GOVERNMENT SUPPORT TO UPSTREAM OIL & GAS IN RUSSIA

The report analyzes government subsidies for the Yamal LNG and Prirazlomnoe projects in the Russian Arctic. It finds that Yamal LNG would be uneconomic without state-funded infrastructure and tax breaks, while Prirazlomnoe received substantial tax breaks after most capital expenditures were already sunk, effectively acting as a rent transfer to Gazprom. Both projects are associated with significant environmental risks, including salinity changes in the Bay of Ob and potential oil spills in the Pechora Sea.

• Yamal LNG is economically unviable if project-specific infrastructure costs, estimated at US$5.75 billion, are included in the analysis, making government support for this infrastructure a subsidy that renders the project viable for investors.
• Tax breaks for Yamal LNG serve to correct distortions in the Russian gross-income tax system rather than acting as subsidies, as they do not raise the project's internal rate of return (IRR) above its pre-tax level of 13%.
• The Prirazlomnoe project was economically viable by 2013 even without subsidies, meaning the tax breaks granted at that time functioned as a 'gift' or rent transfer from the government to Gazprom rather than an investment incentive.
• The Russian government's 'cherry-picking' of high-profile projects through ad hoc tax breaks may lead to inefficient resource allocation and unnecessary rent transfers to companies.
• The government take for Yamal LNG is low at 24% of net cash flow, with the NPV of tax payments (US$4.35 billion) failing to recoup the US$5.75 billion investment in project-specific infrastructure.
• Dredging for the Yamal LNG seaway channel may fundamentally alter the Bay of Ob ecosystem by allowing salt water to enter a previously sheltered freshwater area.
• The Prirazlomnoe project poses a significant risk of oil spills in the fragile Arctic environment, with estimates suggesting a potential impacted area of 140,000 square kilometers.
• The Russian government largely pays the environmental fines for Yamal LNG's harmful activities; for example, the project paid less than 2% of a RUB 748 million payment for construction impacts.

APA

Lunden, L. P., & Fjaertoft, D. (2014). GOVERNMENT SUPPORT TO UPSTREAM OIL & GAS IN RUSSIA. International Institute for Sustainable Development. https://www.iisd.org/gsi/sites/default/files/ffs_awc_russia_yamalprirazlomnoe_en.pdf

Chicago

Lunden, Lars Petter, and Daniel Fjaertoft. GOVERNMENT SUPPORT TO UPSTREAM OIL & GAS IN RUSSIA. International Institute for Sustainable Development, 2014. https://www.iisd.org/gsi/sites/default/files/ffs_awc_russia_yamalprirazlomnoe_en.pdf.

Wikipedia

{{cite report |last1=Lunden |first1=Lars Petter |last2=Fjaertoft |first2=Daniel |title=GOVERNMENT SUPPORT TO UPSTREAM OIL & GAS IN RUSSIA |publisher=International Institute for Sustainable Development |date=July 2014 |url=https://www.iisd.org/gsi/sites/default/files/ffs_awc_russia_yamalprirazlomnoe_en.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{lunden2014government, author = {Lunden, Lars Petter and Fjaertoft, Daniel}, title = {{GOVERNMENT SUPPORT TO UPSTREAM OIL \& GAS IN RUSSIA}}, institution = {International Institute for Sustainable Development}, year = {2014}, month = jul, url = {https://www.iisd.org/gsi/sites/default/files/ffs_awc_russia_yamalprirazlomnoe_en.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }