ESAI: Russia aligned to globally 'enhance market power'

Changes in Russia’s taxation policies will have a positive effect on the country’s upstream development, enabling a high level of exports for years to come, according to a report by ESAI Energy LLC.

“Key tax policy decisions will favor upstream development over the refining sector, eliminating competing objectives that have heretofore threatened to undermine Russia’s growing role of crude supplier to the world,” says the report, entitled “Russia Comes of Age.”

The report said, “New export duties shift profitability and investment to upstream development, and are expected to halt increases in refinery throughput after 13 consecutive years of growth. As a result, Russia will sustain crude exports at well above the 4 million b/d level for years to come.”

The report noted that Moscow’s restructuring of its oil exports has pushed Russia into “the sustainable role” of global oil power. Andrew Reed, the report’s lead writer, said, “While Russia’s ability to sustain the current volume of exports is one of the key findings, since no major change is expected we consider the ‘restructuring’ of exports to be the more noteworthy development.”

Other findings of ESAI’s report include:

• In the face of Russia’s inability to achieve upstream growth and increased exports of oil products, changes in tax policy and investment in export logistics mark a shift towards a more narrow focus on upstream development and oil exports.

• Russia’s oil surplus will increase slightly. Output in new regions will be sufficient to maintain moderate growth of overall production through 2015. Meanwhile, oil throughput will level off after more than a decade of uninterrupted growth.

• Foreign transit volume through the Transneft pipeline system is unlikely to increase, despite a rising oil surplus in Kazakhstan. While that country’s exports will grow with the 2013 launch of Kashagan, its successful development of alternative export capacity will enable it to avoid increased reliance on Transneft for exports.

• New export infrastructure in Russia is indicative of the two priority export markets for Russian crude, the Pacific Basin and Northwest Europe. In late 2011, Russia is adding 700,000 b/d of export capacity to the Baltic Sea, where it already exports 1.5 million b/d of oil. At the end of 2012, the capacity of the ESPO Pipeline to Kozmino Bay will be doubled to 600,000 b/d.

• Russia will shift oil export flows to Asia and Northwest Europe, and in the process cut exports to the Med and cede market share in that market.

• The shift in Russian export flows to Europe will impact market share in both Northwest Europe and the Mediterranean. The strengthening of Russian sales to Northwest Europe will undermine the market share of exporters in the Middle East and Latin America. By the same token, cuts in exports to the Mediterranean present an opportunity for these same competing suppliers, in particular Iraq’s northern exports.

As a result of changes now under way, the report claims that Russia’s growing presence in the European, Asian, and even North American market “will enhance its power in global oil supply and pricing in both the Atlantic and Pacific markets.”

Contact Eric Watkins at hippalus@yahoo.com.

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