Russia considers increasing oil exports to Cuba

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The Russian government is discussing the possibility of increasing supplies of Russian oil and oil products to Cuba. Russian oil giants Rosneft and Lukoil would carry out the deliveries of oil and petroleum products and are reportedly working on contracts, but no prices have been discussed.

The development was reported by Russian business daily Vedomosti on Friday, citing a letter from the Deputy Minister of Economic Development Alexey Gruzdev dated January 11.

Between 2010 and 2015, Russia delivered $11.3 million worth of oil products, according to Rosstat data. In 2016, Russia exported just shy of $1 million of oil and oil products.

Cuba’s oil supplies from neighboring Venezuela have been disrupted due to the political crisis. Venezuela is Cuba’s top energy supplier, but as the country teeters on an economic and humanitarian crisis, it has failed to keep up oil production. Reuters reported that in in the first half of 2016 Cuba received 40% fewer barrels of crude oil from PDVSA, Venezuela’s national oil company, than in the same six-month time period in 2015.

In September of last year, Prime Minister Raul Castro asked President Putin to increase oil supplies, but Russia wasn’t actively receptive of the idea due to its doubts about the small Caribbean island nation’s ability to pay up, RBC reported.

The two Cold War allies have collaborated on a number of strategic issues. In October 2015, Russia issued Cuba a $1.3 billion loan to build two nuclear power plant facilities. In 2014, Russia forgave more than $32 billion in Cuba’s Soviet-era debt.

“From our standpoint, the successful completion of negotiations on delivering Russia oil to Cuba will not only increase trade but also have a positive socio-political and humanitarian impact on Russian-Cuban relations,” Gruzdev is quoted by Vedomosti as saying.

Finding a Global Energy Balance – BP Economist

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BP Chief Economist Spencer Dale presented his company’s 65th edition of the Statistical Review of World Energy June 2016 in Moscow on June 10 at the Institute of World Economy and International Relations. BP has been producing the report since 1952, and the study has established itself as an authoritative source in the energy industry.

The report, which in its inaugural year, only reported on oil – now focused on the three primary global energy sources – oil, coal, and natural gas.

Oil remains the most widespread used energy in the world – in 2015 it accounted for 32.9% of total energy consumption. In 2015, it even saw its market share rise, for the first time since 1999. After oil, coal is the second biggest fuel, with 29.2% share in the energy balance, but it saw its market share decline in 2015. Natural gas made up 23.8%.

Dale’s main message for the upcoming year is to expect another year of strong growth in demand, and a continued shift towards low-carbon fuels, as well as renewables.

According to the report, global demand for primary energy only amounted to 1%, which is significantly lower than the average in the past decade (on average 1.9%).

Dale said this reflects an overall slowdown in the global economy and consequential slower growth in energy consumption, most notably in China.

Oil

“On the demand side, we are in a world where demand is in a period of transition. Over the last 10-15 years, we have seen very strong growth in global energy demand, much of that driven by China,” he said.

China’s economic boom days are over, and as Dale put it, “the days of double-digit growth and industrialization are behind us”.

Even if there is a massive increase in demand – from China or elsewhere – the massive amount of oil inventories will offset any oil price surges.

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For example, even if demand grows to a point where there is a shortage of oil, prices won’t suddenly snap back.

Dale explained: “If you have a shortage of a 1 million barrels per day, but we have a surplus of 500-600 million barrels, simple arithmetic tells you that it could easily take 12-18 months before stock levels are back to normal levels, and it’s only when you work off that significant stock overhang, will the oil market come back to balance.”

Technology is also changing the energy balance, the report says, referencing developments in both shale oil in the US, as well as renewable energy sources worldwide.

“On the supply side, we are surfing a technological wave. Over the last few years, we have seen rapid gains in technology advancements and productivity gains, which are increasing the types and abundance of energy supplies,” said Dale.

oil market

As our readers know very well, oil prices in 2015 dropped drastically. In dollar terms, the largest drop on record, and the sharpest fall in terms of percent since 1986. Prices rose slightly in early 2015 as US shale producers nixed production, but increased production by OPEC countries, especially Iraq and Saudi Arabia (account for ~90 percent of increase production) caused a sharp drop in prices overall.

We are “truly in an age of plenty in terms of supply,” Dale noted.

The growth rate of world oil production for the second year in a row outpaced global consumption growth. Production grew by 2.8 million barrels per day, or 3.2%, the highest rate since 2004. Production in Iraq (750,000 barrels per day) and Saudi Arabia (510,000 barrels per day) rose to record levels, which pushed OPEC production up 1.6 million barrels per day to 38.2 million barrels per day, even outpacing the previous record set in 2012.

“You do not need a PhD in economics to know if supply grows by 2 million barrels a day, and demand grows by 1 million barrels a day – what will happen with oil prices – and sure enough, prices fell,” said Dale.

Natural Gas

“The big picture story on natural gas is one where global production continued to grow strongly, but demand outside of the power sector was relatively muted, and these two things together causes gas prices to drop sharply around the world,” said Dale.

There is still a large variation across countries and markets.

“On the supply side, the US remained the global powerhouse for natural gas, accounting for around half of the entire increase in global production last year,” according to the economist.

Overall, BP sees three general themes from the gas market:
1) A gas increase share within power sector, especially in the US, even pricing out coal;
2) LNG overall increased, though demand from Asia decreased, and increased in Europe, North Africa, and the Middle East;
3) In order to retain market share, Gazprom responded to increased competition by lowering European prices

The rise of LNG is increasingly influencing prices. For example, a drop in demand for LNG in Asia affected prices in natural gas in Europe.

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Other interesting points of the presentation:
– Gas overtook coal in US power sector – first time ever
– Renewable energy – solar energy has increased 60-fold in the last 10 years

Lukoil First Russian Oil Company to Enter Iran after Sanctions

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Russia’s second-largest oil producer, Lukoil, has reportedly signed a $6 million contract on two exploration and projects in Iran’s southern provinces, and word is already under way.

The news was reported by Iran’s Press TV, citing Hormoz Qalavand, the director for exploration affairs of the National Iranian Oil Company (NIOC).

The two exploration projects are located in the country’s southwestern oil-rich Khuzestan province, situated on the Persian Gulf and sharing a border with Iraq.

The Russian energy group is exploring the hydrocarbon reserves in Dasht-e-Abadan in Khuzestan and in the northern parts of the Persian Gulf, according to Press TV.

This isn’t Lukoil’s first venture into the Islamic Republic of Iran. Lukoil has worked in Iran since the early 2000s, and began work on the Anaran oilfield in 2003 as a minority partner along with Norway’s Statoil, but had to cease operations in 2010 when economic sanctions were imposed.

The Anaran oil field, which is located near the Iraqi border, has an estimated 2 billion barrels of recoverable oil reserves.

Anticipating the imminent lifting of Western sanctions against Tehran over its nuclear program, Lukoil reopened its office in Iran in April 2015.

Iran is home to the world’s fourth largest reserves of oil, which is very cheap to produce – only $10 per barrel.

Sanctions linked to Iran’s controversial nuclear program have barred it from developing or exporting oil or gas in recent years. Iran’s oil exports have dropped from 2.5 million barrels a day in 2011 down to just 1 million barrels in 2014, according to the US Energy Information Administration (EIA).

Until the lifting of sanctions exports, which went mainly to tChina, Japan, India, South Korea, and Turkey, amounted to about 1 million barrels a day, compared to pre-sanctions crude output of 3.6 million barrels per day in 2011.

Iran's oil exports

Iran was allowed to resume selling oil to the US, EU, and its allies in January, after it agreed to take steps to wind down its nuclear program.

According to statements by the Iranian authorities, in the next six months, the country has the ability to bring 500,000 barrels of oil per day to market, and in a year, 1 million barrels of oil. The draft budget for 2016 provides for the export volume of 2.25 million barrels of oil per day.

Iran’s President Hassan Rouhani has repeatedly said that Iran will need foreign companies to invest billions into his country’s economy in order to give it a boost start.

Vagit Alekperov, Lukoil’s chief executive officer, has kept close relations with his Iranian colleagues, most notably the country’s oil minister Bijan Namdar Zanganeh.

The Kremlin has a soft spot for Iran, which up until January, had been subject to Western sanctions, bringing its oil industry to a near standstill.

Sanctions against Russia have its own economy hanging on for dear life. As a result, Moscow will have to make cuts and adjustments across the board, including, as noted by Deputy Finance Minister Sergei Storchak, loans to other countries, with the exception of Iran.