Although Russia’s quota under the latest OPEC+ agreement is increasing, current data appears to indicate that the country is still working hard to increase oil production.
The country joined OPEC last year and agreed to reduce oil production amid reduced fuel demand due to the coronavirus pandemic. Now, as consumption recovers and producer groups are steadily restoring their cut supplies, Russia has fallen behind.
Russian output has been flat since April, while under the deal the company was allowed to increase production by 200,000 barrels per day. This target will continue to grow at a rate of 105,000 barrels per month next year.
Like Saudi Arabia, Russia’s baseline production is 11 million barrels per day, rising to 1150 by April 2022 Thousands of barrels. But, unlike Saudi Arabia, the Russian oil industry has never produced anywhere near this amount of oil and almost certainly cannot do so now.
Part of the uncertainty about Russian production is definition. The OPEC+ deal only applies to crude oil and does not cover condensate – a type of light oil extracted from gas fields. Official production figures released by the Russian Energy Ministry add the two together. As the world’s largest natural gas producer, its output of condensate is considerable. Its output is equivalent to about 800,000 barrels per day, accounting for 8% of Russia’s total oil production, but condensate output may vary with seasonal changes in natural gas production.
An important problem is that we cannot tell which of the two oils is declining in production. For example, we don’t know if the country’s overall production stagnation is the result of condensate declines, which could also mask increases in crude oil production. But if we look at individual company production in more detail, we see that condensate is underperforming.
Russia’s largest crude oil producer Rosneft Oil Co. PJSC increased daily output by 11% between April and August million barrels, an increase of 3%. Lukoil (LUKOY.US) and Surgutneftegas PJSC (SJTPY.US) posted similar production increases.
Among those companies seeing production declines, Gazprom (OGZPY.US) is conducting maintenance work at the Prirazlomnoye offshore oil field in the Arctic. Novatek’s production decline is consistent with previous seasonal patterns, while one of three projects under a production sharing agreement is also undergoing planned maintenance.
In 2015, the Russian Energy Ministry stopped publishing Gazprom’s monthly oil production data separately, classifying the company in the “other” category, which at the time accounted for 10% of the company’s production More than one-fifth of the total. This leaves the other categories in the chart above to see their largest declines in output since April.
It may be that the decline in Gazprom’s condensate production has led to the decline in the output of other companies. If so, the apparent lull in crude oil production since April may be illusory.
We should have answers soon, though. The company’s natural gas production should increase before winter as the company is trying to put a large portion of its gas into storage. Condensate production should rise in tandem.
Russian oil production will be closely watched in the coming months, with continued stagnation raising concerns that OPEC+ will not be able to meet its goals despite increasing membership. Future production targets increase production. This could be good news for the first half of next year since the organization will likely need to cut supply in the first half of next year anyway. But it’s important to note that any relief will be temporary. </p
