Russian Oil and Gas Regulation: Licensing, PSAs, and Pipeline Regulation

Russian oil and gas regulation governs one of the world’s largest hydrocarbon sectors. The legal framework encompasses subsoil use licensing, production sharing agreements, taxation, pipeline access, export regulation, and the legal status of major state-controlled energy companies. The regulatory framework reflects the strategic importance of the oil and gas sector to the Russian economy and the state’s assertion of control over hydrocarbon resources.

Licensing (Litsenzirovanie)

Subsoil use in Russia is governed by the Law of the Russian Federation No. 2395-1 of 21 February 1992 on Subsoil (Zakon o nedrakh). The law establishes state ownership of subsoil resources and provides for the licensing system as the primary mechanism for granting rights to explore for and produce hydrocarbons. Subsoil use rights are granted through a licensing procedure that involves a tender or auction, with the Federal Agency for Subsoil Use (Rosnedra) as the primary licensing authority. The licence (litsenziya na polzovaniye nedrami) specifies the subsoil plot, the type of use (geological prospecting, exploration, production), the term of the licence, and the conditions of use, including production levels, investment obligations, and local content requirements. Licences for strategic deposits — defined as deposits with recoverable reserves exceeding specified thresholds (70 million tonnes of oil, 50 billion cubic metres of gas) — are subject to a special procedure requiring a decision by the Government Commission on Foreign Investment. The licensing system has been reformed to reduce the number of administrative barriers, extend licence terms, and improve the stability of licence conditions. Licence revocation for non-compliance has been used as a regulatory tool, particularly against companies that fail to meet production or investment obligations.

Production Sharing Agreements (PSAs)

Production sharing agreements (soglasheniya o razdele produktsii, SRP) are governed by Federal Law No. 225-FZ of 30 December 1995 on Production Sharing Agreements. The PSA regime was developed in the 1990s to attract foreign investment in hydrocarbon exploration and production by providing a stable contractual framework with tax stabilisation, the sharing of production rather than payment of taxes, and the allocation of legal risk between the state and the investor. The PSA law provides that the PSA prevails over subsequently enacted legislation (unless the subsequent legislation specifically overrides the PSA provisions), providing a degree of legal stability for investors. The most significant PSAs are the Sakhalin-1, Sakhalin-2, and Kharyaga projects. The PSA framework has been progressively eroded since the early 2000s. The state increased its share in the Sakhalin-2 project through pressure on the operator in 2006, and the tax regime for PSAs has been modified. The use of PSAs for new projects has effectively ceased, with the licensing system and the tax code-based mineral extraction tax (NDPI) becoming the standard framework for hydrocarbon development.

Tax Code Mineral Extraction Tax (NDPI)

The mineral extraction tax (nalog na dobychu poleznykh iskopayemykh, NDPI) is the primary fiscal instrument for the oil and gas sector. Governed by Chapter 26 of the Tax Code (NK RF), NDPI is a per-tonne tax on extracted hydrocarbons, with the rate varying based on the type of mineral and the conditions of extraction. For oil, the NDPI rate is calculated on the basis of a base rate (currently 919 rubles per tonne) multiplied by coefficients reflecting the global Urals price, the exchange rate of the ruble, the degree of depletion of the deposit, and the difficulty of extraction (including coefficients for hard-to-recover reserves, offshore fields, and small fields). The NDPI regime has been reformed to provide incentives for the development of hard-to-recover reserves (tight oil, Arctic offshore, and complex geological formations) and for investment in enhanced oil recovery. The tax regime also includes export duties (poshliny) on crude oil and petroleum products, calculated on the basis of the Urals price with a formula that reduces the duty rate as the margin above a threshold increases. The so-called tax manoeuvre of 2014–2015 reduced export duties while increasing the NDPI base rate, shifting the tax burden from export to production. The tax framework has been further adjusted in response to the OPEC+ production agreement and the sanctions environment.

Rosneft and Gazprom Legal Framework

Rosneft and Gazprom, the largest state-controlled oil and gas companies, operate under specific legal frameworks that reflect their strategic significance. Gazprom, established by Presidential Decree in 1992, is the successor to the Soviet Ministry of Gas Industry. Gazprom’s legal status is governed by the Federal Law on Gas Supply in the Russian Federation (No. 69-FZ of 31 March 1999), which grants Gazprom the exclusive right to operate the Unified Gas Supply System (Yedinaya sistema gazosnabzheniya, ESG). Gazprom’s dominant position in gas pipeline transportation, storage, and export is protected by law: gas pipeline access is regulated, but Gazprom’s ownership of the trunk pipeline network gives it effective control over gas transportation. The 2006 amendments to the Gas Supply Law liberalised gas pipeline access for independent gas producers (Novatek, Rosneft) but subject to conditions that preserved Gazprom’s effective control. Gazprom’s export monopoly was abolished in 2013 for LNG (allowing Novatek’s Yamal LNG project) but maintained for pipeline gas exports. Rosneft, established in 1993, was consolidated under state control in the 2000s through the acquisition of Yukos assets and other acquisitions. Rosneft operates under the general legal framework for joint-stock companies, with special provisions for strategic enterprises.

Pipeline Regulation

Pipeline transportation of oil and gas is subject to specific regulation under the Federal Law on Natural Monopolies (No. 147-FZ of 17 August 1995) and sector-specific laws. Trunk oil pipelines are owned and operated by Transneft (AK Transneft), a state-controlled natural monopoly that holds a virtual monopoly on oil pipeline transportation in Russia. Transneft’s tariffs are regulated by the Federal Antimonopoly Service (FAS). Access to the Transneft system is governed by the Rules for the Provision of Services for the Transportation of Oil and Oil Products, which establish a priority system for access based on the type of crude, the direction of transportation, and the availability of capacity. Gas pipeline access is governed by the Federal Law on Gas Supply and the Rules for Gas Access approved by the Government. The FAS regulates gas transportation tariffs and resolves disputes over access. The pipeline regulatory framework has been designed to maintain state control over transportation infrastructure while providing non-discriminatory access for producers, though access disputes — particularly for independent gas producers — have been frequent.

Export Regulation

The export of oil and gas is regulated by Federal Law No. 164-FZ of 8 December 2003 on the Fundamentals of State Regulation of Foreign Trade Activity and by Presidential Decrees and Government Resolutions. Oil exports are subject to export duties (as described above) and may be subject to quantitative restrictions. Gas exports are regulated by the Federal Law on Gas Export (No. 117-FZ of 18 July 2006), which grants the exclusive right to export pipeline gas to Gazprom (or its wholly owned subsidiaries) and the right to export LNG to any entity holding a licence for LNG production. The LNG export liberalisation in 2013 opened LNG exports to Novatek and Rosneft, ending Gazprom’s monopoly over all gas exports. The 2022 sanctions and the reduction of gas exports to Europe led to significant changes in export regulation, including the requirement for payment in rubles (Presidential Decree of 31 March 2022) and the redirection of export flows from Europe to Asia.

OPEC+ and Production Regulation

Russia’s participation in the OPEC+ agreement since 2016 has introduced a new dimension to oil production regulation. The OPEC+ agreement, concluded initially in December 2016 and subsequently extended and adjusted, coordinates oil production levels among OPEC members and participating non-OPEC countries, including Russia. The agreement sets production targets for each participating country, with adjustments at periodic meetings. The Russian Ministry of Energy coordinates the implementation of the OPEC+ agreement, with monitoring by the Central Dispatch Administration of the Fuel and Energy Complex. The OPEC+ agreement has required Russia to reduce production from the levels that would otherwise occur, affecting the production profiles of Russian oil companies and the revenues of the state. The production regulation interacts with the licensing framework, as licence conditions specify production levels that may conflict with OPEC+ commitments.

Significance

Russian oil and gas regulation is a complex and evolving framework that reflects the strategic importance of the hydrocarbon sector to the Russian state. The licensing system provides for state ownership and control of subsoil resources, the PSA framework has been largely superseded by the tax-based NDPI system, the pipeline access regime maintains state control over transportation, and the export regime balances monopoly and competition. The sanctions regime has added a new layer of complexity, affecting access to technology, financing, and markets. The ongoing transition of the global energy system toward decarbonisation will require further adaptation of the legal framework for Russia’s hydrocarbon sector.