Out of the five littoral states, only Azerbaijan and Kazakhstan will cut oil production this year.
According to experts, in spite of the falling oil prices, the oil
production situation in the five Caspian states does not cause a lot of
concern. But their dependence on the oil revenues will adversely affect
their economies.
Today, all the oil-producing countries are behaving as if in a
cycling race, waiting for another to make a mistake to take them over,
said
Konstantin Simonov, the general director of Russia’s National Energy Security Fund.
“All oil producers are trying to maintain production not to lose
their markets. And the question of the day is: ‘How long will such
situation continue?’” he asked.
As is known, the main law of the market is “demand begets supply”.
However, many experts believe that the current collapse of prices in the
oil markets is not connected with the demand-supply misbalance but
rather with the fact that the dollar has become a liquid asset. Besides,
the speculative and, at times, panic factors come into play as well.
Can a reduction of production volumes by the OPEC countries raise the
oil prices? That was the topic of discussion of the experts of five
Caspian states from Moscow, Astana and Baku.
According to Simonov, last year’s production volumes of Russia,
Kazakhstan and Azerbaijan were “not so bad”. For example, Russian
production grew to over 534 million, or 1.5%. Azerbaijan and Kazakhstan,
though, showed a reduction of oil production volumes by slightly over
1% (46 million tonnes) and by 2% (about 79 million tonnes),
respectively.
Good, according to him, is also the situation with the oil exports.
Neither Russia, nor Kazakhstan or Azerbaijan has lost their markets. On
the contrary (based on preliminary data), last year’s exports of oil
from Russia grew by 8% and so did Azerbaijan’s oil exports.
“That is, our countries have not lost the markets,” Simonov said. As
far as the forecast for oil production volumes for the “Caspian Five” is
concerned, they differ considerably, and for good reasons.
In 2016, only Azerbaijan and Kazakhstan will reduce their oil
production volumes, according to Analytical Centre for Oil Studies of
Azerbaijan Director
Ilhan Shabanov.
“In the Caspian region, in 2016, only Azerbaijan and Kazakhstan are
expected to cut their oil production volumes. Russia, Iran and
Turkmenistan, on the contrary, will see increased production levels,”
Shabanov said.
According to him, major Russian oil producers will continue to increase their oil production.
For many Russian oil bearing fields, the cost of production is less
than $10. So the fall of oil prices to $30 per barrel is not an obstacle
for them.
Shabanov also talked about Iran’s expected growth of production this
year, which announced its plans to the world after the lifting of the
sanctions.
“The only question is by how much the production with grow in Iran by
the end of this year, by 400,000 to 500,000 barrels or, as the Iranian
government has declared, by a million barrels a day,” Shabanov said.
According to him, the fifth Caspian littoral country – Turkmenistan –
is not going to give up its oil production growth plans either.
“At 12 million tonnes, Turkmenistan’s oil production volume is not so
big, but the republic intends to increase its production. Last year,
Turkmenistan completed the upgrading of its refinery, and it can now
produce euro-5 standard fuels. By supplying quality gas and diesel fuel
to the world markets, Turkmenistan is planning to receive a good margin,
better than from simply selling its crude oil,” the Azeri expert said.
He also explained the difference between the cuts of oil production in Azerbaijan and in Kazakhstan.
In his opinion, the lower levels of oil production in Azerbaijan is a
natural development, as all the fields there are old by the oilmen’s
standards, and are well past their flowing peak.
Even such a major project as Azeri-Chirag-Gyuneshli, has passed,
since 2010, the period of intensive production. In 2016, production in
Azerbaijan is expected to decrease by one million tonnes, from 46
million tonnes last year to 45 million tonnes this year.
“In Kazakhstan, the situation is different. Some of its oil fields
have very high cost of production, so the oil companies have to cut
their capital investment, which has affected the production numbers over
the past two years,” Shabanov said.
In his turn, the Head of the Centre for Studies of the World Energy Markets of the Russian Academy of Sciences,
Vyacheslav Kulagin, provided an explanation of the Russian oilmen’s plans.
“For Russia itself, it makes no sense to cut production now. If it
were to do that, it would only happen if an agreement could be achieved
with the OPEC states. That said, the production of ‘black gold’ should
be conducted in a coordinated fashion, otherwise, Russia may really lose
its markets,” Kulagin said.
Kazakhstan, for its part, claims that the expected decrease of production levels this year will be a temporary measure.
“The low oil prices have forced all the companies to revise down
their budgets and to seriously look into cutting their production
costs,” Kazakhstan’s Energy Minister
Vladimir Shkolnik said recently.
According to him, the 77 million reduction of production volumes in
2016 is expected to be made up for later, through putting the Kashagan
filed on line, then through the Tengiz expansion project and the second
phase of expansion of the Karachaganak project.
However, the collapse of oil prices has seriously affected the
economies of Russia, Kazakhstan and Azerbaijan. The Russian ruble has
devalued three-fold versus the dollar; the Kazakh currency – by 100%,
and the Azeri manat has lost half of its value versus the dollar.
According to Kulagin, the low oil prices directly affected the revenue part of the budgets of all these three countries.
A leading research fellow of the Institute of Economy of the Azerbaijan Academy of Sciences
Mais Guraliev
believes that the governments of the three countries have failed, over
the 20 years, to restructure their economies to avoid oil price
dependence.
“Having said that, though, we should admit that it’s more difficult
for Azerbaijan, as we do not have such resources as Russia and
Kazakhstan. Besides, Azerbaijan’s economy is not as diversified as those
of Russia or Kazakhstan,” Guraliev said.
According to him, the budget requirements of Azerbaijan are $9
billion a year. With the current prices, the maximum oil revenue this
year would be $2 billion. The question is where to get the remaining $7
billion.
Shabanov added that, during the period from September, 2014 to the
end of December, 2015, the government of Azerbaijan spend 10 billion
dollars from the National Fund to support the national currency manat.
Ilhan Shabanov believes that half of that amount should have been
spent to revive the economy rather than to maintain the manat.
Unfortunately, he said, the government of Azerbaijan had failed to take
into consideration that the period of low oil prices could last longer.
“For the first time since the independence, the government of
Azerbaijan has decided to issue bonds and to take foreign loans to cover
the budget deficit. We shall see what results this will yield,” the
Azeri expert said.
In his turn, Kazakhstan’s Institute of Oil and Gas Deputy General Director
Akbar Tukaev
believes that the current situation with the low oil prices could prove
good for the economies of all the three countries: Russia, Kazakhstan
and Azerbaijan.
Kulagin agrees with him. “The current situation, as a reality check,
is good for all the oil producing countries. It is a signal that it’s
time to seriously modernise the economies and to implement the latest
technologies. What has been talked about for a long time needs to be
done now,” he said.
He continued on to say that the budgets of the countries that are not
tied to oil are feeling much better nowadays than those that are
solidly tied to it. He brought up the example of Saudi Arabia where they
came up $98 billion short last year.
“It is a very big hole in the budget of Saudi Arabia, almost 25%. The
same shortage is expected this year. The National Fund of Saudi Arabia
has shrunk considerably. Its 600 billion dollar reserve can end fast if
the situation with the low oil prices continues,” he said.
According to Kulagin, Russia’s 2016 deficit budget is evaluated at
3%. “This means that the Russian economy is not as highly dependent in
oil as Saudi Arabia. It also helped that the softer ruble allowed
smoother budget adjustments to make our economy more competitive. This
also allows the Russian government to pull up the development of the
non-energy industries,” Kulagin said.
As far as Kazakhstan is concerned, it plans to continue to develop
its infrastructure projects focusing on the development of its transit
potential between the East and the West, between China and Europe.
As part of a large-scale privatisation programme, Kazakhstan has put
up for sale all of its three major refineries. The republic intends to
use the investment thus received to upgrade the three refineries to
produce higher value euro-5 standard products.
http://neurope.eu/article/caspian-states-concerned-by-low-oil-prices/