Russia has got a seat at the head of the OPEC table, while it continues to deepen ties with Saudi Arabia and appears to be coping with sanctions. S&P Global Platts editors Paul Hickin, Nadia Rodova, Rosemary Griffin and Nastassia Astrasheuskaya discuss the outlook for the world's biggest crude oil producer as an OPEC meeting and presidential elections loom.
Russian energy: playing the long game
With Paul Hickin, Nadia Rodova, Rosemary Griffin, and Nastassia Astrasheuskaya
PAUL HICKIN: Hello and welcome to Platts Commodity Pulse. Russia has flexed its considerable muscles on the global oil market over the past year and shows no signs of letting up. Together with OPEC's de facto leader, Saudi Arabia, it has managed to concoct a deal with 22 others to take 1.8 million barrels a day out of circulation, helping push prices back above 60 dollars a barrel.
To tell us more about what further developments we can expect in the energy market in Russia and what it may mean for the wider world, I'm joined by our Moscow team: Nadia Rodova, Rosemary Griffin, and Nastassia Astrasheuskaya.
Nadia, if I could start with you; and the obvious question being Russian output. What's the take for Russian output for this year and next?
NADIA RODOVA: Yes, interesting question. The latest forecast says that Russia's crude production is likely to average just below 11 million barrels per day, or more precisely 10.99 million barrels per day, as Russia is showing very strong commitment to its obligations to cut production by 300,000 barrels per day from the last year October level.
Given that the OPEC/non-OPEC agreement capping production, this forecast is likely to be pretty accurate. For the next year, the situation is less clear, as we don't know whether the OPEC/non-OPEC agreement is to be extended beyond March. If it is, then production (is) likely to stay roughly around the same level. If not, we've heard literally last week from Russia's energy minister, Alexander Novak, that he expects that Russia's crude production will grow by around 80,000 barrels per day next year.
PAUL HICKIN: Signals from OPEC certainly seem to be saying that the deal will be extended beyond the March agreement, yet Russia seems a bit more circumspect. Rosemary, what's the mood inside Moscow at the moment?
ROSEMARY GRIFFIN: So, for now, we're really seeing officials continue to say that it's too early to take a decision. Novak, last week, said that he really wanted to see how the situation would develop throughout the winter; and, also, given that this agreement was very heavily based on discussions between the national leaders of some of the key countries, like Saudi Arabia, Russia and Iran, people are also closely looking at what President Putin is saying.
And, he is also saying that it's too early to take a decision yet, but that if we do extend the agreement it would probably be until the end of next year.
PAUL HICKIN: And, if the agreement was to unravel, do we see the same level of cooperation between Russia and Saudi Arabian OPEC as we have done at the moment?
ROSEMARY GRIFFIN: Yes, I think throughout this year, we've really seen a change in the relationship between Russia and OPEC member countries. Some of that was a progression from strong cooperation with certain members such as Venezuela, Iraq and Iran, which pre-dated the OPEC/non-OPEC agreement, but we've also really seen Russia and Saudi Arabia ramp up their cooperation and some of the deals which they've agreed throughout this year are looking much further ahead. We're talking, for the next several years, some of this cooperation may remain in place.
PAUL HICKIN: And, on the issue of sanctions, there seems to be a cloud of uncertainty hanging over Russia, Iran, Venezuela. Nastassia, What's your view on this?
NASTASSIA ATRASHEUSKAYA: It's very unclear what's going to happen with the sanctions, Paul. At the moment, we have the new US sanctions which provide the opportunity of imposing new limitations on Arctic deepwater and shale projects with Russian stakes, as well as energy export pipelines.
Analysts have interpreted that as having greater impact on the gas projects rather than the oil projects, and in particular the Nord Steam 2 pipeline that would carry Russian gas to Europe across the Baltic Sea. However, whether we will see any implications, we don't know.
We also have to remember that Russia has credit and crude supply agreements with Venezuela. So, any strengthening of the sanctions on Venezuela might also affect Russia. However, Russia is quite used to living under sanctions.
Yes, since 2014 when the sanctions were first introduced, they've complicated and even frozen some Western involvement in certain projects, but Russian companies actually feel rather well. We haven't seen any effect on production or companies exiting Russia, against the analysts expectations at the time when the sanctions were introduced.
NADIA RODOVA: Yes, and Russian companies hope that they will continue to show their good results, despite new sanctions, although these latest sanctions the administration approved in August and are to come into effect in late-January. They add a lot of uncertainty, and the most recent publication by the US Administration's public guidance on these, which we've seen yesterday, (they) didn't lay any light on these questions.
So far, in Russia, there is a view that the latest sanctions, that the US is using the latest sanctions (so) to take on Gazprom's business in Europe, and promote its own LNG exports to the region. And, they have also also raised some heckles in Europe, where Russian pipeline deliveries are often the cheapest option for many consumers.
And, they've seen this year, that Russian gas exports endure very robust demand, and their exports are expected to hit new record highs this year, and they've already been by 10 Bcm higher than last year.
PAUL HICKIN: What else do we see on the radar in the months ahead?
NADIA RODOVA: Well, I think that maybe the most important step which we are likely to see soon is the presidential election in March. So far, it seems that they are unlikely to have a major impact on the oil industry, although this is a natural question. Russia's president, Vladimir Putin, is yet to announce if he's running for the new term, but he's expected to, and he's expected to win.
Under this scenario, the government is likely to continue the current oil policy, and in this case, we are likely to see major changes in Russia's approach to the crude production to their relationship with OPEC, with their approach to foreign companies in Russia.
PAUL HICKIN: Business as usual then?
NADIA RODOVA: At least they hope (so).
PAUL HICKIN: Thanks, Nadia, Nastassia, and Rosemary. It's going to be an interesting few months for the world's biggest crude producer. This concludes today's Commodity Pulse. For the latest market news and analysis, please visit Platts.com.