Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on November 3, 2016
Russia Continues To Raise Its Oil Production
Goldman Sachs’ commodity analysts are a merciless bunch. Just the other day they warned that if OPEC fails to agree on a freeze, crude oil prices will dive back to US$40, adding that even if the agreement was reached, non-OPEC producers would continually ramp up their production, rendering any deal ineffective.
Now, the same analysts have released a report saying that Russia’s oil output will hit 11.7 million bpd in 2017, an upward revision of a previous estimate that claimed average daily output would be nearer to 11.4 million barrels. The earlier estimate envisaged the 11.7 million bpd mark wouldn’t be reached until 2018, but Russia appears to be ramping up production faster than most observers seem to have expected.
It’s a bit strange that the investment bank’s analysts were this surprised, given that earlier this year, Goldman Sachs said Russia’s oil companies can remain free cash flow positive at any price above US$10 a barrel of crude. Perhaps it was the rate of production increase that was surprising, rather than the increase itself.
Goldman wasn’t the only one surprised. The International Energy Agency (IEA) said back in July that Russia’s output was bound to fall to 10.94 million bpd this year because of oil transportation challenges. The challenges included pipeline capacity that would be insufficient to handle all the production from new fields.
It seems that the local E&Ps were able to overcome these challenges, because in its latest Oil Market Report, the IEA noted that the Russian energy business had “impressive resilience” as well as a 4-percent increase in local demand in August, bringing the total daily figure to over 4 million barrels of crude, despite the ongoing recession.
The wider implications of Goldman’s forecast revision are simple: the likelihood of OPEC agreeing to any sort of production freeze or even cut is getting slimmer by the hour. Russia has been guarded in its promises, basically repeating again and again that it’s all for a freeze, but not offering any details as to how it would take part in a freeze. Russia’s noncommittal commitment is wise, given that there appears to be a shortage of OPEC members ready to fall on their own sword, the absence of which renders Russia’s “willingness” to freeze production itself an empty promise.
And as Goldman Sachs prudently pointed out, even if the cartel does what now seems next to impossible, the small cut being proposed is unlikely to have much of an effect on the market, aside from the fact that as soon as an agreement is announced prices will spike. This spike will be temporary, as those OPEC members that have been exempted from the freeze negotiations will waste no time increasing their output to reclaim any market share left wanting.
Libya and Nigeria together last month added 800,000 bpd to OPEC’s total, Bloomberg reported on Monday—a figure that exceeds the cut that OPEC had proposed.
Over the last week, Russia launched production at two new fields, proving the old truth about actions speaking louder than words. The way things are looking right now, the only surprise left to be had would be an OPEC-Russia agreement to cut production in a large enough quantity to rebalance the market.
9 Comments on "Russia Continues To Raise Its Oil Production"
makati1 on Thu, 3rd Nov 2016 6:52 pm
Everyone is going to pump all they can sell until they cannot. All these oily OPEC articles are a waste of time. NO ONE is going to cut his own income stream voluntarily. And why should they? Especially Russia. “Russian producers enjoy some of the lowest-cost fields in the world…”
Hard to lay siege to a castle (Russia) when it has all the resources it needs for decades to come and the besieger is about out of those same resources. LOL
rockman on Thu, 3rd Nov 2016 9:30 pm
Mak – “Russian producers enjoy some of the lowest-cost fields in the world…” Russia isn’t the only producer with low LOE (Lease Operating Expense). Think about it: how many companies/countries would produce a single well if it cost more to do then the revernue it generated? Granted the LOE from producer to producer will vary. No one can come up with the actual numbers. But the world is producing as much or more oil then ever before in history.
So can you name a single company/country that’s producing oil at LOE’s less than the current price? I can’t. But I can promise you if I had a field costing $500,000/month to operate and was getting only $400,000/month from oil sales I would shut it in. And if that potential net loss would continued for months with no expectation of changing anytime soon I would eventually plug and abandon the field.
Bottom line: virtually all the oil producing today is generating a positive cash flow. Every US shale well still producing is generating a positive cash flow even if it never recovers 100% of its cost. And the wells still producing owned by every company that has filed bankruptcy is generating a positive cash flow.
And the drilling of new wells? That’s a very different dynamic.
makati1 on Thu, 3rd Nov 2016 9:55 pm
Rockman, it is producing it from existing wells, not new ones. When they peter out, or the financial system crashes that supports the industry, it will be game over. Meanwhile, it seems to me that Russia is still making a bigger percentage profit on their oil than most, if not all, other producers. Last man standing, kinda thing.
dissident on Thu, 3rd Nov 2016 10:08 pm
The above discussion is strange. Obviously profit cannot be made if it costs $50 dollars to extract a barrel of oil. Not every producer is spending $10 per barrel extracted. Saudi Arabia and Russia have some of the lowest extraction costs in the world. So even with a low oil price they have a good revenue stream. (In the case of Russia there is shenanigans with the exchange rate which has meant that the ruble income did not drop even though the dollar price for oil dropped.) These days there a lot of high cost production operations, i.e. fracking, that have been hit hard by the low oil price.
Davy on Fri, 4th Nov 2016 6:32 am
You can look at the Russian wellhead reality but using that to project to the circumstances of the nation is another story. Looking at Russia today it is well placed for a collapsing world but not immune. It also has its own issues of a society in decay and decline with or without oil. Climate change is not going to spare Russia either. Oil is a great asset to Russia but oil always carries a curse. It is a curse for countries like Russia because of their degree of dependence on a depleting resource and a resource that is economic in a global economy in decline.
Russia is not a self-contained economy. It is a global economy and lives within the same global realities everyone else lives in. Post USSR collapse the Russians built their country into a new power but at the expense of independence. Russia is faced with the same global dangers as others. They are well placed for what is ahead but still precariously near the same collapse everyone else is faced with. They may be the last man standing but they will not be the same man they are now post collapse.
rockman on Fri, 4th Nov 2016 10:06 am
Dis – “Not every producer is spending $10 per barrel extract”. I wish we had some source of LOE’s for different companies/countries but we don’t. But I doubt many understand what are the individual components of the LOE.
First, there aren’t many. We’ll start with the lowest: flowing oil well. IOW no pumping costs. It flows out of the ground to a “separator”: seperates NG and water from the oil. Since gravity is the primary tool this cost little to nothing FROM A DAILY OPERATIONAL STANDPOINT. OTOH the equipment capex can be huge especially in the case of a producer like the KSA and its “brown stained water”…high water cut like hundreds of thousands of bbls of water per day. But again, gravity is the FREE energy that drives this process. The only significant cost of the process can be chemicals used to help break emulsions…oil/water “lumps”. But typically less than $1/bbl of oil…usually much less.
Second, a pumping well. Very common in old water drive reservoirs. Again the big expense is the pumping equipment and not the cost to operate it. Power: electric or may be using NG from the wells to power motors. I can’t give any sort of a general number that makes sense…too many variables.
The only two significant costs remaining is personnel and transporting the oil. Almost all of the systems are automated. Manpower is needed mostly to monitor they systems and make adjustments/repairs. Again huge variations from one hand at $600/MONTH for a single well to much more for 15 hands working on a offshore platform.
But as I said in a previous post folks really need to stop thinking in terms of $/bbl. Yes: a big expensive field might cost $18 million per year to operate which sounds like a lot. But consider if the field is netting the operator only 10,000 bopd. Compare that to Ghawar. Or a DW GOM field doing 100,000 bopd. So at 10,000 bopd X 30 days = 300,000 bbls. $18 million/year is $1,500,000 per month. Still sounds rather expensive, eh? So $1.5 million per month/300,000 bbls = $5/bbl production cost. Trust me: $10/bbl to produce a well is a VERY HIGH LOE. Think about the 300,000 US stripper wells (by far THE very most expensive wells to produce) that are still profitable to produce. I have fields that cost me $0.50 to $3 per bbl to produce. And these are small compared to the big foreign fields. Some of those big fields might cost as little as $0.50/bbl to produce. But think of a field making 500,000 bopd. That field costs $90 million per year to produce. And a smaller 100,000 bopd field that cost $10/bbl to produce: that’s a $365 MILLION PER YEAR TO OPERATE.
Yes: a $10/bbl PRODUCTION cost is considered to be an extremely expensive field to produce. By far the drilling, completion and production equipment costs are huge compared to the LOE. And those costs are “sunk costs” and have no impact on the economics to produce EXISTING WELLS.
Dredd on Fri, 4th Nov 2016 10:09 am
“Russia Continues To Raise Its Oil Production”
And the oceans too, what a coup (The Warming Science Commentariat – 10).
John on Fri, 4th Nov 2016 2:38 pm
Russia is putting themselves in the position to be the world’s largest producer going forward…
AgentR11 on Sat, 5th Nov 2016 7:35 am
diss, the Russian exchange rate shenanigans ended with float. What you had in 2010, was MASSIVE SHENANIGANS; that era is over.