Russia does not appear to be backing down from its oil and gas commitments, with speculation over new partnerships with India, as well as plans to up its crude output from January, its fossil fuel industry is going from strength to strength. Russia and India signed several energy cooperation agreements last week, as Russia plans to send just under 15 million barrels of oil from Russian producer Rosneft to India throughout 2022. India, the world’s third-largest crude consumer, currently imports around 85 percent of its oil needs, mainly coming from Middle Eastern suppliers. The country’s imports have soared this year, after a difficult 2020 when pandemic restrictions drove down energy demand for several months before it shot back up in 2021.
Through its most recent agreements, the two countries hope to stabilize oil prices, with the Brent benchmark increasing by 43 percent this year, reaching $76 a barrel this month. The Kremlin stated of the contract, “The sides reaffirmed their commitment for increasing sourcing of Russian crude oil on long term contracts through preferential pricing, strengthening LNG imports to India, and the possible utilization of the Northern Sea Route for energy supplies.”
In addition to developing the two states’ fossil fuel links, the Kremlin also suggested the potential for future operations in emerging fuels, such as hydrogen. The expansion of the regional hydrogen economy and low-emissions energy development were both highlighted as future partnership opportunities for Russia and India.
Related: Oil Rebounds On Large Crude Draw Russia has already emphasized its intentions to develop its national hydrogen industry over the next decade through its 2020 roadmap for hydrogen production. With ongoing pressure from international actors to invest in the global energy transition away from fossil fuels towards renewable alternatives, we are finally seeing Russia’s response. The country plans to use carbon capture and storage (CCS) technologies to recover carbon from fossil fuel production to support its grey hydrogen output. National gas companies Gazprom and Novatek will be instrumental in the development of the emerging fuels industry, also commencing ammonia production projects.
As well as new international partnerships, Russia has announced it will be pumping more oil in January, supported by OPEC+, as it is seemingly unphased by the recent new wave of Covid infections worldwide. Russia and Saudi Arabia are just two of the countries targeting their original output increase aim for January, despite a slump in oil prices at the beginning of the month following new restrictions measures being announced globally. The fear of a dip in demand as travel and work limitations are put in place has not phased the OPEC+ members.
The OPEC+ group has steadily been boosting its oil output in recent months, with Saudi Arabia, Russia, Iraq, Kazakhstan, and Nigeria accounting for 80 percent of the extended organization’s November increase of 500,000 bpd. This meant a total output figure of 41.71 million bpd last month, the highest in 19 months. The organization and allies aim to raise production by another 400,000 bpd in January, and Russia appears to be coming out on top, as smaller oil-producing states fail to meet new OPEC+ quotas after over a year of industry disruption.
However, there is a debate over whether this production increase is warranted given the emergence of the Covid-19 Omicron variant. While the White House has asked OPEC+ to increase production levels as it faces an ongoing gasoline crisis with soaring prices, others worry that this could destabilize the oil market due to the unpredictability of global demand.
Having overcome an intense price war earlier this year, Russia and Saudi Arabia finally seem to be on the same page when it comes to their oil output. But one question industry players are also starting to ask is whether Russia can realistically keep up. It’s not all smooth sailing for Russia as accessing its national oil reserves is proving increasingly difficult year on year.
Due to the lack of new exploration leases, almost all of Russia’s crude will soon be ‘hard-to-recover’ according to the country’s Energy Minister. The difficulties in extracting the oil will mean higher production costs. And the fact that the country’s oil and gas discoveries fell to the lowest in five years in the first half of 2021 does not bode well for its future output.
Following restrictions and lower demand during the 2020 pandemic, several major Russian companies reduced their exploration operations and funding to contend with the market instabilities. Therefore, the country needs to attract greater investment in exploration projects if it hopes to continue developing its oil and gas sector at its projected pace.
While Russia undoubtedly requires greater funding in exploration projects if it hopes to maintain its high oil output, new agreements with India and plans to keep boosting production in line with OPEC+ quotas show promise for the recovery of the country’s oil and gas industry. As one of the world’s largest producers, Russia looks likely to maintain its position as a global oil major for years to come.
By Felicity Bradstock for Oilprice.com
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