Russia top company will not cap oil output

Oct 12, 2016
Russia state-owned oil company Rosneft head Igor Sechin doubts all Opec countries would cut down their oil output.
Russia state-owned energy company Rosneft head Igor Sechin doubts all Opec countries would cut down their oil output.

Igor Sechin, Russia’s most influential oil executive and the head of state-controlled energy giant Rosneft, said his company would not cap oil production as part of a possible agreement with Opec.

His comments underline how difficult it was for Russia to get its oil companies to freeze or cut output as part of a potential deal with Opec – the Organisation of the Petroleum Exporting Countries – designed to support oil prices.

President Vladimir Putin told an energy congress on Monday that Russia was ready to join a proposed Opec cap but did not provide the details.

“Why should we do it?” Sechin, known for his anti-Opec position, told Reuters in Istanbul, when asked if Rosneft, which accounts for 40 percent of Russia’s crude oil output, might cap its production.

Earlier on Monday, Sechin told reporters that Rosneft planned this year to raise its oil production, already the world’s largest among listed producers, above the 203 million tonnes or 4.1 million barrels per day it produced in 2015.

Sechin said he doubted some Opec countries, such as Iran, Saudi Arabia and Venezuela, would cut their output either: “Try to answer this question yourself: would Iran, Saudi Arabia or Venezuela cut their production?”

Opec’s oil output is likely to reach its highest in recent history in September, as Iraq boosted northern exports and Libya reopened some of its main oil terminals.

There have been several attempts in the past for Russia and Opec to join forces to stabilise oil markets. Those efforts have never come to fruition, however.

Russia’s oil industry has argued for years that it cannot cut output to support falling global prices for purely technical reasons linked to the climate in Siberia; in reality it can – as long as it has the political will.

Putin could in theory force companies to cut their production or postpone the launch of new oilfields.

Russia was already pumping at the post-Soviet record high of 11.1 million barrels per day in September thanks to a recovery in oil prices which triggered exploration drilling activity.

“Given the propensity of Opec and other producers to talk up prices, and the history of failed deals among Opec and between Opec and Russia, we would continue to treat the news somewhat carefully for the longer term,” Sberbank CIB said in a note.

The Russian oil landscape is dominated by a handful of players – second-biggest firm, private Lukoil, private producer Surgut, state-owned Gazprom Neft and Tatneft.

The companies plan to raise production by about 1.6% on average in 2017, according to their forecasts and Reuters calculations as they benefited from a weaker rouble and cheaper costs at home.

Sechin has long argued that any oil price increase as a result of joint actions by Opec and non-Opec members would allow the United States to resume production growth from high-cost shale deposits.

“The Americans want it most (US$50 per barrel) as the shale oil projects become profitable with such a price. And US$60 (per barrel) will result in more shale oil projects,” Sechin told Reuters.

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