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Tuesday, October 25, 2016

Russia predicted a drop of oil

Oil production in Russia will fall, and the Russian gas industry is also not waiting for anything good. At least these are the forecasts of the International energy Agency (IEA). Whether to believe them – especially given the fact that the Agency has clearly demonstrated its bias?

Oil prices stabiliziruemost on the level of 80 USD per barrel by 2020, despite the unprecedented decline in investment in the sector – more than 20%. This is the basic scenario of the International energy Agency (IEA).

“Russia has reached its peak production, and small reduction is not so critical for the country’s economy. A much more important indicator is the price of oil

This forecast is aligned with the expectations of Russia: oil prices will increase from $ 55 per barrel in 2015 to $ 80 for five years, said the current energy strategy of Russia until 2035. And after 2020 the barrel slowly but will grow in price by 2035 will reach $ 95-105, I think in Russia.

However, the IEA report is considered and a scenario over a lengthy period of low oil prices. With weak economic growth, the price of a barrel of oil could remain at $ 50 until the end of the decade, does not exclude Agency.

The IEA also assessed the prospects of Russia’s oil and gas market, and they, according to Agency experts are not so optimistic. The Agency expects fall of oil production in Russia with 11 million barrels per day in 2014 to 10.5 million barrels per day by 2020. Reasons cited are the sanctions that restrict access to the Western financing and technologies, as well as reducing investment.

Nevertheless, the IEA acknowledges that in the short term, these factors are unlikely to affect production in the Russian Federation. But by the end of the decade, oil production in Russia will begin to decline, experts believe. IEA negative predictions about the prospects of not only oil projects in Russia, but also gas, in particular pipelines.

“The prospects for the implementation of new export projects of Russia (specifically Gazprom) are constrained by the low prices for hydrocarbons and international sanctions, which limit the access of Russian companies to Western bond markets, creating a shortage,” notes the IEA.

Internal sources of financing, such as the national welfare Fund and alternative international sources, such as Chinese financing, are unlikely to replace them in full, experts of the IEA.

And the depreciation of the ruble increases the cost of imported equipment, which remains an important for the new LNG projects in Russia, such as the project of NOVATEK “Yamal LNG”. The final investment decision on the project “Yamal LNG Russia was made, but its future is uncertain due to funding issues, the Agency said.

On the other hand, the IEA recognizes that Russia will consolidate its position in China thanks to the construction of the gas pipeline “Power of Siberia” and “Power of Siberia – 2”, as well as LNG projects.

The world’s largest exporters and consumers of oil and the countries that are its greatest proven capacitec, IEA predicts a significant increase of Russian gas supplies to China, which amount to almost 80 billion cubic meters by 2040. The share of exports to China in total volume of Russian gas exports (including LNG), according to the forecast, will reach by 2040, almost 30%.

However, the IEA points to the high cost of pipelines. Gas supplies via the Western route will be cheaper for the country than the East. Because the Western route would use the existing resource base of Western Siberia, where there is already infrastructure in most parts of the route. While the Eastern pipeline “Power of Siberia” – is an investment from scratch. The IEA estimate capital project costs for the development of the resource base – the Chayanda and Kovykta – to $ 30 billion, and same – investment in the construction of the pipeline.

As you know, the IEA, which came in response to OPEC represents the interests of importers, not exporters of oil. It includes 28 countries, in particular USA, Canada, Japan, Germany, France, Australia and others. It is not surprising that often in its reports, the IEA sings the praises of the United States, while the role and importance of Russia as oil and gas power belittled. A striking example of this is released in 2013 report of the IEA entitled “will there be a Golden age of gas?” (Are we entering the Golden Age of gas?). In this the Agency draws conclusion that for Russia this century will not be gold, but rather silver, as it will yield US the first place in natural gas production. In the 2012 report, the IEA also painted sad for Russia picture: by 2035 Russia will lose its position as a leader in the extraction of natural gas from increasing shale gas production, and first place will take US.

How accurate can these forecasts be?

Calculate now what will be the production in Russia in 2020, is extremely difficult. “Nobody knows how many actually will last sanctions and how quickly Russia will be able to replace the shortfall of technology and equipment of our own if necessary,” says the newspaper LOOK analyst GK FOREX CLUB Valery Polkhovsky. In his opinion, if things will develop in the most negative scenario, Russian production can actually decline. However, the Russian oil industry adapts to new conditions: the work on import substitution technologies, and to search them in other countries, also in China. Similarly, with funding sources – West direction is changed to Asian. And if credited to China, Russian companies do not hurry, it is only because they are not satisfied with the level of interest rates.

However, in recent years, Russia has entered the peak production, and a small decline is really not so critical for the country’s economy. A much more important indicator is the price of oil.

“The decline of production on 500 thousand barrels per day, or 4.5% from the current level – not a problem, if prices rise to $ 80 per barrel. For sustainable economy is important to the balance of payments, and, as practice shows, is balanced by the devaluation of the ruble. Therefore, to keep production at any cost and Russia should not” – says Polkhovsky.

By the end of 2015, the energy Ministry expects oil production growth to 533 million tonnes. Forecast of fuel production in 2016 from the MAYOR increased by 5 million tonnes to 533 million tonnes will continue the previous year’s level. But in 2017 there are risks of a decline in oil production, noted in the Ministry of energy. The main reason is to reduce investment in expensive projects to extract hard-to-reach oil in the first place on the shelf. But the curtailing of such projects occurs in all countries of the world.

Moreover, the United States, for example, now faced with the fall of the shale oil revolution which was only possible thanks to high oil prices above $ 100 per barrel. Now shale projects collapse. The U.S. Department of energy promises the fall of shale oil in December for 118 thousand barrels per day. “On the field Eagle Ford oil production from new wells for six months cannot compensate for the production decline of existing wells. And it seems that this process further will only increase”, – said Mykola podlevskih of IR “Zerich capital Management”.

“The same position in the Bakken field. Because of the sadness, they even stopped to give more detailed statistics in this field”, – the expert adds. Corrects the situation a little increasing production at the largest oil field in Texas Permian. However, a large part of the success associated with a large proportion of conventional oil production, which nevertheless also falls to 77 thousand barrels per day.

Polkhovsky expects U.S. production decline will continue. “Given that the shale extraction wells are designed for a short time and requires a lot and always have to drill, we believe that production there will drop somewhere by 1 million barrels. Now, of course, talking about the growth of the efficiency of production from shale companies, but I wonder why then the falling number of working rigs themselves and shale companies are huge losses,” – said Valery Polkhovsky.

With regard to the lack of funds for gas pipeline “Power of Siberia”, it is not necessary to forget that in the implementation of these projects is interested not only Russia, but also China.

“For China it’s not just about saving money. Can China find suppliers, and cheaper, but for him it is a question of diversification of supply, as the gas from Russia will go on the continent across the border of Russia and China, and not through sea route, where in the case of confrontation with the United States may be a threat of interruption of supply,” – says Polkhovsky. Together the partners will find solutions to financial issues.

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