Russia will produce 1.6 percent less oil in 2009, extending its first decline in a decade, due to a lack of new greenfield developments and a sharp drop in crude prices, a Reuters poll showed on Thursday. Oil production in the world's No 2 exporter after Saudi Arabia will fall by 156,500 barrels per day to 9.62 billion bpd in 2009, the average forecast of 12 analysts and officials polled by Reuters showed.
Most of those polled said their forecasts were likely to be revised due to uncertainty on energy markets. Crude prices have plunged by over 70 percent in the last six months, forcing oil companies to slash investment plans for 2009. "Output will mainly depend on the oil price and on whether the government will be ready to take measures to support production ... which in the current financial crisis environment would mean taking serious risks, including budget risks," said Valery Nesterov, analyst at Troika Dialog brokerage.
Russia's government has already provided up to $5 billion in tax breaks to its major oil producers as the Kremlin attempts to stimulate investment in hard-to-access deposits and revive output that is stagnating after a decade of growth. Russia, whose budget depends heavily on oil export revenues, has said further steps are needed to help the oil sector. Analysts say such plans are likely to depend on oil prices.
"Russian oils are a leveraged play on the oil price. If the latter recovers, we expect positive fiscal moves from the Russian government to enhance the profitability and growth in the oil industry," Renaissance Capital said in a research note. "If, however, oil prices stay low, we believe the government's commitment to fiscal reforms will be tested."
Renaissance Capital forecasts a 19 percent reduction in the Russian oil industry's capital expenditure this year, leading to a 1.1 percent drop in crude output from the 488 million tonnes, or 9.78 million bpd, produced last year. Last year, production fell by 0.9 percent, after 2.3 percent growth in 2007 and much bigger spikes in previous years, including a record 11 percent in 2003.
Output would drop more significantly were Russia to proceed with cuts suggested at the latest meeting of the Organisation of the Petroleum Exporting Countries (Opec), which has called on non-Opec producers to join its output cuts to support prices. Russia's senior energy official, Deputy Prime Minister Igor Sechin, said then that Russian producers could cut oil exports by up to 320,000 bpd if the oil market deteriorates further.
"Under the worst scenario, I cannot exclude Russia will cut output by the promised 16 million tonnes, which could lead to a maximum output decline of 3.3 percent this year," said Troika's Nesterov. Andrew Reed from Boston's Energy Security (ESAI) said he did not expect sustained or widespread compliance with Russia's pledge to Opec. "The only company whose output might be influenced by Sechin's pledge is Rosneft," Reed told Reuters.