global oil market trends - erina · russia-asia oil trade •creation of an oil infrastructure in...

Alexey GROMOV,PhD, Principal Director on Energy Studies

Institute for Energy and Finance

GLOBAL OIL MARKET TRENDS AND

RUSSIA'S ENERGY STRATEGY

The Tenth Japan-Russia Energy and Environment Dialogue (JREED)Niigata, Japan

14th November 2017

1

Global Oil Market Trends

The Tenth Japan–Russia Energy and Environment Dialogue in Niigata A-GROMOV

©ERINA

2

Global Oil Market Have Stabilized after 2015-2016 Turmoil

Oil Prices

Source: Bloomberg

• OPEC + Non-OPEC countries November 2016 decision to cut production (the Agreement)supported global oil prices and reduced price volatility.

• In January-October 2017 Brent price was $ 6.2 per barrel higher than before the Agreement.Also the prolongation of the Agreement in late May 2017 supported prices.

• In November 2017 the oil price has hit $64-65/bbl (Brent). It’s highest level since July 2015.

20

25

30

35

40

45

50

55

60

65

70

01/15 04/15 07/15 10/15 01/16 04/16 07/16 10/16 01/17 04/17 07/17 10/17

$/bbl Brent WTI

OPEC+ Agreement

OECD commercial stocks reductionDecrease during

2015

3

The Agreement to Cut Production Allowed Its Participants to Increase Revenues from Oil Exports

Crude export volumes and export values for OPEC

Source: JODI, EIA Source: Ministry of Energy of Russian Federation, Bloomberg

• The agreement allowed OPEC countries and Russia to increase the estimated level of exportvalue in January-October 2017 by 14-15% compared to April-December 2016, despite the factthat there was a significant increase in exports at that times.

• Cooperation had a positive financial effect for the participating countries compared to thesimple increase in exports and the struggle of producers for market share.

Crude export volumes and export values for Russia

0

10

20

30

40

50

60

70

80

90

20

21

22

23

24

25

26

27

Jan-14 Oct-14 Jul-15 Apr-16 Jan-17 Oct-17

bln $mb/d

Cash Inflows (right) Export

2

6

10

14

18

3.5

4.0

4.5

5.0

5.5

6.0

Jan-14 Oct-14 Jul-15 Apr-16 Jan-17 Oct-17

bln $mb/d

Cash Inflows (right) Export


©ERINA

4

The Global Oil Market Have Enter a Deficit Already at the End 2Q17 Due to the Prolonged Agreement

Changes in global liquid fuels market balance

* Not including USSource: IEF estimates bases on EIA, МЭА, ОПЕК data

• The implied market excess in 4Q16 was 0.5 mb/d. The implied market deficit in 2Q16 was 0.7 mb/d.

• There is a risk of the returning to an excess liquids supply of 0.1-0.5 in 4Q 2017.

Decrease in supply /Increase in demand Increase in supply/Decrease in demand

0,5

-0,7-1,0

-0,6 +0,2-0,25

+1,1+0,4

-0,1+0,3

-0,7

+0,5 +0,4

+0,3

-0,0 -0,5 +0,1 -0,1

-0,2

+0,1

0.1+0,5

0,3+0,2 0,5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

OPEC NonOPEC*

US OPEC NonOPEC*

US OPEC NonOPEC*

US OPEC NonOPEC*

US

4Q2016

Demand

Supply 1Q2017

Demand

Supply 2Q2017

Demand

Supply 3Q2017

Demand

Supply 4Q2017

mb/d

The growing instability in Libya

Additional growth in US production

5

OECD Stocks Began to Decline, but Still Remain Significantly above the Average Level of 2012-2016

OECD Industry Stocks in comparison with the average level of 2012-2016.

Source: EIA Source: IEA

• The decline in OECD stocks began only in June 2017 - 6 months after the beginning of theOPEC+ Agreement.

• The Agreement reduce OECD industrial stocks by 64 mmbbl. It equals 23% of the reduction toan average level of 2010-2014.

• The market does not have a source of reliable estimates of stocks in developing countries(about 52% of the world oil market imbalance).

The structure of the accumulated global oil imbalance

36 73 54 100 118 145 127 145 118 9182146 137

218309 383

420 456 492 501 418 445 418165

174

229284

358421

393 430 623 623605

0

200

400

600

800

1000

1200

2014 2015 2016 2017

mln barr.

Floating storage OECD Stocks Others

0

50

100

150

200

250

300

350

03/1

5

06/1

5

09/1

5

12/1

5

03/1

6

06/1

6

09/1

6

12/1

6

03/1

7

06/1

7

09/1

7

mmbbl

221

64


©ERINA

6

Experts Have No Understanding of the Current (and Historical) Level of Imbalance in the Global Oil Market

Estimates of the supply surplus in the world market of liquids according to various energy agencies

Source: EIA, IEA, OPEC

• Main energy agencies have significant discrepancies in estimating the magnitude of theimbalance in the global liquids market - for 3Q17 from 0.1 to 1.1. mb/d.

• There are significant discrepancies in the statistics and forecast of oil demand. Seasonalgrowth in consumption in 3Q compared with 2Q is observed annually, but estimates of thisgrowth in 2017 vary from 0.0 to 1.3 mb/d for different agencies.

1.0

0.1

-0.5

0.5

-0.3

-0.7-0.5

1.3

0.50.3

1.5

0.1

-0.8

-0.1

1.5

0.4

-0.6

0.6 0.6

-0.4

-1.1-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

I II III IV I II III

2016 2017

mb/dEIA IEA OPEC

Global Oil Demand Will Grow Steadily in the Long Run Due to Fundamental Factors

Long-term oil demand Average annual oil demand growth (WOO-2017)

• Long-term oil demand is expected to increase by 16-18 mb/d in 2015-2040

• Oil demand in the Developing countries is expected to increase, on average, by 1 mb/d p.a.,

with China and India combined accounting for half of that growth.

• The change in the geographical structure of the liquid demand growth determines the interest of

Russia in the Asia-Pacific markets.

Source: EIA, IEA, OPEC, BP, ExxonMobil

0

20

40

60

80

100

120

IEA (WEO2016)

EIA (IEO2017)

OPEC(WOO2017)

BP (2017) ExxonMobil(2017)

2015

2020

2025

2030

2035

2040

mb/d

-1.0

-0.5

0.0

0.5

1.0

1.5

2016-2020 2020-2025 2025-2030 2030-2035 2035-2040

mb/d

OECD India China Other non OECD World


©ERINA

8

Eastern Vector of Russian Energy Policy

The shift to the East is a key priority of the Russian energy policy since 2009

The main targets of the Russian Energy Strategy up to 2035:*

• The formation of oil and gas complexes with the development of production, transport, and social

infrastructure in Eastern Siberia and the Far East

• Energy exports will increase by more than 20%, including in the Asia-Pacific countries by 2-3 times

by 2035

• Share of the Asia-Pacific countries in the structure of the Russian energy export will increase to 30–

40% by 2035

• Crude oil export will increase by 3 - 25%, exports to the Asia-Pacific countries in 1.7 - 2.3 times by

2035

• Natural gas export will increase by 1.2-1.8 times by 2035, including geographic diversification -

increasing gas supplies, in the Asia-Pacific countries by 5-9 times. Growth of LNG production by 3-

8 times

• The creation of new coal production centers in the Republic of Sakha (Yakutia), the Republic of

Tyva, the Trans-Baikal Territory and other regions of Siberia and the Far East, capable of providing

1.5 times more growth in coal exports

9

In the Face of Uncertainty at the Global Energy Market Russia Has Realize an Energy Shift to the East

* the project is under consideration of the Government


©ERINA

Source: IHS Markit

• Oil production from East Siberia and Far East is projected to rise from 68.8 MMt (1.41MMb/d)in 2016 to 82.4 MMt (1.68 MMb/d) in 2020 and to 98.2 MMt (2.0 MMb/d) by 2040.

• These levels are achieved because both Sakhalin offshore development picks up and inlandEast Siberian development expands well beyond the first-generation fields currently inproduction (e.g., Vankor, Talakan, and Verkhne-Chonskoye).

Oil Production from East Siberia and Far East Continuing to Grow

34 64 82 86 88 933130 31 41 40 39

322312

323 330 326 296

115123

116 105 9784

7 9 1113

0

100

200

300

400

500

600

2010 2015 2020 2025 2030 2035

MMt

East Siberia and Sakhalin Timan-Pechora West Siberia

Volga-Urals Caspian Offshore Arctic Offshore

10

Source: Argus Media

• Expansion of capacity forESPO-1 was raised to 58MMt/y (1.2 MMb/d) in2016, and expansion to 80MMt/y (1.6 MMb/d) isenvisioned in 2020(completed at the end of2019)

• Capacity of the ESPO-2 isplanned to be increased to50 MMt/y (740,000 b/d) in2020, commensurate withthe expansion of theKozmino terminal to 36MMt/y.

• Capacity of the spurpipeline from Skovorodinoto China was increased to30 MMt/y in 2017

ESPO Is a Key Route to Deliver Russian Oil to the Asian Market

11


©ERINA

Russia-Asia Oil Trade

• Creation of an oil infrastructure in the East of Russia - the ESPO pipeline - and the

long-term oil contracts increased oil export from Russia to Asia-Pacific countries

Source: UN Comtrade, Eurostat, National Statistical Bureau

Crude oil and oil products export from Russia to China, Japan, India and South Korea

37 4352

64 6811

10

12

10 9

0

10

20

30

40

50

60

70

80

90

2012 2013 2014 2015 2016

mmt

Crude Oil Petroleum Products

13

Russia-Japan Oil Trade

Crude Oil Export from Russia to Japan

Source: UN Comtrade, METI‐Japan, MOF‐Japan

• Over the past 5 years, Russia’s crude oil export to the Japanese market has risen from 150 kb/d to 200 kb/d, petroleum product from 1 mmt to 1,6 mmt annually

• Japan is also one of the top buyers of Russia's ESPO and Sokol crude.

• The average annual share of Russia in the Japanese crude oil and petroleum product imports is 7-9%

Petroleum Product Export from Russia to Japan

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0

5

10

15

20

25

30

35

2012 2013 2014 2015 2016

mmt

Others Russia Russia's share

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2007200820092010201120122013201420152016 Jan-Aug2017

mb/d



©ERINA

14

Russian Eastern Petrochemical Cluster

Angarsk petrochemicalCapacity : 10,4 mtpaInvestment: 84 bln RUR.Upgrading date : 2017

Achinsk refineryCapacity : 6,9 mtpaInvestment: 98 bln RURUpgrading date : 2017

Angarsk Polymer PlantCapacity: 0,7 mtpaInvestment: : 52 bln RUR Upgrading date : after 2020

Komsomolsk refineryCapacity: 8,0 mtpaInvestment: 78 bln RURUpgrading date : 2018

FEPCOCapacity : 12 mtpaInvestment: 660 bln RUR Completion date : 1st line - 2020, 2nd line – 2022Processing depth: over 95%Petrochemicals (on raw): 3,4 mtpa

Achinskrefinery

Komsomolsk refinery

Sakhalin LNG

Krasnoyarsk

Irkutsk

Angarsk Polymer Plant Khabarovsk

VladivostokAngarsk Petrochemical FEPCO

• Petrochemical cluster develops, including in the framework of the Russian-Asian partnership

• The cluster will meet the growing demand for petrochemical products in Russia and in Asia-Pacific countries.

15

New Gas Production Centers and Gas Pipelines Are Rapidly Evolving in the Eastern Russia

• The commercial A+B+C1+C2 gas reserves within Gazprom’s licensed areas in the Eastern Siberia and the Far East exceed 5 trillion cubic meters.

• In the Eastern Russia, Gazprom has built the Sakhalin – Khabarovsk – Vladivostok gas transmission system. At present, the Company constructs the Power of Siberia gas pipeline running through the Irkutsk Region, the Republic of Sakha (Yakutia), and the Amur Region

Altay (Power of Siberia II)

30 bcm

Power of Siberia38 bcm

Pipeline to South Korea

10-12 bcm

Pipeline to Japan

12-15 bcm

3rd pipeline to China (from Sakhalin)

5-10 bcm


©ERINA

16

Power of Siberia is a Largest Gas Transmission System in Russia’s East

• Export capacity: 38 billion cubic meters per year.

• Russian gas supplies to China via Power of Siberia to start in December 2019.

• However, until 2023, export volume by “Power of Siberia" will be relatively small - no more than 5 bcm p.a. Contract volumes will be achieved by 2025-2026.

Predictive supply of "Power of Siberia"

3 5 5

1418

28

3639 40 40 40

0

5

10

15

20

25

30

35

40

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

bcm

17

Russian LNG Capacity Grows

• In October 2017, supplies from Yamal LNG should begin. We assumes deliveries of up to 1 mmt in 2017, 7.2 mmt in 2018 and 15.6 mmt in 2019. Yamal LNG "announced the possibility of building a fourth stage of" Yamal LNG "(1 million tons) and plans to implement the project" Arctic-2 LNG".

• In 2014, Gazprom put into commercial operation the Kirinskoye field of the Sakhalin III project

• Gazprom plans to launch a third liquefied natural gas (LNG) production train at the Sakhalin-2 LNG plant in 2021

- - - - -7.2

15.622.5 23.8

15.0 14.8 15.4 15.3 14.5 14.8

14.8

14.8

14.8 14.8

0

5

10

15

20

25

30

35

40

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Bcm Yamal LNG Sakhalin II

LNG supplies from Russia


©ERINA

18

Russia-Japan LNG and Coal Trade

Coal Export from Russia to Japan

Source: UN Comtrade

• Over the past 5 years, Russia’s coal export to the Japanese market has risen from 12.5 mmt to 18 mmt annually, Russia’s share from 6.7% to 9.4%.

• Russia accounts 8-9% in the Japanese LNG market.; Russian LNG export to Japan equals 7.3 mmt annually in 2016

LNG Export from Russia to Japan

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0

50

100

150

200

250

2012 2013 2014 2015 2016

mmt


8.2%

8.4%

8.6%

8.8%

9.0%

9.2%

9.4%

9.6%

9.8%

10.0%

0

20

40

60

80

100

120

2012 2013 2014 2015 2016

mmt


19

Russia-Japan Investment Cooperation In the Energy Sector

Source: IEF based on METI‐Japan, MOF‐Japan, OPEC, BP

Project Russian Companies Japanese Companies Production or Reserves

Sakhalin-1 PSA Rosneft (20%) Sodeco (30%)2016 Production

9.0 MMt of oil8.8 Bcm of gas

Sakhalin-2 PSAGazprom (50% + 1

share)Mitsui (12.5%),

Mitsubishi (10%)

2016 Production5.5 MMt of oil

17.5 Bcm of gas

Ichyodinskoye field, other East Siberian

acreage (Irkutsk Oblast)

Irkutsk Oil Company(51%)

JOGMEC, ITOCHU, INPEX (49% combined

share)

2016 Production1.0 MMt of oil

0.2 Bcm of gas

Far Eastern Sakhalin Island

Rosneft signed a heads of agreement with Jogmec, Inpex and Marubeni - on hydrocarbons exploration, development and production at a license block

offshore Russia's Far Eastern Sakhalin Island

Investment cooperationRussian Direct Investment Fund and Japan Bank for International Cooperation

(JBIC) agreed to set up a $1 billion mutual Russia-Japan Investment Fund, each investing half the amount, with first deals expected in the 2017


©ERINA

Russia and Japan Deepen Ties

• In December 2016 Russian and Japanese companies signed a number of

memoranda and agreements on cooperation in hydrocarbons development.

• Three Japanese companies joining Rosneft in hydrocarbons exploration offshore

Sakhalin, expanding LNG partnership with Gazprom and Novatek, opening a

credit line for Yamal LNG plant and setting up a mutual fund, among other

agreements.

• With a total of more than 80 projects outlined and signed off, the collaboration

entered a level "unprecedented in the history of Russia-Japan relations“

• Russia and Japan can have a “win-win” economic and energy partnership.


©ERINA

global oil market trends - erina · russia-asia oil trade •creation of an oil infrastructure in...

Documents