Alexander Khurshudov: we are bidding farewell to the year of misfortunes, which have done us a world of good!
1. Oil production is expected to reach 547 mln tons, which is by 0.5 mln tons less than in 2016. Although, due to the fact that this year was a day shorter than the previous one, the average daily production still grew by 0.18% and amounted to 10.88 mln bpd. Thanks a lot to all the oil exporting countries for complying with their agreement. It wasn’t difficult with the investment freezing and the production declining by itself. Let’s leave record setting to the Americans, first a record increase then a record decline… Note that our export revenue from oil sells has grown by $20 bln due to the increase in the oil price.
2. The Brent price has grown by 18.8%. It could have been more, but so far so good. The long term growing trend has been going on for the last two years. The stock exchange bears failed to break it in the summer, last quarter of the year it overcame the $60 level, and yesterday the $66 level, reaching again the maximums of two years ago.
3. The continuous increase in the US tight oil production looks surprising, in the first three quarters of the year it increased from 4.22 äî 4.84 mln bpd. Though, this fluid less and less looks like oil: the Americans are trying to offer 1.5 mln bpd for export, but it sells reluctantly. That’s why the American WTI’s price lags more and more behind the Brent, with the difference reaching 10.7% and this fully reflects the progressing deterioration of the volatile shale substance.
4. In the expiring year the talks about the change in the oil taxes have gradually died out. The industry management has finally realized that the tax maneuver was adversely affecting the oil refining and petroleum chemistry. It was stopped and won’t be developed next year. The debates around the profit-based tax have also stopped. At the same time, as an experiment Samotlor has been granted a MET relieve of 35 bln Rubles annually. This is an unusual on-time decision, though a big one. There are still some lethargic moves around the excess-profit tax, but it still won’t be adopted next year. And this is wonderful.
All these schemes are bad for Russia. They lead to the increase in the petrol price, eliminate the natural resource rent and decrease the budget income to the benefit of foreign consumers. My profound gratitude to those who willingly or not hinders their implementation.
5. At the same time the gas production this year is 8% higher than the last year’s reaching 680 bln m3. We have more gas reserves than those of oil, so we can continue increasing gas production. Note that the reasons for the increase are the cold winter in Europe and the low gas prices. Realizing that the low prices are not forever the consumers have filled their storages to the full. Next year we should expect the increase in the prices and decrease in the demand.
6. Stockholm arbitration court ruled that the agreements with Gazprom don’t have to be complied with. It’s no big deal that the parties agreed on the price of their own free will… That’s irrelevant. The judges think it too high, non-market and decrease it by $100. The Norwegians had the right to make a take or pay contract with Lithuania. As far as the contract between Gazprom and Naftogaz is concerned, it was not right, the arbitration court rules it out. Instead it “obliges” Naftogaz to buy 5 bln m3 of gas from Gazprom annually. Though they can easily ignore it, because (see above) they don’t have to pay for the gas they haven’t used.
The motivated decision is not published yet. I wonder how the court will bend over backwards to justify such an impudence. Gazprom loses a little over $0.5 bln because of the price revision. It’s not too much for this kind of lesson: it’s time for Russia, and especially for our polite president to realize that in Europe swindlers are everywhere. They are in the seats of authority, in companies, in courts. So, we’d better minimize agreements with the swindlers, the more so because the pipelines to the East are being built according to the schedule.
7. The best of our misfortunes are the American sanctions. They stopped our oil companies from entering the shale paradise, which was not even found in Russia. Rosneft joining efforts with Exxon won’t be able to waste $150 mln on trying shale technologies. It took Gazprom neft company 10 times less money to find out that there are no huge reserves in the Bazhenov formation.
The same refers to the offshore. It’s a pity that the Italians fell for the perspective exploration results and started drilling the first well in the Black Sea. At least the North and the West deep water offshore remain undisturbed. Developing them now would be dangerously stupid and luckily the sanctions prevent doing so. All the countries start drilling in shallow waters, create onshore bases, acquire the equipment for preventing possible accidents and then proceed to deep waters.
I secretly wish for the sanctions to extend. Why don’t the West impose an embargo on the supply of Russian oil? The first year would be hard, but then the oil price would grow 1.5 times. Later we’d have new tankers, modernized plants and income from other industries. As for the oil reserves, we’ll need them later, when the oil price exceeds $150 for a barrel.
The best strategy for Russia is to gradually decrease the production and export of oil. I don’t think that the government will have the courage to do so on their own accord, so all the hopes are rested on our ill-wishers. “Thanks God, my friend, we have enemies…”, as Yuri Visbor sang.
Happy New Year to you, my dear friends!
Let’s welcome it with optimism, as usual. Let the coming year be no worse than the expiring one. At the festive table I will certainly raise my fifth or sixth toast to our adversaries, who don’t let us relax and encourage us to struggle. For struggle is life.