Until the last barrel

Analyst Mikhail Krutikhin - About the chances of oil exporting countries to limit the production, its upcoming decline in Russia and about the period of low prices

World oil prices over the past few days have increased by less than 1%. Somehow little for the week, when negotiations of OPEC countries began, and even with the participation of Russia. The markets doubt not only in the agreement on any restriction of oil production in the current conditions, but also in whether it will be observed . In Russia itself, the expert notes, the collapsed oil prices sharply brought the exhaustion of deposits with the least costly production. And by the end of the year, the country may begin to decline in oil production volumes, and rapidly increasing.

In January 2016, the volume of oil production in Russia reached the next post -Soviet maximum - 10.8 million barrels per day. If so, then it can be assumed that the increase in extraction in relatively “young” deposits blocks its natural reduction into older, long -mastered? Or is it not? Our interlocutor in Moscow is Mikhail Krutikhin , partner of the Rusenergy consulting agency:

- First of all, it must be taken into account that this increase in production will not be reached in new deposits. The main increase was provided by companies such as Tatneft or Bashneft, which operate mainly in old deposits. All major companies have Rosneft, Lukoil, Surgutneftegaz, on the contrary, the booty fell: somewhere per percentage, somewhere - on a percentage of a percentage. Two more projects on Sakhalin showed an increase in production, which work on the terms of agreements on the division of products, but we do not observe new deposits, as such.

There is a situation when the two largest oil consumers in the world reduce the demand for it. Whereas the supply of oil in the market, on the contrary, will grow.

The OPEC itself in the next report, presented last week, predicts, in particular, that in 2016, oil production in Russia will be reduced by 60 thousand barrels per day (0.06 million barrels) - this is approximately 0.5% of current production in the country. To what extent do such forecasts correlate with yours-say, in the next 2-3 years?

- We assume that the decline in production in Russia can begin at the end of this year or at the beginning of the next. Moreover, with a small one - maybe by 0.5 million barrels per day - it will grow very quickly. Precisely because oil companies, project operators focused on extracting easily produced oil in existing fields. And vice versa, companies sharply reduced investments in drilling where oil extraction is fraught with additional expenses, investments in difficult reserves, they do not invest in new projects, including oil exploration. Yes, and in the current crafts, companies do not always act according to the optimal development scheme. That is, they remove oil as quickly as possible, which only contributes to their rapid devastation. And since there are not many such “reserves” in Russia, the reduction in production at such deposits with a high degree of probability can be expected at the beginning of next year.

When Western technological sanctions against Russia were introduced in 2014, most analysts converged in the fact that these sanctions would limit the development of production at the shelf, deep -sea deposits or others with difficult to recover reserves. That is, where the role of the latest technologies is especially great. But they will not affect the development of already developed deposits, for example, in Siberia. A year and a half has passed since then. How then, in your opinion, are the then assessments that remain relevant today?

- Indeed, the sanctions did not affect the development of existing deposits. As for the projects of hard -to -recover oil, to which they extended, or to shelf projects, here they were simply unnecessary. Since the drop in oil prices and without them made such a production unprofitable. Say, if we talk about the hard -to -recover oil, and its share in Russia accounts for about 70% of all the remaining real reserves, then the cost of such a barrel will be about $ 80. And on the Arctic shelf - about $ 150 per barrel. Therefore, Russian companies and without any sanctions turned all their plans for the development of deposits with hard -to -reclaimed reserves or the same shelf. And the sanctions “work” only on some separate projects. Say, on the South Kirinsky gas condensate field near Sakhalin, there the sanctions very seriously impede its development.

Now Iran has every chance not only to return to the Mediterranean markets, but also to capture new ones in Europe.

Due to low oil prices, the volume of world investments in the oil industry in 2015, according to various estimates, was reduced by 20-25% immediately-this has not been for many years, which, of course, undermines future prey. How soon can such decline in investments affect the real volumes of production?

- We already now see that Russian companies have turned their investment programs or budgets for field development by an average of 30%. Moreover, they have to save today not only on these budgets. They also stop paying their contractors, service companies for already completed work. For example, since the beginning of 2016, the same Rosneft has not paid none of them a dime and now has been negotiating that in the future only half of the contract amount can pay in the future. So there is simply no money for new projects and development for Russian oil companies! The lack of funds, as well as the fact that the companies have now focused on pumping oil on existing crafts, suggests that the fall of production volumes in the country can be very, very fast. When it begins, perhaps the forecast of Russian companies themselves will be justified, which predict: if production is approaching 11 million barrels per day, then after 20 years, in 2035, oil production in Russia can be less than 6 million barrels per day. That is, the fall will be very cool!

Forecasts show that we entered a long -term abundance of cheap oil with stagnant general demand for it. So low prices, apparently, will stay with us for a long time.

The cost of oil production in Russia in long -mastered fields, as it is believed, is one of the lowest in the world - $ 5-7-10 per barrel. However, at some Middle Eastern deposits, it can be only $ 1-2. But for Russian oil companies themselves, at oil prices at $ 30-40 per barrel, if they persist for a long period of time, how large is the margin of strength of their business?

- Now, if we consider the full cost of oil, which is sold for about $ 30, then about $ 7 of them are actually operating costs for oil extraction from the ground. Next - transportation: to Europe - 4.5 dollars per barrel, in China - $ 5.1. Plus, administrative and marketing costs of companies are about $ 4. Taxes-about 11 dollars now it turns out. And if we take into account the necessary depreciation of their production funds, it turns out that the companies now, selling oil for about $ 30 per barrel, do not actually leave anything for themselves. In other words, this is the very limit on which they can still work. But for a long time, there will be enough current deposits in the country with a relatively low cost of production - the question is open. It is possible that they will be enough for about five or six years.

Russian companies and without any sanctions turned all their plans for the development of deposits with hard -to -reclaimed reserves or the same shelf. And the sanctions “work” only on some separate projects.

Regarding any possible agreements of countries - global oil producers - within the framework of OPEC and outside the OPEC - on the possible reduction of production ... it is one thing when the states that control the oil industry try to agree to agree. Although there is no unity even in the OPEC itself, and so far no signs are not visible ... But, as the recent negotiations of a number of OPEC countries with the participation of Russia showed, any restrictions in principle will become possible only if other large oil -producing countries agree to them. Now let's try to imagine such negotiations, for example, with the United States, where the oil industry is presented today not only by a small group of largest private corporations, but also by hundreds of smaller companies? .. Or even with such a country as Norway, although the main oil company belongs to the state ...

- Now, when the market is sharpened with oil, and demand is growing very poorly , it is quite obvious that any of the companies that produce and export oil only fights for itself. In fact, they no longer pay attention to the price of oil and give gigantic discounts to customers - only in order to stay on the market, save their niche on it, and may even expand it. It is completely pointless to conduct such negotiations with the United States or Norway, but even with Russia, in my opinion, since the Russian Ministry of Energy does not regulate either oil production or its consumption or exports - oil companies themselves are engaged in this. In addition, Russia is a very “inflexible” country in terms of oil production and its exports. Firstly, it has no capacities for storing excessive oil produced for some time, such capacities simply do not exist. The second reason is technological. In conditions of cold climate in Siberia, any suspension of prey will inevitably entail a stop of wells. And the resumption of prey in these deposits will cost very expensive, because in fact, new wells will have to be drilled. The suspension of oil flow from the current well leads to its blockage. And this will be an accident, after which it will be necessary to start the arrangement of the providence.

Moreover, Rosia companies have to save today not only on investments. They stop paying their contractors, service companies for already completed work.

And Saudi Arabia intends to expand the supply of oil to the European market, and now Iran seeks to regain the previous share of the European market . We are also talking about countries that have traditionally been large oil buyers from Russia, to which local oil refineries were oriented. In this sense, the qualitative difference between Russian oil and, say, the same Iranian - how significant is the factor for a new aggravation of competition in the European market? If at all ...

- It can be remembered that, for example, Greece 32% of all oil consumed in the country received from Iran. With the departure of Iran from this market as a result of international sanctions, Greece switched to the purchase of oil from Russia and other suppliers. Now Iran has every chance not only to return to the Mediterranean markets, but also to capture new ones in Europe. Moreover, he offers his oil already at $ 17 per barrel - this is a very competitive price, in comparison, for example, with the same Russian deliveries. And the difference as oil is not so important: oil refineries operators, purchasing both light oil and heavier, can make up a certain cocktail of its different varieties, which will be easier to process on their equipment. So this is a solved problem. The main thing here, of course, is discounts that will provide European customers with new suppliers, such as Iran.

If Iran, as you say, offers its oil in Europe at $ 17 per barrel, then how comparable to the offer of oil from Russia here?

- Oil of approximately similar quality, Russian companies could supply about $ 25-26 per barrel, but still this oil is easier and with a lower sulfur content than Iranian. Therefore, it is difficult to compare.

In other words, this is the very limit on which Russian companies can still work.

According to various estimates, an excess of oil in the world today is about 2 million barrels per day, that is, a sentence is almost 2% higher than real demand. According to those forecasts that are presented to you most adequate, in 2016 and 2017 this excess will be reduced more from the proposal or by demand?

- I think that both factors will work about equal intensity. We see, for example, a slowdown in the economic growth rate of China, and it seems to me that it is possible that by 2018 it will slow down very significantly. This means that the demand for energy from China will be reduced. On the other hand, the demand for oil and in the United States is reduced. There is a situation when the two largest oil consumers in the world reduce the demand for it. Whereas the supply of oil in the market, on the contrary, will grow. After all, a number of projects, including rather difficult in terms of production, where the necessary investments have already been made, will continue to develop by inertia. So - to issue and issue new oil. It is also necessary to take into account Iraqi and Iranian factors: these two countries are strongly tuned to increase their exports.

If you continue this logic, the chances of any significant increase in world oil prices are not yet visible?

- Yes, if we focus on fundamental factors, such as the balance of supply and demand, we will see that all forecasts for the near future - from 2 to 10 years - show that we entered a long -term abundance of cheap oil with stagnant general demand for it. So low prices, apparently, will stay with us for a long time. If, of course, some non-market factors do not intervene-such, say, as some military operations in the area of crafts on the Arabian Peninsula or a war in the Persian Gulf, God forbid ...