Platts: Russia to hit new crude output highs in 2017 despite OPEC deal: consultancy

Jan 26, 2017
Russia to hit new crude output highs in 2017 despite OPEC deal: consultancy
Moscow (Platts)--26Jan2017/1147 am EST/1647 GMT

Russia's overall crude production in 2017 will continue growing to new
post-Soviet records despite Moscow's pledge to cut the country's output in the
first half of the year as part of a deal with OPEC, according to independent
Vygon Consulting.
The consultancy, which has been recently providing more optimistic
forecasts than the country's energy ministry, estimated Russia's crude output
growth this year at 2.3%, from 2.5% growth to 547.5 million mt last year.
"We will probably have 560 million mt [11.25 million b/d] of crude and
condensate this year, despite the [output] freeze," said Grigory Vygon,
managing director of Vygon Consulting and former head of the economy and
finance department at Russia's natural resources ministry.
Under the OPEC/non-OPEC six-month agreement to trim the output that took
effect January 1, Russia has agreed to gradually cut output by 300,000 b/d
from a peak of 11.2 million b/d in October.
The country's production has already fallen by more than 100,000 b/d this
month, to some extent due to abnormally low temperatures in some oil producing
areas, energy minister Alexander Novak said Sunday. The cut was double
previous expectations of how much Russia would cut in January. Novak earlier
said Russian crude production would drop by 200,000 b/d by the end of March.
Vygon, however, said he does not see ways of achieving further production
cuts, and expects no major effect on the country's production in 2017 and
2018.
"We do not understand yet what effect [the cut] will have, probably none.
I don't think we will cut anything [further], I don't see how we can do it,"
he told reporters Thursday. "We will go back to [11.2 million b/d] this year,
we can't escape it. And next year, [production] will increase further."
Greenfields will drive the growth "quite vividly" for the next two years,
he said. The consultancy expects greenfields to contribute 72.6 million mt to
the country's production this year, according to Vygon's presentation.
Last year alone, Russia launched commercial production at four major
fields, including Arctic Novy Port, East Messoyakha and Pyakyakhinskoye, and
Filanovsky in the Caspian, all expected to accelerate growth this year.
The consultancy reduced its forecast of 2017 crude production from 565
million mt, or 11.35 million b/d, which it published last May, to offer a more
conservative outlook that includes production cut plans, Vygon said.
Nonetheless, annual growth will still be aggressive, he said.
In comparison, prior to the agreement, in late October Novak estimated
the country's 2016 crude output at 544 million mt, and 2017 output at 548
million mt. While last year's production exceeded official expectations, the
ministry has since given no update on this year's output estimate.

OUTPUT CUT NOT A GAME CHANGER
Vygon, who does not share the optimism over potential producers' win from
the collective cut, said oil prices are unlikely to show substantial long-term
growth due to persisting crude oversupply.
"I see it as a game with the market, it doesn't work on the global
scale," he said. "We can tune something here and there...but producers will
always lose at playing against the market."
Even though the 13 OPEC and 11 non-OPEC producers that committed to
output cuts have demonstrated strong compliance with the obligations in the
first weeks of January, the price of oil has not changed much, Vygon said.
"It's been only several weeks, they cut production somewhat but the price
has remained unchanged [from December levels]. A certain cut was already
reflected in the market expectations," he said.
The price is likely to "crawl down as soon as some violations begin, or
US supply increases," he said.
At the same time, if the price stays around $55/b, companies and OPEC
countries will soon start increasing output and testing the market, he said.
The OPEC/non-OPEC deal aims to pin back combined production by close to
1.8 million b/d. Saudi oil minister Khalid al-Falih on Sunday pointed to
evidence of a 1.5 million b/d cut in place at the time, while Novak put the
figure higher at 1.7 million b/d.

--Nastassia Astrasheuskaya, nastia.astrasheuska@spglobal.com
--Edited by Jonathan Fox, jonathan.fox@spglobal.com