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Listen: Russia, Saudi Arabia energy ties heading to new level

Russian and Saudi relations are emerging in the wider energy sphere and how these deepening ties feed into the whole OPEC/non-OPEC cooperation is begging the question as to whether one is a precursor to the other, according to associate editorial director Paul Hickin and managing editor Nadia Rodova.

Meanwhile, the pain of political barriers on the European side is often little talked about and is a new theme, with the focus usually on Russia, which seems to be coping with them so far.

Related article -- OPEC to assess need for deep oil output cuts in July: Saudi's Falih

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Podcast Transcript

Russia, Saudi Arabia energy ties heading to new level

Paul: Hello and welcome to S&P Global Platts Commodities Spotlight podcast for June. I’m Paul Hickin and I’m joined here today by Nadia Rodova, managing editor at S&P Global Platts bureau in Moscow. Last week Russia hosted a major annual event, St Petersburg International Economic Forum, which gathered many top oil names, with the clear focus on the relationships between Russia and Saudi Arabia.

Nadia: and those relationships seem to be developing quite quickly, after the two countries led joint efforts by OPEC and non-OPEC countries to limit crude supply and speed up market re-balancing.

At least both Saudis and Russians were eager to show that they are ready for closer cooperation to last well beyond the production cut deal.

Paul: The position of the two countries and their leaders were key for the OPEC and non-OPEC deal to be initially agreed last year. Likewise, they both played a crucial role in pushing the countries participating in the deal to extend it by nine months through March 2018.

Nadia: Indeed, and during the St Petersburg forum, the two have made clear indication that they are serious about strengthening those relationships further. Like, Russia’s energy minister Alexander Novak said they want to see an additional synergy from the recent ties, while Saudi’s minister Khalid al-Falih, who spent four days in Russia, stated that the two were considering cooperation in the oil service, technology, trading, potential joint investments in Russia and other countries, covering not only oil but also chemicals and LNG.

Paul: It’s however yet to be seen if this so-called friendship bring any results. No doubt that the key focus for both Novak and Falih remain compliance with the production cuts by countries participating in the OPEC/non-OPEC deal.

Nadia: And those remarkable efforts have not helped so far to bring prices anywhere higher from those levels they were in late 2016 when the production cut deal was initially sealed by 24 countries.

Paul: Nadia, I want to discuss Russia’s top producer Rosneft, meanwhile, which has warned about higher volatility toughening the fight for markets as the new landscape is being shaped by growing shale oil production and new technologies that are changing traditional trends, as well as unprecedented efforts by OPEC/non-OPEC countries to help market re-balancing.

Nadia: Rosneft CEO Igor Sechin believes that the production cut deal offers only a temporary period of relief and sees signs of new instability as crude production by those producers not signed up to the pact or exempted from it, such as the US, Nigeria and Libya, is moving in to take advantage and ultimately creating new problems. Sechin cautioned that the period of low oil prices and greater volatility is here to stay and, citing analysts, spoke about the necessity to get prepared for oil prices scenarios of $40/b and even $30/b, citing analysts.

He also appeared concerned that the OPEC-led deal would be unable to sustain a rebalancing of the market, saying that he sees many market participants were preparing to increase output once the output pact is over, which would spark the intensifying fight for markets.

Paul: Seems a bit of a break from the traditional oil CEO line. Indeed, apart from Saudis and OPEC deal, St Petersburg forum gathered heads from practically all oil international majors, including not only European companies such as BP and Total, who echoed how good a deal the OPEC-led move was, but also US companies ExxonMobil and Chevron. Many of them were also talking about closer cooperation with Russia, even though the western sanctions continue to limit cooperation with those countries.

Nadia: That’s right. Like in previous years, the business called for greater ties between companies, although the word “sanctions” was uttered quite rarely this time. Apparently, this is because companies, like Russia in general, has got accustomed to the situation and tries to continue work as normal as possible in this environment. As Total’s CEO Patrick Pouyanne put it: “We’re here to build bridges, not put up any walls.”

OMV’s CEO Rainer Seele was even more explicit about barriers that were built up in favor of political considerations rather than business decisions when it comes to gas ties with Russia. Like it or dislike it, he said, but Russia proved to be stable supplier to Europe, which is unlikely to go smoothly through this winter if it were not for Russian gas supplies. He also called for politicians in Brussels “let us come back together.”

Paul: Well, western sanctions against Russia continue to hamper not only Russia but European economies as well. And we’re heard about this during this forum again.

Nadia. While some joint projects are put on hold because of the sanctions, Western companies still taking part in many oil and gas projects in Russia, which are not sanctioned, and they’re obviously interested in continuing such cooperation. Total, for example, is developing a major Yamal LNG project with Novatek, Shell has a strategic cooperation agreement with Gazrpom and inked a deal during the forum to work on the Baltic LNG project. Rosneft signed a new gas deal with its key partner BP, to mentioned just a few new deals.

Paul: It really is interesting how Russia and Saudi relations are emerging in the wider energy sphere and how these deepening ties feed into the whole OPEC/non-OPEC cooperation, begging the question as to whether one is a precursor to the other. Meanwhile the pain of sanctions on European side is often little talked about and was a new theme, with the focus usually on the Russia which seems to be coping remarkably well. That was Nadia Rodova and Paul Hickin today in the studio. Join us again next time for Platts Commodities Spotlight podcast.