After an unexpected but vague agreement to do something about output levels, Opec members now have a couple of months to squabble about the details, both among themselves and with non-Opec oil producers. Russia seems to be content to remain on the sidelines for now.
Russian energy minister Alexander Novak left Algiers late Tuesday (Russia was not invited to the Opec gathering) and missed all the fun and excitement. He did, however, outline his country's position before the results of the meeting were announced.
Russia would decide on joining an agreement after Opec has reached an internal consensus (arguably, the cartel's decision for an output ceiling of 32.5-33.0 million barrels/day could be viewed as such a consensus).
The most appropriate action on Russia's side would be a production freeze at around September's output level. On September 29 (post-the Opec announcement), Novak said that an output freeze rather than a cut had been discussed with the cartel
and that an agreement could last for around six months or so, rather than a year.
The calculus of a cut
Here we have a bit of a issue as some Opec members seem to be taking August's output numbers as the base for production cut calculations. Opec's output in August was somewhere between 33.25-33.5 million b/d while Russia's production in August was unusually low at 10.71 million barrels of oil equivalent/day (boe/d) due to maintenance at the Sakhalin-1 fields.
Russia's September output is a bit of a strange number as well. The official daily output counter (available on cdu.ru
) shows Russian crude oil and gas condensate output at around 1,520,000 metric tonnes/day throughout September.
Normally, a coefficient of 7.33 is applied to convert tonnes into barrels. It would mean that Russia's output has been averaging 11.14 million boe/d in September. On September 29, the daily output was reported at a spectacular 1,530,200 metric tons or 11.21 million boe/d. In August, the average daily output was 1,461,600 tons a day or 10.71 million boe/d. This would mean than Russia is producing 500,000 boe/d more in late September than in August.
Even taking into account Sakhalin-1 output being back at full tilt (say, 200,000 boe/d higher than in August) and a launch of a new Messoykha field by the Gazprom/Rosneft consortium (probably at a maximum of around 50-80,000 boe/d), this still leaves us with over 200,000 boe/d extra, which is hard to account for.
Monthly calculation anomalies could make the difference between
a good and an unworkable deal for Russia. Photo: iStock
It is possible that Russian companies have been asked by the government to pump anything and everything in September (or pump out of storage, or report output of oil-like liquids that would not be usually reported... more on this here
). This would still make Russia's September output an outlier and a one-off.
We should have a bit more clarity on what exactly lifted Russia's production to record highs in September when the output numbers (by company) are reported on October 3.
If September's output is taken as a yardstick, Russia would gladly join Opec and a headline cut in output would definitely look good. It might not, however, mean a real cut in production. If the August level is taken as the ceiling (which is unlikely), it would mean a genuine cut.
Moscow ceding ground?
It is hard to see, however, that Russia would want to agree to actual cuts while knowing full well that its market share would be swiftly taken up by other producers (including neighbouring Kazakhstan, which is about to launch its Kashagan oil field with output of 230,000 b/d by end 2016 and 370,000 b/d by end 2017).
The impact on oil prices from the promised action is also unclear and might not compensate for the lost volume.
The best scenario for Russia is to do what hurts the least. It does not hurt to talk up the oil price with a promise of an output cut (even an illusory one) and some bright talk on a constructive dialogue with Opec members.
Some useful soundbites (and probably even some details) would be on offer in October, when Russia and Saudi Arabia will hold the first meeting of a joint oil and gas task force. The exact date, though, has yet to to be confirmed.