Page 10 - FSUOGM Week 40 2019

FSUOGM POLICY FSUOGM
Rosneft continues to de-dollarise
RUSSIA
Shifting in euros is likely to raise Rosneft’s transaction costs.
ROSNEFT has set the euro as the default cur- rency for all its new export contracts, Reuters reported on October 3.
This is just the latest step in Russia’s efforts to de-dollarize its economy and reduce its exposure to the US financial system and the reach of US sanctions.
The Bank of Russia has also further cut its holdings of US dollars: in the year to April 2019, the share of central bank foreign-exchange reserves fell from 43.7% to 23.6%, while the euro share rose from 22.2% to 30.3%, and the yuan from 5% to 14.2%.
Shifting in euros is likely to raise the transac- tion costs for Rosneft (apart from anything else, the majority of its $44bn net debt is in dollars).
On the other hand, as Russian First Deputy Prime Minister and Finance Minister Anton Siluanov noted last year, a range of Russian exporters are moving to trading in euros because
dollar payments are increasingly being delayed as banks conduct sanctions-related checks with the US Office of Foreign Assets Control before releasing funds.
Could Rosneft’s move have wider ramifica- tions? If, in the future, a large share of Russia’s oil exports are transacted in euros, the Ministry of Finance and the Bank of Russia might have to reconfigure the budget rule (which is based on a dollar-oil reference rate).
Elina Ribakova, deputy chief economist at the International Institute of Finance argued earlier this year that there is a strong case for a crude benchmark in euros. This would help the EU to internationalize the euro and foster European economic sovereignty. Likewise, the Kremlin would see the emergence of the petroeuro as a way to undermine the global dominance of the dollar and the US financial system. ™
PERFORMANCE
Third of large Russian oilfields unprofitable: Rosnedra
RUSSIA
Rosnedra assessed 593 fields with more than 36.7mn barrels of reserves.
RUSSIAN subsoil licensing agency Rosnedra has taken an inventory of Russia’s major oilfields, concluding that one third of them are unprofit- able to develop.
Rosnedra was ordered to conduct the inven- tory for the government, its deputy director Orest Kasparov was quoted as saying by Mos- cow-based Vedomosti on October 3. Some 2,700 fields in total were assessed, with total reserves of 28.9bn tonnes (212bn barrels) of oil. Of these, 593 fields were estimated to hold 5mn tonnes (36.7mn barrels) or more, amounting to a total of 17.2bn tonnes (126bn barrels).
A third of these larger-sized fields are cur- rently unprofitable to exploit, Kasparov claimed. Almost three-quarters of these unprofitable pro- jects are located in Russia’s Urals district, which is also where more than 60% of the profitable ones are situated, he said.
Kasparov did not comment on how these estimates were calculated. And Rosnedra’s assessment could even be overly optimistic, Vygon Consulting analyst Daria Kozlova told Vedomosti.
“The assessment was made under a very pos- itive macro scenario with an oil price of $70 per barrel and of course 65 rubles to a dollar,” she told the newspaper.
Furthermore, she warned that not all the
reserves included in the study were technically recoverable. In fact BP, in its latest annual sta- tistical review of world energy, estimates Rus- sia’s recoverable-only, proven oil at only 14.6bn tonnes (107bn barrels).
Neither Russia’s energy nor natural resources ministries have commented on the assessment, which is yet to be formally published.
“We need to strike a balance between the benefits of the state and the benefits of subsoil users,” Kasparov said, cautioning that many deposits were so different in characteristics that it was difficult to develop a common criteria for tax incentives and other support. This summer, Moscow ordered a moratorium on the intro- duction of new fiscal benefits at oil projects until Rosnedra’s inventory had been finalised.
The energy ministry expects Russian oil pro- duction to start declining after 2022. National output edged down to 11.25mn barrels per day in September, from 11.29mn bpd in August.™
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Week 40 09•October•2019