Page 11 - FSUOGM Week 01 2021

FSUOGM COMMENTARY FSUOGM

Russia wants to drill but
not complete thousands
of wells, ready for
launch once OPEC+
cuts are ended.

made delinking the currency from the oil price sanctions – as the only remaining member in
one of its key tenets of economic stability in the the region.
aftermath of the 2014-2015 economic crisis. This departure had little practical effect,
Russian oil producers have also had to con- partly because Ecuador had been one of the
tend with an overhaul in oil taxation, aimed at smallest oil producers in the organisation and
extracting more budget revenue from the indus- partly because the subsequent crude price
try. While state oil giant Rosneft has come off crash made a mockery of that country’s hope of
relatively unscathed, others such as Lukoil, Gaz- boosting output and exports in order to increase
prom Neft and Tatneft are reconsidering invest- earnings. Nevertheless, OPEC and its pricing
ment plans in light of the changes. and production policies certainly did affect the
Despite the hardships of 2020, though, Rus- region, as they cut into the revenues of hydrocar-
sia’s oil majors have proved more resilient to bon-dependent states such as Mexico.
the downturn than many of their international In turn, Mexico showed itself reluctant to
peers. The country’s producers have mostly kept come to the organisation’s aid after the OPEC+
their dividend policy unchanged and some have deal lapsed at the end of March. More specifi-
continued buyback programmes, reflecting con- cally, it declined to accept the group’s recommen-
fidence in their financial standing. dations on output cuts, saying it could not afford
There are concerns in Moscow that Russia to rein in production. (This move led US Presi-
might struggle to reclaim its market share once dent Donald Trump to offer to make up part of
OPEC+ cuts are ended. As such, the government the difference.)
is looking to provide support for the drilling of Meanwhile, the coronavirus (COVID-19)
some 3,000 wells that will remain unfinished pandemic disrupted Latin America’s oil and gas
until the output restrictions are lifted. Russia is industry, even as infection rates soared in the
drawing from the practices of US shale compa- region. It led major producers such as Brazil and
nies, which sometimes drill but do not complete Argentina to make temporary reductions in oil
wells when oil prices are low, and then finish and gas yields, and these cuts, in turn, helped
them when prices are higher. to derail Argentina’s plans for becoming a net
Azerbaijan and Kazakhstan are more exporter of LNG.
dependent on oil and gas for their economic It also served to complicate negotiations
output and state finances than Russia. From on initiatives such as the planned takeover of
an operational point of view, OPEC+ cuts have Curaçao’s Isla refinery by Geneva-based Klesch
forced Azerbaijan to reduce supply from its flag- Group. (This scheme eventually failed, when
ship Azeri-Chirag-Gunashli (ACG) oil project Klesch was unable to provide assurances about
in the Caspian Sea, in additional to smaller fields. its timeline for the deal.) Additionally, it caused
Kazakhstan has imposed reductions at a number Brazil to postpone licensing rounds – though
of large and medium-sized oilfields, including this may not have had much impact on the coun-
the giant Kashagan and Tengiz sites operated by try’s finances in the end, as previous bidding
international consortia. rounds in late 2019 had failed to draw as much
interest as anticipated.
Latin America: Complicating the situation
The year began with OPEC losing ground in Middle East: Feast or famine?
Latin America. On January 1, 2020, Ecuador Countries in the Middle East, home to oil
formally exited the group, leaving Venezuela reserves with some of the world’s lowest produc-
– increasingly moribund, as a result of US tion costs and some of the governments most

Week 01 06•January•2021 www. NEWSBASE .com P11