky GCC, it was planned to build the Obsky LNG with three technological lines with a capacity of 1.6 million tons of liquefied gas per year each with a launch date of 2022-2023. Novatek planned to use its own Arctic Cascade gas liquefaction technology at this plant.

According to Vygon Consulting, gas production at the declared capacity of the Ob GCC project should be 2.5-2.7 billion cubic meters. m of gas per year. That is, due to the zeroing of the severance tax, the budget will receive less than 2 billion rubles. per year, calculated Lebedskoy-Tambiev. “The Ministry of Finance offered a benefit, probably because, under the current tax regime, the construction of gas chemical facilities in Yamal is unprofitable due to high capital investments and high costs for the logistics of the final product,” he added. According to the expert, zeroing the severance tax will make it possible to effectively implement such projects in Yamal, and the total revenues to the budget will grow due to the payment of additional taxes on income, property, etc.

Igor Yushkov, a leading analyst at the National Energy Security Fund, believes that under the sanctions, Novatek can sell a stake in the Obsky GCC to a foreign investor. In return, the company, in his opinion, will be able to count on assistance with the supply of equipment for the project.

Amendments on MET benefits for ammonia and hydrogen producers, developed by the Ministry of Finance, were published against the backdrop of a general sharp increase in the tax burden on the oil and gas sector in the coming years. In November 2022, Russian President Vladimir Putin signed a law increasing the MET on gas for Gazprom, which will allow raising an additional 600 billion rubles. per year in 2023-2025 In addition, in the summer of this year, a law was adopted, according to which Gazprom will pay an additional 1.25 trillion rubles to the budget. in September-November 2022. Also in 2023-2025, the budget will receive an additional 629 billion rubles. by increasing the MET on oil and about 30 billion rubles. from an increase in the tax on coal extraction in the 1st quarter of 2023. Income tax rate for LNG producers in 2023-2025 will increase from the current 20% to 34% (with the exception of new projects launched from 2023).

Two other Novatek projects, Yamal LNG and Arctic LNG 2, already have MET benefits for gas used for liquefaction. Also, the RF Tax Code provides for reducing coefficients to the MET (from 0.2 to 0.8, depending on the degree of complexity) for oil production. Under a number of conditions, the Tax Code provides for a zero MET for oil produced from the Bazhenov, Abalak, Khadum and Domanik deposits of hard-to-recover oil (TRiZ).

Ammonia is used in the production of fertilizers, in the textile industry, in the production of explosives and cosmetics. Hydrogen is needed in the oil refining, chemical and food industries, as well as metallurgy and energy.