Crude and condensate production averaged over 10.5 mill barrels per day in 2015, up by around 150,000 barrels per day, compared to the corresponding period in 2014.
Further gains have been seen thus far in 2016. Most notably, in September output surged to a post-Soviet high of 11.1 mill barrels per day, according to the preliminary government data
The growth in production was supported by investments made prior to the oil price collapse, while the rouble’s dramatic depreciation cushioned the profitability of oil companies. In addition, Rosneft, which is by far the largest Russian oil producer, is intensifying its drilling effort and expenditure to maximise production at Soviet-era brownfield sites, where output is in decline.
The company is also increasing its use of advance recovery methods, such as hydraulic fracturing and horizontal drilling. The seriousness of Rosneft’s intentions was illustrated in the recently announced acquisition of India’s Essar Oil, which will secure the company’s market share in one of the world’s fastest growing economies.
Ongoing gains in crude production, coupled with a decline in refiners’ crude throughput this year, have supported rising exports, almost entirely seaborne. Russian crude shipments out of the Baltic and Northern ports averaged some 250,000 barrels per day higher between January and August, 2016, compared to the corresponding period last year, while in the East, combined exports from the Kozmino terminal, Sakhalin and De Kastri edged up by 60,000 barrels per day, Gibson said.
In the Mediterranean, there was also a modest gain in crude exports from other FSU members - BTC volumes were up by 70,000 barrels per day year-on-year during the first eight months of 2016.
In the short term, crude exports out of the Baltic and Northern ports are expected to remain at robust levels, aiding the tanker market during the upcoming winter season. However, these plans could be under threat, following the recent announcement made by President Putin to participate in the OPEC output cap, despite the refusal by Rosneft’s CEO to join in.
In the Black Sea, exports of Caspian crude are forecast to increase, following the start-up of Kashagan and Filanovskoe oil fields in the fourth quarter of this year. The prospects are for a further major growth in Kazakh crude exports in 2017 and beyond, although these developments are largely linked to the successful launch and ramp up of production at Kashagan, with initial flows expected to begin at 75,000 barrels per day and then increase to 370,000 barrels per day towards the end of next year.
The picture is more uncertain when it comes to Russia, as many do not see continued growth in production. However, if the efforts currently being implemented by Rosneft to reverse the decline in its brownfield sites are successful, a production rise could follow.
Growing production and exports will add incremental support to the tanker market, most notably in the West, as the capacity on the main infrastructure link to the East – the ESPO pipeline - is already operating close to its current capacity.
However, going forward, the ESPO link’s capacity is expected to increase to 1.6 mill barrels per day by 2020 from 1 mill barrels per day currently, with around 0.7 mill barrels shipped from Kozmino and another 0.3 mill via a pipeline spur directly into China.
This is good news for the tanker market in the East, with the anticipated increase in Kozmino exports by around 0.3 mill barrels per day.
Yet, if there is no major increase in Russian crude production in the medium term and/or there is a notable increase in refinery crude intake, higher crude exports to the East will threaten seaborne exports to Western customers, Gibson concluded.
An investment consortium comprising commodity trading firm Trafigura, Russian private investment group United Capital Partners (UCP) and Essar have signed a Sale and Purchase Agreement for a 49% stake in Mumbai-based Essar Oil (EOL) from Essar Energy Holdings.
Another 49% stake was bought last week by Rosneft. The remaining 2% is owned by private shareholders.
The value of the two deals was put at $13 bill.
EOL owns India’s second largest private refinery and storage and import/export facilities located near Vadinar city, as well as a domestic retail network business consisting of over 2,700 retail stations.
The 20 mill tonnes per annum refinery, with a Nelson complexity index of 11.8, is located on strategic shipping routes to demand centres in the Far East and close to Middle East sources of production, and within one of the world's most important sources of growth in energy demand.
Jeremy Weir, Trafigura CEO, commented: “This is an important and exciting investment for Trafigura with broad commercial benefits. Essar Oil occupies a strategic position in the global oil market. It owns world class refining and infrastructure assets that will create multiple synergies with our trading business. Investing in Essar Oil also offers us a platform to extend our exposure to the growing domestic market in India.”
Ilya Sherbovich, UCP managing partner, stated: “We are very pleased to reach an agreement to acquire shares of Essar Oil Limited. This is a top-tier asset operating in the promising Indian market, one of the largest and rapidly developing economies in the world. The announced transaction establishes a strategic partnership between our investment consortium members. Deal participants have extensive operational and financial expertise, which we believe will help to unlock significant value and provide strong financial results for all investors.”
The investment consortium stakeholders’ structure is Trafigura 49%, UCP 49% and Essar with 2%. It is supported by a capital structure involving non-recourse bank finance and is fully compliant with international sanctions and is expected to close by the end of 2016, subject to anti-trust and other regulatory clearances.
EOL plans to expand its oil refining capacity and to build a petrochemical complex.