Novak: Russia will not increase oil production in 2016

Novak: Russia will not increase oil production in 2016


MINSK, 25 February. Russia will not increase oil production in 2016 compared with last year, said the Minister of energy Alexander Novak.

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“We are not going to increase production (oil – approx. ed.) in 2016, so we have production volume in 2016 will be at the level of 2015, according to forecasts,” he said.

He noted that he considers a reasonable idea of stabilization of oil production.

Currently negotiations are underway about the possibility of freezing the oil in the world. In the negotiation process in particular involved Saudi Arabia and Russia. According to the Ministry of energy of the Russian Federation, the parties expressed their willingness to save, on average, in 2016 oil production at the level of January of the current year, if other countries-oil producers will join this initiative.

Earlier it was reported that under the agreement, the “freezing” of production annual oil production in Russia in 2016 could grow by 1.5% compared with an average annual production of 2015, but the figure is specified.

According to the Central dispatching Department of fuel energy complex (SE “CDU TEK”), in 2015, Russian oil companies produced a record 534,081 million tonnes of oil, which is 1.4% higher than a year earlier.

Oil production in Russia in January, according to the CDU TEK, amounted to $ 10,878 million barrels/day.

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Currently negotiations are underway about the possibility of freezing of oil production by leading countries-exporters of this raw material. So, on February 16 in the Qatari capital Doha, Ministers of oil of Saudi Arabia, Qatar, Venezuela, included in OPEC and Russian energy Minister Alexander Novak held talks on improving the price situation on the oil market. The parties expressed their willingness to save, on average, in 2016 oil production at the level of January of the current year, if other countries-oil producers will join this initiative.

On 17 February in Tehran passed negotiations of Ministers of oil of Iran, Venezuela, Iraq and Qatar, who discussed the possibility of “freezing” the level of oil production. Following the talks, the Iranian oil Minister Bijan Namdar Zanganeh said that Iran would support any initiative to improve the situation with oil prices. During the negotiations Iran has taken the position that the country needs to recover market share lost during the years of sanctions.

The lack of agreement about stabilization of crude oil may extend a cycle of low prices

Novak believes that the lack of agreement on the stabilization of oil can extend the end of the cycle of low prices for 2016-2017 and beyond.

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“And today, if not to increase production, as we agreed in Doha four, if most countries will not increase production, then, due to the demand growth imbalance of supply exceeding demand will decrease faster. If countries do not agree, will continue the competition. Those who can build will continue to increase, and the end of the cycle of low prices will take longer, may involve all 2016, 2017 and so on. In the case that the proposal will not increase the market, and it is quite possible, then we will succeed, we will by the end of 2016 – beginning of 2017 this imbalance will reduce by 1.3-1.4 million barrels per day. And now he, according to experts, is somewhere in the 1.6-1.8 million barrels,” said the Minister to journalists.

“If we talk about reduction, this more complex mechanism, though more efficient could be. Each country is in different situation according to the opportunities to reduce. The second is to establish a base from which to reduce also very difficult. Because from the moment of falling prices since the summer of 2014, has very seriously changed the structure of production, someone has stepped up, who had remained at the same levels,” he said.

Novak did not predict the oil prices in the stabilization of production.

We believe that the market should react. As soon as he feels that there is a gap, it will react accordingly. In any case, if fundamentally speaking, the price can’t be high, above $50-60 per barrel. Because in this case, it returns strong investment activity, started projects, on which there is a reduction in investment and production, and the prices again will fall. Therefore, we believe that the price of $50 – the most adequate from the point of view of the balance of supply and demand

When agreement was reached about the freezing

Agreement on stabilization of oil extraction can be recorded in mid-March at the meeting of Ministers of OPEC and the countries not members of the organization, said the Minister.

“As we understand it, OPEC countries plan to hold a meeting of Ministers of OPEC and non OPEC, in the middle of March, and there can be those solutions documented by any joint statements or joint papers. And now we are in active consultations at the level of countries,” he said, adding that he was going to go to this meeting if it takes place.

Replying to a question on what term required these arrangements, Novak said: “we believe that We need at least a year, because then the gap may be 1.3 to 1.4 million barrels per day. But in order to understand how it works, have at least a few months to live in such arrangements. This is the period from March to June, when it will be possible to assess the mechanism or not. We, at least, discussed with our partners.”

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According to the head of the Ministry of energy is yet to be determined, what format will these arrangements – in the form of agreements or representations and just monitor the situation for several months. “We can, in principle, to agree that all countries have stated this. And then four months later, before the OPEC summit, which is scheduled in June, to understand how this mechanism works”, – he noted.

Novak added that in March can be just a meeting and a joint statement. “Press release joint may be agreement. Today there is no legal format confirm. This accession, which can be made at this stage as some of the statements,” he said.

The Minister recalled that the total production of oil in the world is about 93 million barrels a day, from this volume on exporting countries accounted for about 55-56 million barrels. “Of these, more than 75% of countries by volume were produced about 42-43 million barrels, confirmed their agreement to stabilize the production,” he added.

“On Iran, the topic is still in the stage of consultations, negotiations, discussions”

The question of the participation of Iran in the stabilization of oil production requires an individual approach and is still under discussion. This was reported to journalists by the Minister of energy Alexander Novak, noting that in March, in Iran it is planned to discuss joint Russian-Iranian energy projects.

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“On Iran, the topic is still in the stage of consultations, negotiations, discussions. There are the countries that have flown to Iran. I think there may be different versions of Iran’s actions. Now we hear that they are not ready to actually cut production, to freeze, given that the database is very low compared to those countries that are now in the current situation. It should therefore be individually, objectively assess the situation,” he said.

Novak said that he was going to go to Iran on this topic and on the development of trade and economic cooperation, as co-chair of the Russian-Iranian intergovernmental Commission. “We will be in Tehran the meeting, though not in March, and later. In March at the meeting of the co-chairs (planned) to discuss the current situation on the implementation of our joint projects. Perhaps Zanganeh ( oil Minister of Iran, co-Chairman of the standing Russian-Iranian Commission on trade and economic cooperation, Bijan Namdar Zanganeh – approx.ed.) we will meet. We have a long list of questions concerning energy, the oil and gas industry”, – said Novak.

The head of Ministry also did not rule out that the conditions of participation in the stabilization of the production for Iran will be discussed at the Ministerial meeting of OPEC and non OPEC, in mid-March.