Russia says oil price caps damaging world economy: report

Price caps on Russian oil imposed by the G7 and EU are damaging the world economy, with recently higher prices reflecting market reality, Russian Energy Minister Nikolai Shulginov said in an interview published Sept. 11 by RIA Novosti.

In the interview during an economic forum in the Russian Far East, Shulginov said current prices were sufficient to enable re-investment in new supply.

However, he took aim at the price caps intended to limit how much Russia earns for its oil, and which penalize companies that provide shipping services for deals above the price ceilings.

Asked about the current crude market, Shulginov said: "Its price is growing. We continue to insist that the price ceiling is an illegitimate and damaging mechanism for the global economy."

"The crude price today reflects the real state of the market and enables all participants to receive resource at an adequate price -- and ensures reinvestment of earnings in extraction so as to support supply."

Russia has had to sell its oil at discounts to competing barrels since its invasion of Ukraine. However, those discounts have narrowed, amid stronger demand in the second half of the year and measures by the OPEC+ group including Moscow to limit supply.

Platts, part of S&P Global Commodity Insights, assessed Urals loaded at Primorsk at a $13.60/b discount to Dated Brent on Sept. 8, while ESPO crude loaded at the Pacific port of Kozmino was assessed at $84.93/b.

China, tax breaks

Shulginov was also asked about Russian export growth to China, amid a drive to reorientate exports to Asia and maximize the capacity of export infrastructure to the East. "Export to China is growing. We expect a little over 100 million mt by the end of the year [2023] -- that's around a 15% increase compared with last year's level," he said.

On upstream production, Shulginov was also asked about a redesign of tax allowances for hard-to-extract oil and gas; traditionally encompassing heavy oil, higher technology approaches to extraction, and enhanced oil recovery.

Decisions "in principle" should be taken early in 2024 on classifying hard-to-extract resources and the corresponding technologies, but government budget constraints meant the implementation would happen only from 2027, he indicated.

"For the tax authorities to offer some kind of allowances it's necessary to classify all advanced extraction technologies, to classify what exactly is meant by hard-to-extract resources, and what is not. The same work is needed to classify technology for enhanced oil recovery. By 2027 we should be able to fully establish the parameters," he said. "But given today's budget challenges, we expect decisions in principle to be taken at the start of 2024 and their implementation to begin in 2027."