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Don’t bet on Russia capping oil output

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Don’t bet on Russia capping oil output

Unread postby dissident » Mon 03 Oct 2016, 17:25:16

https://www.ft.com/content/8741742a-864 ... 59a58ac7a5

In spite of the sharp fall in the price of oil since 2014, the Russian oil industry is healthy and production, confounding many predictions to the contrary, is growing steadily.

Indeed, boosted by the launch of several greenfields this month, Russian oil output has gained around 200,000 barrel per day in September alone to a post-Soviet record of 11.18m barrels per day.

Although this booming rate of output gains cannot be sustained; slow, steady production increases from these levels will remain the norm at least until 2020. So how is this dichotomy of rising production and sharply lower oil prices possible?

First, Russian oil production is highly profitable on a pre-tax basis, much more so than is generally understood. Second, both the Russian oil tax regime and the rouble are highly geared to oil prices, cushioning wellhead margins and keeping overall well economics for producing companies surprisingly stable in almost any oil price environment.

The precipitous fall in oil prices since mid-2014, from over $100 per barrel to just below $50 a barrel today, has resulted in a rapid reduction in investment in the global oil industry, which has naturally resulted in a significant reduction in field-level activity.

Most visibly, the number of working US oil rigs has collapsed by about 75 per cent from the 2014 peak. Canada (-79 per cent), Latin America (-54 per cent), and the Asia-Pacific region (-32 per cent) also all saw significant drops in rig activity. Even in the Middle East, where Saudi Arabia is in the process of taking market share, the number of rigs in operation has fallen 12 per cent from 2014 peak levels.

Russia, however, is clearly bucking this trend. Although upstream capital expenditure in the country has fallen in dollar terms, that has been entirely due to the sharp fall in the rouble. Drilling activity itself has actually risen by 25 per cent since 2014, driving a steady rise in Russian oil output even as the rest of the non-OPEC world sees various degrees of declines.

This increase in oil production despite sharply lower oil prices has caught many observers by surprise. In December of 2014 Opec forecasted a small, 10,000 bpd production loss for Russia in 2015, while the International Energy Agency predicted a more significant 90,000 bpd fall. In reality Russian output went up by about 140,000 bpd.

In December of 2015 Opec again predicted a decline in Russian output for 2016, this time of around 70,000 bpd, while the IEA anticipated “largely flat” output. In the event, Russian production broke through the 11m bpd level in early September, and with the launch of several new greenfield projects hit 11.18m bpd by September 20, the highest level since 1989 when Russia was still part of the Soviet Union. Looking forward, we expect Russian oil production to continue to climb, if less dramatically, for the medium term until hitting about 11.5m bpd in 2020.

So how has Russian oil production been able to outperform the forecasts of knowledgeable observers, increasing production in spite of low oil prices?

We see two general reasons: First, contrary to common misconception, Russia’s oil production is not a high-cost venture. Instead, the typical Russian barrel of oil resides far down the cost curve, generating economic value even at oil prices below $20 per barrel, although the bulk of that economic value goes to the Russian government via taxes, rather than to producers in the form of profit.

Second, both Russia’s oil tax regime (explicitly) and the free-floating rouble (in effect) are tied to the price of oil. The combination of an automatically-adjusting tax burden and rouble work to act as a very effective cushioning mechanism for wellhead operating margins.

The union of only modestly lower, and generally stable, wellhead margins and sharply lower upfront well costs has served to keep new well economics for producers surprisingly stable in almost any oil price environment for Russia’s oil companies. Indeed, we estimate that the returns of a standard vertical well in West Siberia today are the same or even higher than what would have been earned on that same well in June of 2014 when oil was around $112 a barrel.

This somewhat counter-intuitive result — that field-level returns could be stable in spite of sharply lower oil prices — is probably what has caused otherwise knowledgeable observers to serially underestimate Russia’s production potential the last few years.

So what does this imply for Russian oil production going forward?

In short, with a stable return environment and substantial geological resources left to tap, we see Russian oil production continuing its slow climb for at least the next five years. While the increase in any given year is unlikely to be large enough to move the needle on global oil markets, neither can other global producers look to Russia for help in reining in output to boost the price of oil.


According to the consensus at the defunct Oil Drum Russia should have been well past peak by now.

http://www.theoildrum.com/node/3626

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Re: Don’t bet on Russia capping oil output

Unread postby Plantagenet » Mon 03 Oct 2016, 17:40:32

dissident wrote:According to the consensus at the defunct Oil Drum Russia should have been well past peak by now.

http://www.theoildrum.com/node/3626

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Actually, the "high case" prediction published in the "oil drum" puts the peak in Russia around 2015-16.
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Re: Don’t bet on Russia capping oil output

Unread postby dissident » Mon 03 Oct 2016, 19:32:53

Plantagenet wrote:
dissident wrote:According to the consensus at the defunct Oil Drum Russia should have been well past peak by now.

http://www.theoildrum.com/node/3626

Image


Actually, the "high case" prediction published in the "oil drum" puts the peak in Russia around 2015-16.


I don't recall high cases being considered the most probable in any of the TOD discussions and articles. Also, it is 1.5 million barrels per day short this "high" case. That projection graph is a joke.
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Re: Don’t bet on Russia capping oil output

Unread postby StarvingLion » Mon 03 Oct 2016, 19:35:07

BREAKING NEWS UPDATE: U.S. suspends diplomatic contacts with Russia
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Re: Don’t bet on Russia capping oil output

Unread postby ennui2 » Mon 03 Oct 2016, 19:38:39

Yep, the oil drum is a real useful time-capsule and a cautionary tale for those who are all too cocky about their predictions (you know who you are).
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Re: Don’t bet on Russia capping oil output

Unread postby GHung » Mon 03 Oct 2016, 21:39:14

StarvingLion wrote:BREAKING NEWS UPDATE: U.S. suspends diplomatic contacts with Russia



U.S. breaks off diplomatic talks with Russia to end bloodshed in Syria


The Obama administration made good on an ultimatum Monday and withdrew its cooperation with Russia over Syria, while Moscow suspended a key nuclear weapons treaty it had signed with Washington more than a decade ago.

With the two governments signaling their anger at each other, U.S.-Russia ties hit one of their lowest points since the 1991 collapse of the Soviet Union.

Exasperated over relentless Russian and Syrian airstrikes on the battered city of Aleppo, Washington announced it was breaking off bilateral talks with Russia over Syria's fate and canceling plans to share military intelligence and operations-related information with Moscow.

"This is not a decision that was taken lightly," State Department spokesman John Kirby said in a statement.....

http://www.latimes.com/world/middleeast ... story.html
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Re: Don’t bet on Russia capping oil output

Unread postby ROCKMAN » Mon 03 Oct 2016, 22:10:53

Ghung - Dang, the US and Russia can't agree on the pathway to a new world order??? Well f*ck...just lost a lunch bet! What next...the Israelis and Palestinians stop being buddies? LOL.
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Re: Don’t bet on Russia capping oil output

Unread postby dissident » Mon 03 Oct 2016, 22:26:28

ROCKMAN wrote:Ghung - Dang, the US and Russia can't agree on the pathway to a new world order??? Well f*ck...just lost a lunch bet! What next...the Israelis and Palestinians stop being buddies? LOL.


Israelis and Palestinians have a bloody history. Where is there any similar history between Russia and the USA? Cold war hate propaganda does not form an equivalence with a bloody history. The current hate propaganda about Aleppo doesn't either.

http://www.voltairenet.org/article169488.html
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Re: Don’t bet on Russia capping oil output

Unread postby Tanada » Tue 04 Oct 2016, 07:32:47

dissident wrote:
ROCKMAN wrote:Ghung - Dang, the US and Russia can't agree on the pathway to a new world order??? Well f*ck...just lost a lunch bet! What next...the Israelis and Palestinians stop being buddies? LOL.


Israelis and Palestinians have a bloody history. Where is there any similar history between Russia and the USA? Cold war hate propaganda does not form an equivalence with a bloody history. The current hate propaganda about Aleppo doesn't either.

http://www.voltairenet.org/article169488.html


During 1919-1920 the USA sent troops to northern Russia to aid the "White Army" or the Republicans that was fighting the "Red Army" of the Communist in the center of the country and the "Black Army" of the Anarchists fighting in the southern area.

Lenin. Trotsky and Stalin to name a few leaders never forgot nor forgave those actions by the UK and USA. Russia is nearly the only country in Europe where American military personnel came under arms but did not succeed in dominating the country for a generation or more. I don't know how Putin feels about it, but I doubt he has warm fuzzy feelings towards the USA.
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Re: Don’t bet on Russia capping oil output

Unread postby ennui2 » Tue 04 Oct 2016, 08:19:13

The cold war is supposed to be over. Putin didn't get the memo and stokes the fires in order to accumulate power. Meanwhile, most people here run defense for the guy, because "western hegemony".
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Re: Don’t bet on Russia capping oil output

Unread postby AgentR11 » Tue 04 Oct 2016, 13:52:43

ennui2 wrote:The cold war is supposed to be over. Putin didn't get the memo and stokes the fires in order to accumulate power. Meanwhile, most people here run defense for the guy, because "western hegemony".


"most people" is a huge overstatement. A few, at best, are "pro" Putin.

I am certainly not pro-Putin, but I am extremely ANTI wish-casting. Which is what I see a lot of NATO side trolls doing, repeatedly. Putin is most certainly an enemy of what I refer to as the Atlantic Empire (a kinda loose net of NATO & EU affiliations); and rightly so, as Russian national interests are, for the most part, very much in opposition of the Atlanticist's imperial interests.

The problem is that people seem desperate to underestimate the capabilities that Putin brings to the table; and he is an exceptional strategist, both military and economic; and is able to turn just about any circumstance into enhanced power for himself and improved self reliance for Russia. That underestimation and downplaying of Russia works hugely to the benefit of Putin. The second bit of wishcasting is this idiotic notion that Putin's replacement will come from the Western loyal "liberast" faction as they are called. Nothing could be further from the truth; those guys barely move 5% of the population, and they are doing everything in their power to reduce that number even further as we speak. No, Putin's eventual replacement will either be a Western ambivalent technocrat, or a communist hot head who thinks it would be a great idea to nuke every city allied with NATO, just for fun.

As to the "cold war"?? It never ended. We had a chance to end it, but instead of ending it, we looted the crud out of Russia, and let her people experience the possibility of strategic food insecurity, aka, hunger. By doing so, we guaranteed that Russia would remain our useful enemy for the remainder of the 21st century.
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Re: Don’t bet on Russia capping oil output

Unread postby StarvingLion » Tue 04 Oct 2016, 14:36:05

The Secret Agent R11 and dissident were probably cheering on this news....at least someone has the spine to kick out SpyWareSoft. And who wouldn't love a guy that says "renewables" are a pile of steaming shit. Thats the thing with Putin, ...it appears he has a spine, while we are left with the ennui2's and Rock Puppets types..."how far do I bend over, Sir?".

Putin Bans Bill Gates And Microsoft From Russia - Your News Wire
yournewswire.com/putin-bans-bill-gates-microsoft-russia/
5 days ago - Russian President Vladimir Putin has banned Microsoft products from Russia and placed Bill Gates on a Federal Security Service watchlist. Citing “concerns over security and reliability,” Putin has ordered the removal of Microsoft software to begin immediately.
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Re: Don’t bet on Russia capping oil output

Unread postby AgentR11 » Tue 04 Oct 2016, 15:09:34

??? See this is the problem with framing everything in a good vs evil context.

Banning MS products is simply a Russian compensation for sanctions in order to keep their foreign exchange balances relatively even. Because of the way WTO rules are written, they can't just say, "We're banning MS products in order to compensate for artificial forex pressures created by Western sanctions."

The problem with Western response, eg, sanctions, is that it EMPOWERS Putin to pick winners and losers, giving him excuses to do things like the above. There's nothing essential about MS products, they're just easier to go with than open source or Russian specific alternatives; all of which will type up a letter or run a database query just fine.
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Re: Don’t bet on Russia capping oil output

Unread postby dissident » Tue 04 Oct 2016, 16:07:32

Tanada wrote:
dissident wrote:
ROCKMAN wrote:Ghung - Dang, the US and Russia can't agree on the pathway to a new world order??? Well f*ck...just lost a lunch bet! What next...the Israelis and Palestinians stop being buddies? LOL.


Israelis and Palestinians have a bloody history. Where is there any similar history between Russia and the USA? Cold war hate propaganda does not form an equivalence with a bloody history. The current hate propaganda about Aleppo doesn't either.

http://www.voltairenet.org/article169488.html


During 1919-1920 the USA sent troops to northern Russia to aid the "White Army" or the Republicans that was fighting the "Red Army" of the Communist in the center of the country and the "Black Army" of the Anarchists fighting in the southern area.

Lenin. Trotsky and Stalin to name a few leaders never forgot nor forgave those actions by the UK and USA. Russia is nearly the only country in Europe where American military personnel came under arms but did not succeed in dominating the country for a generation or more. I don't know how Putin feels about it, but I doubt he has warm fuzzy feelings towards the USA.


Sorry but you are off by a long shot. This invasion in support of the whites is barely remembered in Russia. The Americans did not slaughter any villages during this failed adventure. It would be like saying that Americans are still bitter at Canada for the burning of Washington and the White House in 1814 when Canada was still part of the British Empire. The feelings of Trotsky and Lenin are utterly irrelevant in modern Russia. Most Russians do not remember the Bolsheviks fondly and the view of Stalin is ambivalent. He actually was not a bad war manager but the rest of his record is blood soaked vis a vis Russians and other ethnic groups. Again, his views on the invasion in the wake of the 1917 Revolution are irrelevant and certainly do not shape Putin's perceptions.

It is the USA 100% of the time that is trying to instigate conflict with Russia and has a hate hard on for it. It is rather strange why this hate is not mirrored in Russia itself.
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Re: Don’t bet on Russia capping oil output

Unread postby StarvingLion » Tue 04 Oct 2016, 18:40:23

we have Russia surrounded with our military bases.


Oh my gosh, there could be a war instead of the usual kabuki theatre designed to fool the suckers still watching TV that don't know the war is on them.

Forget about it...I'm sure Russia\Iran actually has a competent missile defense and thats all thats needed to disable the fraud show. I'm sure there is better way of wasting all the fake money such as building 50,000 Wind turbines in the ocean that fall apart almost instantly.
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Re: Don’t bet on Russia capping oil output

Unread postby vtsnowedin » Tue 04 Oct 2016, 19:03:25

You mean to say that Secretary Clinton's Russian Reset button didn't work.
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Re: Don’t bet on Russia capping oil output

Unread postby GHung » Tue 04 Oct 2016, 22:13:32

pstarr wrote:diss, sounds like Tanada buys into the Russian-Aggressor meme. I don't. The US is the aggressor, we have Russia surrounded with our military bases.


Meh,, there's enough blame to go around. Two roosters in a shrinking chicken yard.
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Re: Don’t bet on Russia capping oil output

Unread postby dissident » Tue 04 Oct 2016, 22:41:40

GHung wrote:
pstarr wrote:diss, sounds like Tanada buys into the Russian-Aggressor meme. I don't. The US is the aggressor, we have Russia surrounded with our military bases.


Meh,, there's enough blame to go around. Two roosters in a shrinking chicken yard.


The yard of the American rooster is about six times larger than that of Russian rooster and it is feeling threatened by the shrinkage and thinks it can stave it off by attacking the other rooster and grabbing his turf.
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