Factbox: Novak retains Russian energy job in boost for OPEC+ deal

Moscow — Russian energy minister Alexander Novak and finance minister Anton Siluanov have retained their key government positions in the world's largest producer of commodities, signalling a continuity of policy.

Novak has been a key player in Moscow's alliance with OPEC. His reappointment indicates the Kremlin may continue with its so called OPEC+ strategy. Siluanov has a significant impact on taxation policy, with oil and gas accounting for over 40% of Russian budget revenues in 2019.

Analysts also see Russian President Vladimir Putin's recently proposed changes to the constitution as likely to result in him retaining significant power over energy policy after his term of office expires in 2024.

"Putin will likely remain the ultimate arbiter of OPEC+ cuts. He must weigh the geopolitical and economic benefits of cooperation with Saudi Arabia, versus the desire of some domestic producers to unfetter supply with Brent above $60/b," Paul Sheldon, chief geopolitical adviser at S&P Global Platts Analytics said.

Other appointments which impact commodities announced Tuesday include: Dmity Kobylkin as natural resources minister, Sergei Lavrov remaining foreign minister and Dmitry Patrushev as agriculture minister.

TRADE FLOWS

OIL

**Russia produced an average of 11.25 million b/d of crude and condensate in 2019 and plans to produce between 11.12-11.32 million b/d in 2020. Compliance to its quota under the OPEC+ agreement has been inconsistent. Moscow agreed to expand its 228,000 b/d in cuts by an additional 70,000 b/d for a total of about 300,000 b/d in December. Its quota from January 1 is 10.328 million b/d.

**Novak managed to get its growing condensate output excluded from the deal. Platts Analytics forecasts condensate volumes will grow from 830,000 b/d in Q4 2019 to 900,000 b/d by 4Q20, primarily due to Rosneft's Rospan project and Novatek's Yamal LNG.

**Urals crude is traditionally Europe's primary source of sour crude, but the last couple of months have seen a greater share head to China. In December, around a fifth of the 1.26 million b/d loaded from the Baltic may have gone to Asia. Russia's key crude pipeline exports flow via the Druzbha pipeline to Europe and the East Siberia Pacific Ocean pipeline to Asia. It also ships from ports Novorossiisk in the South, Kozmino in the Far East and Primorsk and Ust-Luga in the Baltic.

**Transneft expects overall exports to be around 229.5 million mt in 2020, around 4.6 million b/d. This includes 50 million mt via Druzhba, 40 million mt to China, and 115 million mt via ports. Despite Russia and Belarus' failure to reach an agreement on crude supplies in 2020, Transneft expects to ship around 23.5 million mt to Belarus this year. It plans to ship a further 1 million mt to Kazakhstan.

GAS

**Total Russian gas production was 738 Bcm in 2019, up by 1.7% year on year.

**Russia's Gazprom supplied 199 Bcm/year of pipeline gas to Europe and Turkey (excluding the countries of the former Soviet Union) in 2019 - down by 2 Bcm from the previous year, but still the second highest sales in its history.

**Gas flows via four main transit routes - the Nord Stream link with Germany, the Yamal-Europe pipeline via Belarus, the Ukraine gas transit corridor and the Blue Stream pipeline to Turkey. It also started up at the start of 2020 the new TurkStream pipeline to Turkey. It plans to start the second Nord Stream pipeline, Nord Stream 2, in early 2021.

**Gazprom also started gas exports to China on December 1, 2019, with gas flowing at a rate of around 10 million cu m/d.

**Gazprom has a monopoly on pipeline exports from Russia. Its main customers in Europe are Germany (19% of sales in Q3 2019) , Italy (11%), Belarus (8.1%), France (7.2%) and Turkey (6.9%).

STEEL

**Russia distributed 33.3 million mt of steel in 2018; only China and Japan exported more. In 2019, Turkey, Poland, Baltic states, Ukraine, Egypt and Uzbekistan were among the main buyers of Russian steel.

**With its 297.3mt gold mine production in 2018, Russia was the third largest global gold producer, after China and Australia, according to the World Gold Council. Russia's Central Bank buys the bulk of the output: in 2016-2018, its uptake averaged at 87% [235mt/year] of the total with the balance exported mainly to China.

**Russia is an important global aluminium producer. In 2018, its smelter production totalled 3.7 million mt, on par with India and behind number one producer China, according to the US geological survey. Turkey, Japan and the US are the biggest buyers of Russian aluminium: together, they absorbed 30% of the 2.5 million mt that Russia exported in January-October 2019, according to Eurasian Economic Commission.

INFRASTRUCTURE

OIL

**While analysts expect Russian refining volumes to be flat on year in 2020 at around 290 million mt there are risks for plants with lower configurations which could struggle to produce more of the fuels that meet the International Maritime Organization's new marine sulfur cap.

**IMO 2020 aims to cap global sulfur content in marine fuels at 0.5% from January 1, 2020, compared with the current level of 3.5%. That makes the high-sulfur content in Russia's dominant grade, Urals crude -- around 1.7% -- a major concern for Russian oil producers.

**The regulation is expected to compound a steady fall in Russian fuel oil production and exports triggered over the past few years by upgrades of refineries, including installation of delayed cokers that convert heavy high-sulfur oils into lighter products, such as marine gasoil and diesel fuel.

**Russia's changes to crude and refined product taxes has also contributed to Russian fuel oil output's rapid decline. While exports have nearly halved to around 35 million mt/year from some 70 million mt/year around 10 years ago, output decreased from almost 90 million mt to around 50 million mt/year.

**Upgrades are a Russian government priority, with tax benefits linked to progress on these upgrades. While large vertically integrated companies are expected to fund planned upgrades with little problem, there are concerns that smaller refiners may struggle to carry out modernization programs.

LNG

**Russia exports LNG from the Gazprom-operated Sakhalin LNG facility in the Russian Far East and the Novatek-operated Yamal LNG plant in northern Russia. Total Russian LNG exports in 2019 from the two plants combined were 39.1 Bcm or 28 million mt, according to data from S&P Global Platts Analytics, as both sites operated at above their combined nameplate capacities of 25.1 million mt/year.

**Japan, South Korea, China and Taiwan were significant buyers of Russian LNG in 2019, accounting for around half of the total cargoes exported. Japan, South Korea and Taiwan imported from Sakhalin LNG, while China took cargoes from both facilities.

**Most of the Yamal LNG cargoes were sent to Europe (Belgium, Netherlands, UK, France and Spain), with some cargoes staying on the continent and others re-loaded for export elsewhere.

PRICES

**Demand from Asia has helped to reduce Ural's discount to Dated Brent, the sweet benchmark, at a time when refiners in Northwest Europe are reducing their intake of sour crude due to new limits on the sulfur content of marine fuel.

**On Tuesday, an Aframax of Urals loading from the Baltic 10-25 days forward was assessed at Dated Brent minus $1.855/b on a CIF Rotterdam basis.

**Metals prices: aluminium trades at $1795.50/mt. Gold fetches $1559.90/ounce and steel rebar - $440.00/mt, according to the LME's latest information.