Despite difficulties posed by international sanctions and the downturn in the past two to three years, the Russian hydrocarbons industry has demonstrated positive results, helped by a very liberal investment regime that incentivizes greenfield developments and further production of brownfields.
The agreement between OPEC and non-OPEC countries to cut productions helped reduce volatility and prompted investments to return.
These were the key messages that Alexander Novak, Minister of Energy of the Russian Federation, conveyed at CERAWeek in Houston today.
“Russia had a lot of foreign investment coming in”, said Novak. “Clearly it was difficult to get investments from the US and Europe but we were able to raise a lot of investments from Chinese, Japanese and Indian companies.”
According to Novak, the liberal legislation which regulates the repatriation of profits by foreign companies working in Russia, made it possible to bring in investments even in a low oil price period.
At the same time the Russian government put in place a system of incentivizing the development of greenfields and the further production of the brownfields.
This made it possible for the Russian industry to “do a good job, to survive and to really be competitive.”
“In two years the amount of oil output grew by almost 400,000 bbl/day.”
Production growth v production cuts
Following the agreement between OPEC members and non-OPEC oil producers reached in December, Russia has reportedly cut between 98,000 and 117,000 bbl/day.
“In the longer term the market would have solved the price issue”, said Novak,“but that would have led to a chaos for some time at least and the market would have allowed for a shortage of supply.”
“Witnessing this balancing where we see a $50 – $60 for a barrel of Brent, this is the kind of situation that has helped us reduce volatility and see investments return.”
According to Oil 2017, the IEA’s market analysis and forecast report previously known as the Medium-Term Oil Market Report, production from Russia is forecast to remain stable over the next five years.
When asked whether Russia will ever join OPEC, Novak responded that Russia is not considering joining OPEC but the level of interaction between Russia and OPEC and the agreement on production cuts demonstrate the need and willingness for a change in cooperation, which in itself dates back to the Soviet Union.
Article by Femke Perlot-Hoogeveen