Page 23 - RusRPTJul22

Technological isolation remains a threat for Russia as well: international contractors won’t be able to implement complex projects such as extracting oil from hard-to-recover reserves. In the absence of investments and foreign technology, drilling activity will decrease, and oil production may drop as much as 17% by the end of 2022.
Asia will at least partially save Russia from the loss of its key export market.
The main alternatives to Europe are India and China. Russia has already begun reversing its trade flows to those partners: in April, Russia supplied 0.63mn barrels per day to India, compared to the 0.27mn barrels per day it sent in March (and it sent almost nothing in February). Chinese independent producers have also begun ramping up their purchases, importing 20% more in April than in March.
But according to an estimate from the analytics company Rystad Energy, even in the best case scenario, Russia will only be able to find buyers for 1mn barrels per day — about a third of what it’s losing due to the embargo (2.7mn barrels per day). India and China have other suppliers in the Middle East, and they can’t just break those contracts on a whim — not that they'd even want to, given the high sanctions risks Russian poses under the current circumstances, according to Energy Intelligence New York Bureau Chief John van Schaik.
Even if Russia manages to redirect its oil local buyers will demand major discounts. In early May, for example, Indian buyers demanded to be charged less than $70, citing logistics costs and sanctions risks.
Another factor that threatens to restrain the growth of Russian exports to Asia is the ban on ship insurance, which could pose problems with transporting oil on tankers. That’s an important detail of the embargo: in order to undermine Russia’s efforts to redirect its exports to Asia, the EU and Great Britain have agreed on a ban (to come into force in six months) on insurance for tankers delivering Russian gas anywhere in the world. Transporting oil by sea requires insurance against spill as well as coverage of each individual ship. Without insurance, carriers will simply opt out of transporting Russian oil to avoid the risk.
Additionally, most of the companies providing insurance to the global oil trade are European. Between February 24 and March 22, more than 70% of the oil shipped from Russian ports through the Baltic and Black Seas was carried by ships belonging to EU countries, the US, and Great Britain. If these tankers are unable to transport Russian oil, Russia will have to enlist Asian companies, which will raise transportation costs.
There are also infrastructure limitations. The main pipeline connecting Russia and China, the Eastern Siberia–Pacific Ocean pipeline, can only increase its circulation by 300,000 barrel per day. Vladimir Putin has already instructed the government to increase energy export infrastructure to Asia, including by constructing new oil and gas pipelines from Siberia, as well as by developing the Northern Sea Route and a shipping passage along the Arctic coast.
23 RUSSIA Country Report October 2020 www.intellinews.com