Russia remains oil market player despite sanctions

GMT 20:50 2015 Thursday ,12 February

Arab Today, arab today Russia remains oil market player despite sanctions

Russian oil industry
London - AFP

Western sanctions and falling oil prices have delivered a double blow to the Russian oil industry, but the producer country remains an unavoidable force in the energy market.
Russia has been damaged by the drastic drop in oil prices, which plunged 60 percent between last June and January, according to experts gathered at International Petroleum Week in London.
Russia, which produced 10.6 million barrels a day in 2014, is in competition with the United States and Saudi Arabia for the title of world's biggest oil producer.
But Russian production levels could decline owing to a decline in investment in the sector.
In its latest report on the medium-term oil market, the International Energy Agency (IEA) estimated that the country's production could fall by more than 500,000 barrels per day by 2020.
"The drop in oil prices and the sanctions are going to affect Russia's production quite quickly," said Antoine Halff, oil industry and marketing division head at the IEA.
"One of them might not have had such a big impact but the combination of a very significant drop in oil revenue and the inability to go to capital markets to make up for that is challenging for the Russian oil industry."
Oil accounts for almost 45 percent of the Russian government's budget.
Incentives for investment in Russia are limited for the moment, according to James Henderson, researcher at the Oxford Institute for Energy Studies.
Russia is hampered by the sanctions over the conflict in Ukraine imposed by the United States and the European Union which accuse Moscow of backing the pro-Russian separatists fighting Kiev government troops in the country's industrial east.
Nevertheless despite sanctions, "international companies might get some opportunities onshore in more conventional fields so Russia can keep producing", Henderson said.
"There is a need for financing, because Russian companies are going to be short of cash."
- Russian drilling -
Companies such as BP are exploring opportunities in Siberia, Henderson added, even though sanctions are a difficulty for Western oil giants working in Russia, including also ExxonMobil, Total, Statoil and Eni.
Franco Magnani, executive vice president for North Europe and Russia for Eni, said that investment prospects are favourable as Russian oil resources are too significant to be neglected.
The Italian company says that it complies with Western sanctions while continuing to work with its partner, Russian oil giant Rosneft, on areas unaffected by sanctions.
Sanctions on Russia include a ban on providing certain oil equipment, such as for drilling in offshore projects in deep water, in the Arctic, or in shale well drilling.
"It's not easy," Magnani said, adding that geopolitical tensions need to diminish before more risky and expensive projects can be undertaken.
"One of the possible alternative outcomes if the geopolitical stability does not return is that Russia ends up developing its own technology and know-how to explore new resources," Magnani said.
It's an objective Rosneft is already pursuing, and it has increased its oil services arm despite the sanctions.
In future "70 to 80 percent of our projects will be drilled independently and it will be far more efficient for us," said Rosneft president Igor Sechin.
He added that he was ready to accept national currencies in long-term contracts to develop the company's market share in Asia, particularly in China.
"We know means and ways of converting yuan, we are ok about it and willing to tackle this task should we need to," Sechin said.
Rosneft was hit by Western sanctions that ban the company from accessing long-term debt markets, though according to Sechin the company remains confident.
He stressed that Russia was not the only party to suffer from the sanctions.
"Anti-Russia sanctions are aimed at undermining long term oil supply for Europe," Sechin said.

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