US, WASHINGTON (ORDO NEWS) — Reduced oil production in Russia may be at risk due to company disputes over who and how much should reduce production, says FT. Nobody wants to lose investment and stop the development of deposits, some of which will not work after a pause.
A new record deal under OPEC + has led to disputes among Russian oil companies over how to distribute the required reduction in production, sources told the Financial Times. This casts doubt on Russia’s fulfillment of its obligations under the agreement – to reduce production by 2.5 million barrels per day, the newspaper claims.
According to FT sources, some manufacturers are lobbying for the rejection of proportional quotas and asking for smaller volumes for themselves. Each company wants to protect its projects and avoid costly suspension of production, the publication notes.
For some fields, a pause means the end of production: due to geological conditions in some wells, it will not be possible to restore it. For example, many wells in Siberia need to continue production so that they do not freeze, the Financial Times added.
The government is participating in the negotiations, but the discussion has not yet been completed and there is no consensus, although the OPEC + deal comes into force on May 1 – in just two weeks, FT sources said.
“They [the oil companies] will have to find a way out, one way or another,” one source said. If a proportional system is applied, then Rosneft will have to reduce production by 600,000–630,000 barrels per day, and the largest private oil company, Lukoil, by 240,000–270,000 barrels per day, FT writes with reference to analysts’ estimates.
The goal set for Russia to reduce is about eight times greater than the largest oil reduction that the country made during the previous OPEC + deal, FT noted. Even those volumes led to disagreements of some companies that did not want to reduce production. For example, the head of Rosneft Igor Sechin in the past was one of the most ardent opponents of any reduction in production, the newspaper said.
Although company negotiations are really necessary at the initial stage due to individual difficulties in the face of such a rapid reduction in production, in the end it will still be proportional, said Ekaterina Rodina, an analyst with VTB Capital shares. “The scale of production cuts means that companies will be forced to include most of their assets in production adjustments,” she said.
Rosneft and Lukoil did not respond to FT requests. The Department of Energy declined to comment. Gazprom Neft declined to comment on its volumes, but said it could “reduce production already in May and further reduce spot deliveries in June to meet the assigned quota.” The company added that it could stop the development of production on offshore platforms.
Disputes in Russia contribute to fears that concluded April 12 deal between OPEC, Russia and other major oil producers will not be able to achieve the claimed reduction of production strips by 9.7 million barrels a day, says FT. This despite the fact that many experts consider even this level insufficient to restore balance in the market. Demand for fuel in April will be minimal since 1995, the International Energy Agency warned.
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