Bloomberg: Russia has largely preserved its pre-pandemic crude output capacity
Despite speculations that record production cuts could cause irreparable damage to Russian oilfields, the majority of analysts surveyed by Bloomberg consider that the country can quickly increase its oil production with a positive signal from OPEC.
Russia will be able to keep pace with any easing of OPEC+ production cuts in both the short and medium term, says Bloomberg citing its survey of six analysts, which consider that the country has largely preserved its pre-pandemiccrude output capacity. According to the average analyst estimate, the country could raise output by about 700,000 bpd within 6-12 months. “The massive freeze of production wells did not result in a significant reduction of output capacity, whiсh many feared would be the case,” said Senior Director of Fitch Dmitry Marinchenko.
“Russian producers have repeatedly proven that they can add back idle production on very short notice,” agreed Ron Smith, a senior oil and gas analyst of BCS Global Markets. He considers that the market may be underestimating the country’s ability to raise output. BCS gives the most optimistic outlook for Russia’s spare capacity (about 950,000 bpd).
Other analysts are more modest in their estimates, as they anticipate lasting damage to Russian oil fields. In order to comply with last year’s OPEC+ deal, Russia had to freeze an unprecedented number of wells within a short period of time. Some brownfields may never recover due to their age and high water cut, according to London-based Energy Aspects Ltd consultancy. The company’s co-founder Amrita Sen sees Russia’s oil output at around 10,5 million bpd this summer, which is about 30,000 higher than May levels. Although production may increase in the autumn, she believes it is unlikely to exceed 11 million bpd next year.
Some Russian oil companies indeed shut down wells with very high water content, agrees Vitaly Yermakov, a senior research fellow at the Oxford Institute for Energy Studies. For example, Lukoil halted wells with a water-cut of 91%, while the company average amounts to 86%. However, according to head of Russian Equity Research of Bank of America Karen Kostanian, major Russian producers rotated their stock of wells reviving some while idling others to avoid permanent losses and “conserve as much spare capacity as they can.” The country’s largest producer Rosneft also reduced oil flows at wells with better economics to prevent their complete closure.
A wide variation in analysts’ views on Russia’s spare capacity is also caused by different well management strategies and the lack of data from the producers themselves. Fitch estimates potential spare capacity at 500,000 bpd, which is almost twice lower than BCS’s figure of 950,000.