Page 4 - FSUOGM Week 18

FSUOGM COMMENTARY FSUOGM
Azerbaijan, Kazakhstan and
Russia begin output cuts
The three countries have never imposed such a large cut on their producers
FSU REGION
WHAT:
Azerbaijan, Kazakhstan and Russia are due to make steep cuts to oil production this month.
WHY:
The three producers are parties to the OPEC+ deal.
WHAT NEXT:
Cuts could be problematic at some major projects in Azerbaijan and Kazakhstan, and Russia’s failure to comply would likely trigger the OPEC+ deal’s collapse.
AZERBAIJAN, Kazakhstan and Russia have all agreed to unprecedented cuts to oil production starting this month, as part of OPEC+ e orts to rebalance the market. NewsBase takes a look at how each country plans to impose these reductions.
Azerbaijan
Azerbaijan, the smallest of three producers, has pledged to slash supply to 554,000 barrels per day in May and June – 164,000 bpd or 23% below its output in October 2018. As the country’s pro- duction has fallen over the past one and a half years, the actual cut is only around 96,000 bpd from the current level.
From July until December 2020, Azerbaijan will be able to produce up to 587,000 bpd, and then as much as 620,000 bpd between January 2021 and April 2022, at which point the OPEC+ deal expires.
Azerbaijan has been co-operating with OPEC+ on production cuts for over three years. But never before has the government imposed quotas at the BP-led Azeri-Chirag-Gunashli (ACG). ACG was first developed in the late 1990s, and in the ensuing years emerged as the bedrock of the Azeri economy. Though past its prime, the project still accounts for around three-quarters of national oil production.
Azerbaijan has avoided asking the ACG
consortium to cut output in the past, through fear of undermining foreign investment. In part thanks to its sheer size, ACG is also Azerbaijan’s cheapest source of oil, so the government has imposed quotas elsewhere for economic reasons.
This time around, however, Azerbaijan cannot achieve the substantial reduction it has promised without involving ACG. e project will reduce its output by 76,000 bpd in May-June compared with the current level, according to Azerbaijan’s SOCAR. e cut will ease to 49,000 bpd during the rest of the year and 23,000 bpd in 2021 and early 2020.
BP is partnered at the elds with Azerbai- jan’s SOCAR, US major ExxonMobil, Hunga- ry’s MOL, Japan’s Inpex and Itochu, Norway’s Equinor, Turkish Petroleum (TPAO) and India’s ONGC Videsh Ltd (OVL). Exxon has reportedly been seeking an exit from the project for some time, and the restrictions will make it much harder for the company to reach a sale.
Azne , SOCAR’s main production unit, is to keep its output 17,000 bpd lower in May and June, 12,000 bpd lower from June to December and 6,000 bpd lower a er that. Other interna- tional producers have been told to cut produc- tion by 3,000 bpd, then 2,000 bpd and nally 1,000 bpd.
Gas condensate production will be excluded from the cuts, meaning that the BP-operated
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w w w . N E W S B A S E . c o m Week 18 06•May•2020