How did we get to this point – Newspaper Kommersant No. 2 (7447) dated 01/10/2023

According to Kommersant, the Russian oil industry increased production by 2% in 2022, to almost 535 million tons. Among the largest oil companies, Surgutneftegaz’s production grew more rapidly, which, according to the results of last year, became the third largest in terms of production, overtaking Gazprom Neft. Of the four largest oil producers, only Rosneft reduced production. However, experts expect a reduction in the production of raw materials in January-February due to the application by the EU and the US of a ceiling on prices for oil and oil products.

The Russian Federation increased production by 2% in 2022, to almost 535 million tons, Kommersant sources familiar with the production results told Kommersant. Thus, almost all major oil companies have increased production. At LUKOIL, it increased by 6%, to 81 million tons. At the same time, the top three in terms of production is now closed by Surgutneftegaz, which increased production by more than 7%, to 59.6 million tons. The company displaced Gazprom Neft to fourth place, which in 2022 increased production by almost 5%, to 59.1 million tons.

The largest Russian oil company Rosneft, which, along with Gazprom Neft, fell under blocking EU sanctions, reduced production by 2% in 2022, to 178.5 million tons. The independent oil and gas company of the former head of Rosneft, Eduard Khudainatov, has increased production tenfold since 2020, to more than 20 million tons, mainly due to production assets that were acquired from Rosneft.

Russian oil companies in 2022 tried to adapt to the EU and US sanctions that were imposed once morest the Russian Federation for the outbreak of hostilities in Ukraine. These sanctions led to difficulties in maritime exports and a decrease in production in the spring of 2022, which forced the Russian Federation to redirect flows to Asia. At the end of the year, oil exports to non-CIS countries via pipelines and the sea increased by almost 19%, to 207 million tons. At the same time, on December 5, the EU and the US introduced a ceiling on Russian oil prices of $60 per barrel, which, according to Russian Deputy Prime Minister Alexander Novak, might lead to a decrease in oil production in 2023 by 7-8%. Recall that the Russian authorities at the end of last year banned Russian oil companies from February 1, 2023 from selling oil under contracts that directly or indirectly contain the ceiling mechanism introduced by the US and the EU.

On February 5, the EU will also impose an embargo on Russian oil products. “If problems arise with the sale of petroleum products, oil refining to some extent can be replaced by additional volumes of oil exports,” Alexander Novak said in an interview with TASS.

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In 2022, the volume of Russian oil refining decreased by almost 4%, to 275 million tons. Basically, the fall occurred in the spring of 2022, while then it was the additional loading of refineries that allowed oil companies to maintain production volumes, despite difficulties with exports. In the context of high oil prices, refining was stimulated by significant damper payments from the budget, which, as Kommersant reported, amounted to regarding 2.2 trillion rubles in 2022.

Production in 2023 may be more affected by the EU embargo, most likely, alternative oil supply channels will develop, but it will take time to build them, notes Maxim Malkov from Kept. He admits that a drawdown in oil production will be observed in January-February, while new supply chains are being built, but then production will be restored. As a result of the decrease in production predicted by the authorities of the Russian Federation, wells with a high level of water cut can be withdrawn from circulation, the expert believes.

“Russia in February may indeed face a rather strong decline in demand for oil from oil refining, as the EU market is still a key direction for Russian exports of oil products, and redirecting oil product flows to new markets may be more difficult and take longer compared to the oil market ”, – says Sergey Kondratiev from the Institute of Energy and Finance. According to his estimates, in February the demand for oil from Russian refineries may be reduced by 2.8–3.2 million tons compared to January, and production by 2.5–3 million tons.

Dmitry Kozlov

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