As Russia gets ready for talks on cooperation with Opec tomorrow, it’s using the playbooks of Iran, Iraq and Venezuela to gain leverage.
Just days before Energy Minister Alexander Novak heads to Vienna for discussions that could include output curbs, Russian officials emphasised the nation’s ability to keep increasing record output to even loftier heights. They were echoing several other Opec member that claim the group is underestimating their own production – a strategy that could secure them advantageous terms in any supply deal.
“What most Opec countries do ahead of any Opec meetings is to talk up their own production prospects so that when they make any concessions, those concessions are not necessarily as big as they might have been,” James Henderson, senior research fellow at the Oxford Institute for Energy Studies, said by phone. “I suspect Russia is playing the same game.”
After reaching a surprise agreement on the first production cuts in eight years last month, Opec is now trying to establish which members will reduce output, and by how much. Russia, which is vying with Saudi Arabia for the title of the world’s largest oil producer, has pledged cooperation, but President Vladimir Putin has sent mixed messages over whether he’s willing to lower the nation’s output, or simply freeze at September’s post-Soviet record. These details, due to be finalised by Opec’s November 30 meeting, will determine whether the deal can finally end three years of oversupply.
The latest draft of Russia’s energy strategy published recently on the ministry’s website included for the first time this year an “optimistic” scenario. This estimate sees annual oil production potentially rising from 534.1mn tonnes last year to 555mn metric tonnes, or 11.1mn bpd, by 2020 and stabilising through to 2035. It compares with the existing “conservative” outlook for production of 548mn tonnes in 2020 declining to 490mn tonnes by 2030.
Igor Sechin, a close adviser of Putin and chief executive officer of Russia’s largest oil producer Rosneft, went several steps further on October 20, saying Russia has the capacity to add as much as 200mn tonnes of annual production capacity, or 4mn bpd, by 2045 should the global market need it.
Russia’s energy minister said long-term forecasts have little bearing on the negotiations with Opec. Even if an agreement is reached there’s no need for the nation to change its energy strategy, Novak told reporters at an industry forum in Ufa, Russia.
“The freeze, it won’t last forever, it will be there for a limited time, maybe for six months”, he said. “So it does not affect our strategic plans in any way.”
Nevertheless, he implied short-term increases are negotiable. Russia’s annual production could set another post- Soviet record of 548mn tonnes, or about 11mn bpd, next year, although the plan may be adjusted if there’s an Opec deal, Novak said. Output has averaged 10.9mn bpd this year, according to Energy Ministry data.
“Russia is trying to create a very optimistic story of a healthy oil industry” to pursue its own goals in upcoming negotiations, something Opec nations also do, Chris Weafer, a partner at Macro Advisory consultancy in Moscow, said by phone. “It’s like a game of poker where everybody is very focused on their own hand.”