Page 5 - FSUOGM Week 33 2019

FSUOGM COMMENTARY FSUOGM
on the back of increased gas supply in Russia and Uzbekistan. Meanwhile Gazprom Neft, another state-owned company but far smaller than Rosne , managed to ramp up output by 5.5% y/y in the rst half to 1.94mn boepd, also thanks to gas contributions.
Gazprom Ne and Lukoil have e ectively worked around OPEC+ restraints on oil pro- duction by focusing more on their gas busi- ness. In contrast, Rosne ’s gas supply slumped 4.7% quarter on quarter to 16.3 bcm in April through June, while its rst-half output was unchanged.
Rosne has traditionally had di culty grow- ing its upstream business organically, relying instead on politically-arranged aquisitions. Its production has risen by an annual average of 3.2% since 2014, but this growth rate was thanks largely to Rosne ’s takeover in 2016 of Bashne , Russia’s fast-growing oil producer at the time with an output of 400,000 bpd.
Gazprom Neft, on the other hand, has expanded production by 9% per year during the same period, mostly through organic means, bringing several key Arctic projects from explo- ration to production.
Part of the issue is that Rosne is burdened with a large number of Soviet-era brown elds, while having few promising green eld develop- ments. In contrast, while Gazprom Ne contin- ues to expand in the Arctic, Lukoil has only just begun exploiting its Caspian Sea resources.
Rosne is developing new deposits in West- ern Siberia and the Volga-Urals area, though many are small in scope. It has also emerged as the dominant player in Eastern Siberia – rst developed a mere decade ago – through its take- over of TNK-BP in 2013 and years earlier, Rus- sia’s former largest oil company Yukos. However, many of the major known elds in this region have either already reached peak capacity or are
considered challenging to develop. Some such as Vankor, where Rosne is partnered with Indian investors, are already in decline.
In April, Sechin claimed to President Vladimir Putin that Rosne could establish a 2mn bpd production hub by exploiting a clus- ter of elds in the Arctic, with the right scal incentives in place. But it could be years before this ambitious plan is nalised, if at all. Its foray into the o shore Arctic ended in failure in 2014, when its US partner ExxonMobil exited the project because of international sanctions. As it stands, the company’s only major Arctic project is Messoyakha, where it has teamed up with Gaz- prom Ne .
Other shortcomings
ere are other areas where Rosne has lagged behind Russia’s other oil majors. Developing pet- rochemicals as a means of diversifying its rev- enue base was a cornerstone in the company’s latest ve-year strategy, approved in late 2017. But it has struggled to make any headway in this area.
Rosne ’s agship Far East Petrochemical Co. (FEPCO) project was quietly shelved earlier this year, a er it failed to secure outside investors or nd a means of supplying it with the neces- sary feedstock. In contrast, Sibur, Gazprom and Lukoil have all advanced new polymer projects over the past two years, as they look to expand in a sector set to be a driving force for global oil demand.
Rosne has also been unable to set itself up as an LNG exporter to rival the likes of Gaz- prom and Novatek, restricting its gas business to domestic sales. It has tried to move several LNG projects forward over the years, without success. Because of these setbacks, it has long since given up hope of overtaking Novatek as Russia’s sec- ond-largest gas producer. ™
One of Gazprom Neft’s major green eld projects is the Prirazlomnoye eld in the Arctic.
Week 33 21•August•2019 w w w . N E W S B A S E . c o m
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