Russian Oil and Gas Industry: News #4

Gazprom's management would have to be terminal idiots to undertake any repair. The onus is 100% on EU-tards to clean up the
shit they spread. Russia is afflicted with the proper behaviour disease. This is a serious disorder when dealing with rabid enemies
who engage in every cheat and dirty trick they can pull out of their asses.

How Russia will cheat the oil price ceiling, by Olga Samofalova for VZGLYAD, 12.28.2022.

"Illegitimate, absolutely absurd measures." With these words, Kremlin spokesman Dmitry Peskov described the “so-called price ceiling” for Russian oil introduced by the European Union. By presidential decree, the supply of oil under these conditions was made impossible. Thus, we will witness the birth of a cunning mechanism to circumvent Western restrictions on the trade of Russian oil. How will they work?

President Putin signed a decree on retaliatory measures against the decision of Western countries to set a price ceiling for Russian oil. The answer was expected. Russian companies are prohibited from supplying oil and oil products if the contract directly or indirectly stipulates the use of the price cap mechanism.

Russia initially made it clear that it was not going to agree to a price ceiling. The Organization of Oil Exporters OPEC fully supported Moscow in this matter, which is understandable - today the West is trying to set its own price for Russian oil, and tomorrow for Arab oil.

Russian companies now have a legal basis to which they can refer when negotiating with buyers. If the Europeans want to buy Russian oil shipped by sea, then both sides will be interested in circumventing the sanctions. The decree retained a loophole - a special permission from the president opens the way for Russian oil to any country at any price.

This presidential decree also applies to existing contracts, if they contain such a price limit, Dmitry Peskov, press secretary of the head of state, said on Wednesday. According to him, Russia did not consult with the alliance of OPEC + countries on the answer to the price ceiling, internal Russian consultations were held. “It is the sovereign right of Russia to respond to such illegitimate, absolutely absurd measures – the so-called price ceiling. Therefore, this was preceded by an internal Russian expert study. Although on this topic and on other topics related to the energy markets, naturally, the Russian side, through the supervising Deputy Prime Minister Novak, is in constant contact with the OPEC+ countries,” Peskov said.

What will Russia's response mean in practice?

“The Russian Federation refuses to fulfill the conditions of the price cap mechanism, but at the same time it will act flexibly, based on the prevailing circumstances. This position is quite logical. In case of submission to the attempt of external regulation of oil prices, it would turn into a serious mechanism of foreign policy pressure on Russia,” says Vitaly Manzhos, senior risk manager at Algo Capital.

“It will be impossible to buy oil under those contracts where there is a mention of a price cap in those periods when the price is above $60 per barrel of Russian export oil Urals. And during 2023, such a period may be long. Therefore, importers will have to look for ways to circumvent the restrictions,” says Vladimir Chernov, an analyst at Freedom Finance Global.

Curiously, this does not really mean that the EU will be left completely without Russian oil transported by sea. There is a high probability that gray schemes for the supply of oil and especially oil products from Russia to European markets will become a new reality.

The EU on Russian oil and the price ceiling introduced on December 5 have not yet had a big impact on the oil market, but the ban on Russian oil products, which will come into force on February 5, may become a more serious factor, says Ronald Smith, senior analyst at BCS World of Investments ".

2022, despite everything, was a good year for the Russian oil industry. “This is indicated by the fact that the largest domestic oil companies have managed to pay generous interim dividends this year. We are talking about NK Lukoil, Rosneft, Gazprom Neft. This is possible only if there is a significant profit,” says Manjos. Oil production in 2022 not only did not fall, but even increased by about 2% compared to 2021 to 535 million tons, oil exports will grow by 7.5% to 242 million tons. These data were voiced by Novak. The production of automobile gasoline and diesel fuel is growing. Of course, high oil prices, which at times reached $120 per barrel, helped a lot.

However, in 2023, we should expect a negative effect from the embargo and the price ceiling. Energy Minister Alexander Novak expects a 500-700 million bpd decline in oil production in early 2023. Smith predicts a deeper decline in Russian oil production and exports - by 1 million barrels per day.

The reorientation of Russian oil supplies has lengthened logistical routes and increased financial costs anyway, Chernov says. At the same time, oil prices in 2023 are expected to be lower, and the Urals discount, on the contrary, is larger than in 2022. So, according to Smith, in the first quarter of 2023, Brent will reach $95 per barrel, and by the end of the year it will fall in price to $85, the forecast is reduced by $5. At the same time, the Urals discount in the first quarter will rise to $40 amid restrictions. On the other hand, the increase in the Urals discount attracts Asian buyers and encourages the creation of new gray supply chains, Smith adds.

What gray schemes can market players use to continue trading in the new limited conditions?

First of all, Kazakhstani or other Urals oil can float to Europe. This means that on paper, Russian oil will simply change its country of origin and be safely imported into Europe. Another way is to turn off transponders, warning systems for the route of tankers, when it is impossible to track where the tanker is going and to whom it poured Russian oil on the high seas.

Another possible method is the sale of Russian oil products under the guise of Indian ones. This scheme has already been tested in 2022. India has sharply increased the supply of our oil, becoming the main buyer of oil coming from Russia by sea. India refines Russian oil at its refineries and then resells these oil products to European markets.

“Among the new schemes, one can single out Turkey's consent to create, along with a gas hub, an oil hub on its territory. Russian oil, entering Turkey through this hub, legally ceases to be Russian and can be sold to EU countries,” says Chernov. There are other ways to depersonalize the origin of oil.

Experts believe that as a result, in the second half of the year, the situation with the supply of Russian oil will improve. The price disparity will smooth out after the stabilization of new supply chains in four months, Novak believes. He does not exclude that at the peak, the reduction in production may be 7-8%, however, in general, by 2023, Russia will produce 490-500 million tons of oil per year. But a lot will depend, of course, on logistics.

In parallel, Russia is solving the issue of having its own tankers. There have been reports that Russia has already bought up about 20 old tankers and continues to work in this direction. Thus, we are creating our own fleet, which is not afraid to fall under sanctions and is ready to transport Russian oil.

The second important point is the launch of the Russian tanker insurance mechanism. The Russian National Reinsurance Company has been recapitalized, and friendly Russian oil buyer countries are accepting these changes. Previously, the fleet for transporting oil and insurance was the prerogative of exclusively Western companies. According to Novak, there are now free port capacities for transshipment of 35-40 million tons of cargo per year. Work is underway to expand them, it will be completed within the next three years. Novak expects that in 2025 Russia will increase the export of crude oil to 260 million tons per year precisely at the expense of the Asia-Pacific countries.

The situation with oil products is more uncertain. Europe was the main market for Russian oil products. Novak says that it is not yet clear what the Europeans will replace our fuel with. He does not exclude that the Europeans will introduce exceptions, as was the case with oil, when pipeline supplies and refineries in Bulgaria, the Czech Republic, and Slovakia were not subject to restrictions.

In an extreme case, oil refining can be partly replaced by additional exports of crude oil. “Probably, the current situation will become an incentive to increase the volume of domestic oil refining. In general, the domestic oil industry will actively seek and find new export opportunities with the support of the government,” says Manjos.

“It is in the second half of 2023 that we can expect a recovery in production and export sales of Russian oil against the background of an increase in global demand. We expect demand to pick up once the zero-tolerance covid policy in China has been completely phased out and the global recession has passed. The situation can be resolved faster with the appearance of an oil hub in Turkey, from where Russian oil can be sold to the EU countries,” concludes Chernov. Turkey says that they have every opportunity to transport Russian oil to this hub without violating any restrictions.

Turkey is already making good money on breaking EU relations with Russia. Ankara has significantly increased the import of cheap oil from Russia, thanks to which it has loaded its refineries to the fullest. Oil products produced from Russian oil, including aviation kerosene, Turkey sold at high prices to European countries, earning billions of dollars. It is clear that Ankara will strive not to miss the profit.

https://vz.ru/economy/2022/12/28/1193014.html

The US cracked, the West needs Russian oil, just don't call it that.


WASHINGTON (Sputnik) - Russian petroleum products will no longer be considered to be of Russian origin and subject to the price cap once they are transformed in another jurisdiction, the US Treasury announced on Friday.

"Once Russian petroleum products or Russian oil are substantially transformed (e.g., subjected to any of the refining processes listed below) in a jurisdiction other than the Russian Federation, they are no longer considered to be of Russian Federation origin, and thus the price cap no longer applies," the Treasury said.

The Treasury also said it does not consider blending operations, like gasoline or crude blending to be substantial transformation for the purposes of the crude oil determination.[.]

"The most promising market": Gazprom increased its gas exports to China during 2022, 01.03.2023.

The Russian gas giant Gazprom continues to increase its gas exports to China through the Siberian Power pipeline, the company's general director Alexei Miller reported on January 2.

"In 2022, at the request of the Chinese side, deliveries exceeding the contracted daily quantities were regularly made and we ended up exceeding our annual obligations," Miller stated via his Telegram channel. He added that since December 31, "several days before the agreed date," Russia began to deliver "the daily quantities provided for in the contract for the following year."

Thus, since January 1, the company "reached a fundamentally new level of gas supply to China." Which proves, according to Miller, "the interest" of the Asian giant, "the most promising gas market", in Russian gas supplied by pipeline. He also said that Gazprom is a "responsible supplier and a reliable partner".

Miller also reported that Gazprom's ongoing work in relation to China "implies two promising routes: one that stretches from the Far East, and the other that goes through Mongolia." He indicated that the contract has been signed regarding the first route, while, currently, "work is being done on the second one."

"The total amount of annual gas supply through the three routes is about 100 billion cubic meters. Gazprom has confidently entered 2023. We continue to pursue the planned objectives and implement our social commitments. We are working for the benefit of Russia," he said.

In 2022, the company's production reached 412.6 billion cubic meters, according to Miller. In that sense, he explained, Russian consumers received 243,000 million cubic meters of the fuel, while "Russian storage facilities were filled up to reach another historical maximum of 72,662 million cubic meters."

Since December, at the request of China, Gazprom has increased daily gas supplies to consumers in the Asian country.

The supplies of Russian gas to China through the Siberian Force pipeline are part of a long-term bilateral agreement signed between Gazprom and the China National Petroleum Corporation (CNPC).

Yandex Translate from Spanish

https://sputniknews.lat/20230103/el-mercado-mas-prometedor-gazprom-aumento-sus-exportaciones-de-gas-a-china-durante-2022-1134268578.html

Russia appreciated the statements of Germany about the exit of the gas market to the "price plateau", by Alena Zadorozhnaya for VZGLYAD. 01.08.2023.

Expert Yushkov: Europe has no guarantees to maintain current gas prices.

The theory of a "price plateau" in the gas market is good only as a theory. In fact, there are too many factors that will not allow keeping the cost of fuel at the current level, Igor Yushkov, an energy expert, told the VZGLYAD newspaper. Earlier, the regulator in Germany announced the exit of the gas market to the "price plateau".

“Klaus Müller, in fact, draws attention to the fact that in Europe they started talking about a certain price plateau, which the gas price has reached. But then, in general, he himself adds that this is not entirely true,” said Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation and the National Energy Security Fund.

“A number of factors remain that could seriously push prices up in the long run. One of the threats is a recovery in demand from China. If Beijing joins the competition for limited LNG volumes, then the Europeans will have to pay more so that it would be profitable for suppliers to cooperate with them, ”the expert argues.

“The second aspect is low temperatures. It is a rather warm winter now, so prices have dropped to $700-800 per 1,000 cubic meters. But if, for example, frosts begin in March, then the price will creep up. Even banal periods of calm weather will push prices,” continued the interlocutor.

“Besides, there used to be only the winter peak of consumption. Now the second one has formed - summer. And as the practice of 2022 showed, the summer peak in gas consumption excited the market much more. Record figures of 2.5-3 thousand dollars per 1 thousand cubic meters were achieved then. So the West cannot be sure that prices will remain at the current level,” he stressed.

The expert also explained how the idea about the possibility of forming a "price plateau" in the gas market arose. “Now there is a “soft” heating season, the heat was turned on a month later. Of course, gas consumption is reduced. If this continues, then Europe will spend little fuel and will not have to buy a large amount of gas before the next heating season. But this theory can only work in a vacuum,” Yushkov concluded ironically.

Earlier, the head of the Federal Network Agency of Germany, Klaus Müller, in an interview with Bild am Sonntag , said that gas prices had reached a price plateau , which can be taken into account for the next one to two years.

The day before, gas prices in Europe ended the first trading week at almost $760 per 1,000 cubic meters, having fallen by about a third in annual terms. On Thursday, the price of blue fuel fell below $700.

Recall that in 2022, the estimated gas price in Europe  averaged  $1,260.8 per thousand cubic meters.

https://vz.ru/news/2023/1/8/1194055.html

The West is hoping for a collapse in Russia's oil revenues, by Olga Samofalova for VZGLYAD. 01.11.2023

Russia has to sell its oil at a deep discount due to European sanctions and the position of the two biggest buyers, China and India. This message was made by Western sources of information. However, the expert community does not share the gloomy forecasts of Western analysts.

Bloomberg, citing data provided by Argus Media, reported unexpectedly low prices for Russian Urals on January 6, which traded at around $38 per barrel. This price was fixed in the port of Primorsk on the Baltic Sea. Brent oil at the same time cost 78.57 dollars per barrel. This means that Russian oil was sold at half the price of Brent. If before the difference was only 25%, now the discount has increased dramatically.

The Western agency concludes that Russia has to sell its oil at a deep discount. And the sanctions imposed by the EU - the oil embargo and the ceiling on oil prices - led to this. Russian oilmen are dependent on two big buyers, China and India, which drive down the price of oil even more.

Selling oil at $38 per barrel to Russia, of course, is not so profitable. At such a price for Urals, the Russian budget will not reach 2.5 trillion rubles of income in 2023, Dmitry Skryabin, portfolio manager at Alfa Capital Management Company, calculated. At the same time, a deficit budget of 2.93 trillion rubles is envisaged for 2023. The loss of another 2.5 trillion rubles from the sale of oil will almost double the budget deficit.

However, this is only possible if the price of Russian oil in Primorsk on January 6 is fixed throughout 2023 (as well as the ruble exchange rate will be the same and the same volume of Russian oil production). However, this is not a viable arrangement.

Even if we assume that Urals will cost $38 per barrel for the whole year, it is unlikely that Russian oil companies will keep production at the current level, it is likely to drop sharply. The exchange rate of the ruble in this scenario is waiting for weakening.

But while forecasts are much more optimistic. Firstly, the cost of $38 per barrel of Urals was recorded only in Primorsk. Whereas under other contracts it was sold at a much lower discount to Brent. So, India now buys Russian oil at $53-56 per barrel. The CIF price for Urals oil at the beginning of January 2023 was about $52.5 per barrel, said Alexander Potavin, an analyst at FG Finam. That is, $38 per barrel is only a local story, not a mass story.

“It is important to understand that not all oil deals with Russian oil are carried out at a price of $38 per barrel. Bloomberg snatched a separate contract, but there are many other deals. That is why Russia needs an alternative company to Platts and Argus Media, which will analyze the prices of Russian oil. So that we can more accurately inform about other contracts and prices for our oil,” says the leading expert of the National Energy Security Fund (FNEB), researcher at the Financial University under the Government of the Russian Federation Stanislav Mitrakhovich.

The same Argus considers prices in order to provide data to the International Energy Agency. And the IEA, in turn, serves the interests of the G7 countries, and the role of Russia is constantly belittled in agency reports. In the past, Russian authorities have also used Argus figures to calculate duties on oil exports. However, new times require the creation of its own analytical price center.

Of course, the expert adds, all information in a row does not need to be disclosed now, for example, details about the shadow fleet, but some details about contracts with higher prices should be publicly provided.

In 2022, for example, the average Urals oil price was $76.09 per barrel. This is 10.3% more than in 2021. That is, even with a discount, Russian oil companies sold goods at a higher price than a year earlier.

Meanwhile, it is worth recognizing that the price difference between Urals and Brent has really widened over the month. Potavin points out that on December 1, Russian oil was sold at a discount of $28, and on January 6 it was already at a discount of $40. Experts explain this by an objective increase in the cost of chartering ships and insuring the transportation of Russian oil. Because of the price ceiling, both the carrier and the insured have to lay down a premium, and these amounts are now included in the total discount on our oil. And the logistics of delivery have already risen in price: before they were taken to Europe, which is nearby, and now to Asia, where the path is much longer.

Meanwhile, an increase in the discount after December 5 for our oil was expected. In particular, Deputy Prime Minister Alexander Novak spoke about this at the end of the year. According to him, in the spring of 2022 there was already such a situation, however, as new logistics schemes were built, the discount decreased in the summer. This time, it will take about four months, Novak believes, which could result in a decline in oil production for Russia in early 2023. According to him, we can talk about reducing production by 500-700 thousand barrels per day.

“I expect the discount on Russian oil to decrease by spring or mid-spring due to two factors. First, most likely, we should expect a seasonal increase in demand for oil and petroleum products in the Northern Hemisphere. Secondly, China will still end the zero covid policy, as all other countries in the world have done, and will begin to actively buy up energy resources.
It is unlikely that China will decide to live with covid restrictions for many years to come. I believe he will take them off. This will accelerate demand and prices for Brent oil and reduce the discount of Russian oil to it,” says Stanislav Mitrakhovich.

“Russian oil companies consider such a large discount unsustainable, since it is associated with a reformatting of supplies. When new supply chains are formed, the Urals discount against Brent will be reduced to the more usual $15-20 per barrel. At the very least, Russian ESPO (ESPO) oil, supplied via the East Siberia-Pacific Ocean oil pipeline directly to China or to the port of Kozmino for further tanker deliveries, continues to trade even slightly above the current price ceiling of $60 per barrel,” says Potavin.

Unofficial statements by the Indian press that Delhi is allegedly going to join the ceiling on Russian oil prices look far-fetched so far. Officially, Indian officials have repeatedly stated that they oppose interference in market mechanisms. And in general, it is extremely profitable for India to buy Russian oil, which is already the best offer on the market. Refining cheap Russian oil, India transports oil products to Europe, where it sells them at very high market prices. It will not be easy for Indians to refuse cheap oil from Russia and even the opportunity to earn good money on it.

“I would draw attention to the unprofessionalism and alarmism of publications in the press.

The fact is that the ceiling on oil prices does not impose restrictions on the purchase of oil. That is, it can be purchased at any cost. This was discussed both in the EU and in the US. Sanctions limit only the cost of oil in the transportation and insurance of ships. Therefore, formally, the state cannot join a certain price ceiling at all. That is, India can only ban its shipowners and insurance companies from transporting our raw materials worth more than $60 per barrel,” explained Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation and the National Energy Security Fund. However, other vessels may be involved in the transportation of Russian oil, in particular, from the shadow fleet of Russia, the creation and replenishment of which is known.

If the forecasts of Novak and experts do not come true, and the Urals discount to Brent does not decrease, then there is another way to protect and support Russian oilmen and their incomes, which are important for the budget. The Ministry of Energy of the Russian Federation has already announced that it will monitor prices and discounts for Russian oil, and, if necessary, may introduce additional measures to limit the discount to limits based on market prices. We are probably talking about the introduction of a maximum minimum price for Russian oil (conditionally at the level of 40-50 dollars). However, this is rather an unlikely scenario.

https://vz.ru/economy/2023/1/11/1194371.html

West's Oil Price Cap to Cut Into Russian Revenues, But Not in Major Way - Expert, 01.11.2023.

MOSCOW (Sputnik) - A price cap on Russian oil, imposed by the West in response to Moscow's military operation in Ukraine, will likely reduce the country's oil revenues, though not in a major way, while potentially undermining its energy position in the long-term, energy expert Ole Gunnar Austvik told Sputnik.

The World Bank suggested on Tuesday that the drop in Russian exports associated with the G7 oil price cap will be smaller than initially anticipated.

"Given an effective price cap ban and reduction of Russian oil export, Russian revenues will most likely be reduced, albeit not in a fundamental way. Some oil may be redirected to Asia and other parts of the world, and mitigate the volume effect. Exemptions from the ban may also be given," Austvik, a professor of political economy and petroleum economics at the Inland Norway University of Applied Sciences, said.

At the same time, the expert warned the cap could have negative repercussions for Russia in the long run.

"Taken together with sanctions on technology and finance, a ban may contribute to hamper investment in new Russian projects and weaken the country's long-term energy position, even if more self-sufficiency in relevant areas supporting the industry can mitigate the challenge over time," Austvik added.

Western countries have been seeking ways to limit Russia's income from oil and gas exports, as well as their dependence on Russian fuel since the country launched a military operation in Ukraine on February 24. On December 5, the European Union placed a price cap of $60 per barrel on Russian crude oil, joined by the G7 nations and Australia.

In late December, Russian President Vladimir Putin signed a decree banning supplies of Russian oil and petroleum products if contracts directly or indirectly provide for a price cap. According to Kremlin spokesman Dmitry Peskov, the Russian president did not consult with OPEC+ allies before signing off on the response measures.

https://sputniknews.com/20230111/wests-oil-price-cap-to-cut-into-russian-revenues-but-not-in-major-way---expert-1106233476.html