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23-26 April 2019 • Moscow • Crocus Expo

The state of Russian oil & gas: 2018 update

Years of sanctions and drop in global commodity prices hit Russia hard – but as of 2018 the Russian oil & gas industry is feeling resilient. Historically high production figures, plus huge planned investment, are painting a bright picture for Russian energy.
The state of Russian oil & gas: 2018 update

Russia oil & gas industry overview 2018

Even with the wobble in global energy prices, Russia is still one of the world’s foremost hydrocarbons producers and exporters. Energy is integral to the nation’s economy, covering 40% of state revenues, so Russia is fully committed to expanding oil & gas activity well into the future.
According to the BP Energy Outlook for 2018, Russia is project to remain the largest energy exporter in 2018 and beyond. By 2040, it's predicted Russian energy products will account for 5% of global demand.
In oil, production has been reaching post-Soviet highs across the last decade – and that includes being affected by an OPEC-led global supply cut. 
According to BP Statistical Energy Review 2018, Russia’s production, export, and provable reserves look like:
• Production: 11.2 million bpd (12.2% of global total)
• Exports: 8.6 million bpd (12.7% of global total)
• Reserves: 106.2bn barrels (6.3% of global total)
Natural gas activity is much the same: huge reserves and enormous exports:
• Production: 635.6bn cubic metres (m3) (8.2% of global total)
• Exports: 215.4bn m3
• Reserves: 35 trillion m3 (18.1% of global total)
International credit rating agency Moody’s has made a positive forecast towards Russia’s oil & gas performance. Higher exports and production volumes point towards increased revenues for top Russian players, such as Gazprom, Rosneft and Lukoil.
“We expect rated Russian oil & gas companies’ operating cash flows to exhibit strong growth in 2018, which will bolster their already robust liquidity profiles and result from a combination of higher oil prices, a weak rouble, and favourable domestic taxation system for oil exports, the agency said in a recent note. “Stable oil production and improved oil prices will be credit enhancing across the sector.”
Access to finance has been a big issue since sanctions came into place. With the US lobbying for a tightening of such measures, the industry seems to be resilient to the latest American “Bill from Hell”, restricting Russian access to western financial institutes. Russian producers aren’t worried though (more on that later).

Russian oil & gas pivots east

Power of Siberia gas pipeline
Despite European gas exports growing by 30bn m3 in 2017, netting a whopping $37bn in revenues, Russia’s energy future does not potentially lay with the West. Instead, it is gearing up for a major pivot eastward, catering to Asia’s increasingly energy-hungry markets.
China and India are the two largest prizes Russia is hoping to score.
With China, things are off to a great start. The Power of Siberia pipelines are poised to deliver millions of tons of hydrocarbons to there once they come online.
Earliest indicators suggest a 2019 launch date for Russia’s Chinese exports. Via its $20bn Siberia-China pipeline, Gazprom will supply 38bn m3 over to CNPC-owned transmission stations across a 30-year period. Gazprom is expected to pocket $400bn over the course of this deal.
India has been a little trickier to woo. It does not share a land border with Russia, unlike China, so pipelines are out of the question. Additionally, Asia’s second largest nation has been courting the US, whose Shale Gas explosion has turned it from net importer to overall exporter, for LNG supplies.
However, India balanced matters between Washington and Moscow by inking natural gas supply agreements with Gazprom. The world’s No.1 gas company started shipping LNG via container tankers to Indian firms in June 2018; the first such shipments in a 20-year deal worth $25bn to Gazprom.
This puts Gazprom in the number six place in terms of Indian LNG supplies. India itself is Asia’s third largest gas import market, behind China and Japan, so expect to see a tightening of energy relations between it and Russia into the future.

Sanctions can still bite but Russian oil & gas poised to resist

Russian oil derrick at night
Resilience is built into the Russian character. Indeed, the nation has built a reputation for staring down the very scowling face of adversity. Its oil & gas market is no different.
While the US is preparing a fresh round of sanctions against Russia, including plans to hit its banking sector hard, outside energy observers are not worried. 
Firstly, Russia has reduced its reliance on Western funding to ensure project cash flows. Instead, state-owned banks and financial institutions, as well as Russian majors’ soaring profits, are keeping the industry on track. 
Another factor is equipment localisation. Many Russian firms are reliant on internationally-produced equipment and technology required for specialised exploration and production. Arctic, offshore and shale drilling equipment in particularly is in high-demand.
Instead of remaining static in the face of sanctions, the Russian government simply shored up support for domestic manufacturing and localised production of key equipment. Now many companies, like GE, Turboden and Plexus, have set up Russian production sites. This gives them the status of Russian manufacturers and prevents them from being affected by the US’ legislature.
Russia’s robustness can be seen in the fact production actually grew 6% overall between 2012-2016 - the time when the twin woes of sanctions and economic turndown were hitting hardest.
Again, Russian majors are seeing their profits soar. Just look at Rosneft. In March 2018, the company said its fourth quarter profits had doubled year-on-year, showing the strong fundamentals (strong production, rising prices) behind Russia’s oil & gas renaissance.

Foreign companies still welcome in Russia’s oil & gas industry

Russian oil pumps in the snow

Despite sanctions, oil & gas companies remain pragmatic towards Russia. The nation’s vast mineral wealth, and willingness to extract it, means international businesses are keen to keep collaboration with Russian majors rolling.
For instance, Total bought a 10% stake in a proposed $25.5bn arctic gas project operated by Russian partners Novatek earlier in 2018.
“This project fits into our strategic partnership with Novatek and also with our sustained commitment to contribute to developing the vast gas resources in Russia’s far north,” Patrick Pouyanné, Total CEO, told the Financial Times.
This comes off the back of UAE-based Mubadala Petroleum purchasing a 44% share in Russian oilfields in the Tomsk and Omsk regions; just one of the company’s various contracts with Rosneft and Gazprom.
Opportunities abound in Russia’s oil & gas market. It’s up to you to find them. Let the Moscow International Oil & Gas Exhibition, MIOGE, do the hard work for you.

Join us at MIOGE 2019: Russia’s foremost international oil & gas exhibition

MIOGE is the meeting place for the international community and Russia’s oil & gas industry. Over 560 companies trust the show to let them meet and do business with representatives from across the value chain.
Russian majors, including Gazprom, Tatneft, Rosneft and Lukoil, attend the show every year. Why? To meet new partners and suppliers of in-demand oil & gas equipment and technology.
To reserve a stand, click here.
Want more information on how MIOGE can help grow your business in Russia’s enormous oil & gas industry? Contact our team today.