• 1 day Iraq Begins To Rebuild Largest Refinery
  • 1 day Canadian Producers Struggle To Find Transport Oil Cargo
  • 1 day Venezuela’s PDVSA Makes $539M Interest Payments On Bonds
  • 1 day China's CNPC Considers Taking Over South Pars Gas Field
  • 1 day BP To Invest $200 Million In Solar
  • 2 days Tesla Opens New Showroom In NYC
  • 2 days Petrobras CEO Hints At New Partner In Oil-Rich Campos Basin
  • 2 days Venezuela Sells Oil Refinery Stake To Cuba
  • 2 days Tesla Is “Headed For A Brick Wall”
  • 2 days Norwegian Pension Fund Set to Divest From Oil Sands and Coal Ventures
  • 2 days IEA: “2018 Might Not Be Quite So Happy For OPEC Producers”
  • 2 days Goldman Bullish On Oil Markets
  • 2 days OPEC Member Nigeria To Issue Africa’s First Sovereign Green Bond
  • 2 days Nigeria To Spend $1B Of Oil Money Fighting Boko Haram
  • 3 days Syria Aims To Begin Offshore Gas Exploration In 2019
  • 3 days Australian Watchdog Blocks BP Fuel Station Acquisition
  • 3 days Colombia Boosts Oil & Gas Investment
  • 3 days Environmentalists Rev Up Anti-Keystone XL Angst Amongst Landowners
  • 3 days Venezuelan Default Swap Bonds At 19.25 Cents On The Dollar
  • 3 days Aramco On The Hunt For IPO Global Coordinators
  • 3 days ADNOC Distribution Jumps 16% At Market Debut In UAE
  • 4 days India Feels the Pinch As Oil Prices Rise
  • 4 days Aramco Announces $40 Billion Investment Program
  • 4 days Top Insurer Axa To Exit Oil Sands
  • 4 days API Reports Huge Crude Draw
  • 4 days Venezuela “Can’t Even Write A Check For $21.5M Dollars.”
  • 4 days EIA Lowers 2018 Oil Demand Growth Estimates By 40,000 Bpd
  • 4 days Trump Set To Open Atlantic Coast To Oil, Gas Drilling
  • 4 days Norway’s Oil And Gas Investment To Drop For Fourth Consecutive Year
  • 5 days Saudis Plan To Hike Gasoline Prices By 80% In January
  • 5 days Exxon To Start Reporting On Climate Change Effect
  • 5 days US Geological Survey To Reevaluate Bakken Oil Reserves
  • 5 days Brazil Cuts Local Content Requirements to Attract Oil Investors
  • 5 days Forties Pipeline Could Remain Shuttered For Weeks
  • 5 days Desjardins Ends Energy Loan Moratorium
  • 5 days ADNOC Distribution IPO Valuation Could Be Lesson For Aramco
  • 6 days Russia May Turn To Cryptocurrencies For Oil Trade
  • 6 days Iraq-Iran Oil Swap Deal To Run For 1 Year
  • 8 days Venezuelan Crude Exports To U.S. Fall To 15-year Lows
  • 8 days Mexico Blames Brazil For Failing Auction

Breaking News:

Iraq Begins To Rebuild Largest Refinery

Alt Text

Why Isn't Wall St. Backing The Next Shale Boom?

Despite rapidly tightening oil markets,…

Alt Text

Two Factors Driving Electric Aircraft

Two factors are driving the…

Alt Text

How Cryptocurrencies Are Reshaping The Oil Trade

Last week, Venezuela announced it…

Viktor Katona

Viktor Katona

Viktor Katona is an Group Physical Trader at MOL Group and Expert at the Russian International Affairs Council, currently based in Budapest.

More Info

Is Russia Running Out Of Patience With OPEC?

Lukoil Platform

Fulfilling its promise to all other signatories of the Vienna deal, Russia has cut its crude production by 300 000 barrels per day. The relative ease with which both the Russian government and Russian oil companies have implemented the provisions of the agreement are demonstrative of their eagerness for an oil price hike. It was not only state-owned companies like Rosneft and Gazprom Neft that took part in the production cutting, but also private majors like LUKOIL and Surgutneftegaz. But as time goes on, Russian majors will incrementally question the validity of the production cuts that are sure to hinder their potential output growth.

Russia succeeded in bringing output in line with its commitment at the beginning of May, when it surpassed the 300 000-bpd barrier. This accomplishment stands in contrast with previous OPEC-Russia deals which saw Russian oil majors bypass the provisions of the deal by various means (i.e. when pipeline transportation capacities were capped, companies used the unregulated railroads) and even more surprisingly, Russian majors have not aired (so far) their discontent with the 9-month extension. A part of this achievement is due to the state’s greater control over the oil sector, compared to previous periods, as Rosneft has grown to be the leading national oil company not only within the post-Soviet region, but also globally. Gazprom Neft has also ramped up production significantly – since 2014, it has overseen a production growth of a little less than 15 percent. Both companies, along with the privately-owned LUKOIL, were at the forefront of the production cutting measures. Related: The World’s Top Oil Consumers

Before one analyzes the cuts implemented by state-owned Russian oil majors, it is prudent to look at the federal budget. If the price of oil were to change by one USD per barrel, government revenues would either increase or decrease by 1.2-1.5 billion USD. Taking into consideration that Russia signed the Vienna deal when its oil output was setting all-time records at 11.2 mbpd and that a year ago its production was lower than it is currently, as of June (10.8 mbpd vs 10.9 mbpd), the production cuts are not as biting as they will have been for Saudi Arabia. Western Siberia bore the brunt of the cuts in 2017, which makes sense with its many mature fields running on the very brink of profitability and January 2017 producing anomalously cold weather requiring a massive cessation of production.

All the Russian majors participating with the quota compliance have cut their Western Siberia production since October 2016. There are two root causes – they shut in marginal fields with lower than average profitability, yet also they took account of the many tax exemptions in other regions and a lack thereof in Western Siberia. Odd as it may sound, during the last seven months the Caspian offshore and Eastern Siberia actually saw increases in production volumes. The Caspian output was boosted by the commissioning of the im. V. Filanovskogo field (output to reach 6 mtpa by 2018-2019), whilst new parts of Eastern Siberian clusters, like the Suzunskoye field (potential to attain 4.5 mtpa), have also demonstrated robust growth. Nationwide, only a little more than a thousand wells (out of approx. 175,000) were left idle between October 2016 and May 2017, which indicates that overall cutting was not that severe. Related: Saudi America – How New Tech Is Creating Another Oil Boom

It is unclear whether the Russian government has a coherent view of what it expects from the quota compliance mechanism, even though its aims are fairly evident – to squeeze as much revenue out of the deal as possible. The Russian Energy Ministry, while satisfied with the Vienna deal prolongation, envisages Russia’s 2017 oil production to be at around the same level as last year (548 mtpa or 10.96 bpd), yet its forecasts for 2018-2020 indicate an uptick to 553-556 mtpa (11.06-11.12 bpd). This suggests a dim view on the mid-term prospects of OPEC’s Vienna deal. Buoyed by the prospects of economic growth (the IMF forecasts +1.1 percent in 2017 and +1.2 percent in 2018) after 3 years of recession and boosted by a new popular mandate after the presidential elections in March 2018 (the pre-election year is traditionally uneventful from the legislative point of view), Moscow might turn more aggressive in the future. Moreover, the government has yet to react to companies’ relying more and more on fields which fall under various tax preferences such as a 7-year respite in paying the mineral extraction tax or the zeroing out of export duties for East-Siberian fields.

The companies might get pickier, too - customarily, aggregate Russian output has dipped between January and April as harsh climate conditions stymie volumes. Despite obvious financial benefits to Russian majors (stable oil prices), their production constraints might become an increasing grievance as, apart from the natural “rebounding” of output, many had expected new greenfield projects to come onstream or to ratchet up oil volumes in the second half of 2017. Thus, only to name a few flagship projects, the Gazprom Neft-operated Prirazlomnoye field will boost output from 2.1mtpa to 2.6mtpa (despite a 3-month long maintenance period), Rosneft’s Suzunskoye will most likely fall short of 4mtpa, East Messoyakhskoye, co-owned by Gazprom Neft and Rosneft, saw production start in late September 2016 and will grow to 3mtpa in 2017, whilst LUKOIL’s Filanovskogo field will surge to 4.4 mtpa. On the back of the Vienna deal’s prolongation, these projects and many more will bring increasing pressure on the Russian government to bring to a close the self-containing quota compliance.

By Viktor Katona for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News