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Alexander Khurshudov: It has been a really hard year

Alexander Khurshudov, expert Oil and Gas Information Agency
December 27, 2016/ 08:36

Its beginning was incredibly nasty. I have to admit I hadn’t expected the oil price to drop below $50. All the objective evidence had been against it. I had underestimated the power of Western propaganda. They twisted everything: included gases into oil production volumes, kept praising the oil loaded tankers and the storage in the terminals, happily stirred discord in OPEC. Only applying these tremendous efforts could the swindlers push the oil price down to $27, and it took the price half a year to get back to its real value. At that moment Russia was threatened with a 3 trillion Rubles hole in the budget and depletion of reserve funds, all this with a seat of war at the border and military operations in Syria.

And still Russia has withstood. Now we have to admit that the abrupt drop in the Ruble exchange rate did it good, it helped the fundamental oil industry and supported the budget. Our oil and gas companies unexpectedly gained an advantage over the global grands: the former got a partial reduction of the income, but the later are now counting their losses. Then there was hard work, there were mistakes, but it’s time to reap the ample harvest, the oil experts agreed to cut oil production, the Syrian army freed Aleppo… And now, like a bolt form the blue sky, the plane crash in Sochi. Singers, pilots, journalists died.       

Three years ago there were talks about stability in this country: stable reign, stable Ruble, stable income, stable bribetakers…But, apparently, stability is not for us. We are not Switzerland. Like Mityaev sings in his song: “…we are carried away to the end of the earth to help the others, and some get lost there for good, some for many years…”  Well, so be it. I know for sure: the most stable system is an up-river swampland, which adds 1mm of muck a year and produces healthy cranberries. This is stability based on decay. 

However, the editors asked me to summarize the year’s results for the oil industry. Grieving or not, I have to complete the task. I’ll try to keep it brief.

1. The production of oil and gas condensate this year is expected to amount 542 mln tons, with 1.5% increase. This complies with the 10.87 mln bpd that Russia agreed with OPEC. So no problems about fulfilling the agreement are expected.    

2. The tax maneuver this year is suspended, but its effect from last year lingers. It is good for the oil producers. It is dangerous for the country because it stimulates the export of crude oil. This year the crude oil export grew by 4.6% to 253 mln tons. While processing decreased by 3.6%. Thought the production of high quality motor gasoline rose, and the production of heavy fuel oil significantly (21.1%) decreased. And this is, of course, a plus.    

3. Excess profit tax  is decided to introduce next year. Fortunately, the ministers haven’t agreed   on how to define this excess profit and how many per cent of tax to apply. Let them discuss it for a couple more years and hope that the idea will die off with no major damage to the country.

4. Selling the large block of Rosneft stocks was, of course, a pity: in a couple of years its price will double. But the liberal team counted on making money on it, so the money from the deal was planned in the budget as long as 3 years ago. Only one person managed to make profit. Now he is in custody looking forward to being freed by his accomplices. If they can. And the shares, though sold, are not totally lost for Russia.     

5. Gas production for the year is expected to decline a little, by 1.27% to 627 billion cubic meters. Last warm winter caused the consumption to reduce, this winter is promising to be cold, but most part of it will be in the new year. Although, export of gas rose by 12%; fearing new tricks from the Ukraine, Europe filled its storages with yet-cheap gas. And right it was: in the coming year gas will be more expensive.

6. The period of Ukrainian gas blackmailing is finally coming to the end. Turkey approved the agreement on the Turkish Stream gas pipeline. Its construction will start soon and it won’t make any sense for Europe to slow the construction of Nord Stream 2. You snooze, you loose.

6. The agreement of oil exporters to cut oil production is undoubtedly the high spot in the oil industry of the ending year. There are two important details about it. The first thing is that 23 countries managed to reach agreement (!!!), like they had never done before. The second is that they established a compliance control committee. So, the agreement will be complied with, because the major parties: Arabian triplet, Iraq and Russia demonstrated their intention to do so, and they won’t jeopardize their authority.     

7. As for the shale oil, alas, there won’t be a renaissance for it. Simply because its proved reserves are depleting. I have all the figures and charts to prove this; after the holidays I’ll be happy to share them with the oil and gas society.  

Happy New Year to you, my dear readers! I am convinced that it will be BETTER than the previous.

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