Russia’s Oil Output Is Plummeting, And It May Never Recover
Russian oil production is falling. In March, it shed half a million bpd, which by the end of April reached a full 1 million bpd, according to BP’s CEO, Bernard Looney. And this may well grow to 2 million bpd this month. These barrels may not be returning to the market any time soon. As the European Union targeted a barrage of sanctions on Moscow, oil was excluded as a direct target but financial and maritime sanctions affected the industry. Now, the EU is proposing a full oil embargo, save for a handful of member states too dependent on Russian oil to comply, and this will mean a further loss of barrels at a time when the global oil market is already stretched thin. “We could potentially see the loss of more than 7 million barrels per day (bpd) of Russian oil and other liquids exports, resulting from current and future sanctions or other voluntary actions,” the secretary-general of OPEC, Mohammed Barkindo, told the European Union last month. This does not appear to have made any lasting impression on the decision-makers in Brussels, who are moving full steam ahead with the oil embargo. Meanwhile, alternative suppliers would struggle to fill the void left by Russian oil. Russia expects it could lose some 17% of its pre-war oil production this year, Reuters reported last month, citing a document from the country’s economy ministry. The report noted this would be the biggest production drop since the 1990s—a tumultuous time for Russia following the breakup of the Soviet Union. That would be close to 2 million bpd—a figure similar to Looney’s forecast and also to a forecast made by Rystad Energy about lost Russian oil production between 2021 and 2030. If the Rystad projections are right, the fallout from the EU oil embargo would be limited and most Russian production will simply be redirected as it already is. If, however, production declines more, this could see international prices spike much higher. When European buyers started refusing to accept Russian oil cargoes, those cargoes had to return home to be stored somewhere. According to local reports, however, storage space is limited, and this has probably forced the idling of some wells, which if idled, can see their ability to produce in the future affected. But there is also danger ahead for Russia’s future production. This may also not materialize as previously planned because of the exit of Big Oil majors from the country, Dan Dicker, host of The Energy Word, told Yahoo Finance earlier this week. Their exit, combined with financial sanctions on Russian banks, will make developing new resources in eastern Siberia more challenging. Meanwhile, OPEC is producing less, rather than more, oil, and U.S. producers are under fire from legislators for alleged profiteering from the oil price rally and struggling with shortages of materials, equipment, and workforce. U.S. oil production will rise by only 800,000 bpd this year, according to the Energy Information Administration’s latest Short-Term Energy Outlook. That’s not good news for America’s European partners. It’s not good news for Americans, either, because it means prices will likely remain high. Except for OPEC and the United States, there are few producers large enough to spare oil for Europe, if any. Brazil is expanding its oil production but its total stands at around 3 million bpd, which is what the EU was importing from Russia before the war in Ukraine began. That leaves the Central Asian producers, who are parties to the OPEC+ agreement and firmly within the Russian sphere of influence, too. What all this means is that with the loss of 2 million bpd of Russian production, a lot of the world is in for prolonged oil price pain, which means all-price pain as well. The beneficiaries are China and India, who are buying Russian crude at a discount, with no logical reason for them to stop, despite threats from Washington. But Russia’s oil production could still fall by more than 2 million bpd. “Europe’s dependence on Russian energy has been a deliberate and decades-long and mutually beneficial relationship. In this early phase of sanctions and embargoes, Russia will benefit as higher prices mean tax revenues are significantly higher than in recent years,” said Daria Melnik, senior analyst at Rystad Energy. “Pivoting exports to Asia will take time and massive infrastructure investments that in the medium term will see Russia’s production and revenues drop precipitously,” she added. With most producers constrained in their capacity to boost production fast, should this scenario play out, oil could become a lot more expensive with little in the way of downside pressure, including electric vehicles. Electric vehicles are about to experience a shortage of batteries and still higher prices. There are some really interesting times ahead.
What India should do to achieve 500 GW non-fossil fuel capacity by 2030
Our total electricity generating capacity now is over 390GW, out of which renewables are over 100 GW. At COP26, India announced that by 2030 its non-fossil fuel capacity would be 500GW, a massive increase in ambition. Is such a large capacity creation feasible? What would happen to thermal power? Do we need to just scale up what we have been doing? Or would new programs be also needed? Our success so far has been through tariff-based bids for grid scale solar projects. The pace of solar capacity addition can be ramped up by tapping the potential of decentralised small solar power installations in rural India. Solar panels can be put up in villages on roof tops, over cattle sheds, grain stores, wastelands, and water bodies. The policy instrument of a feed in tariff to tap this potential would work. The Distribution Company would need to announce the rate at which it would buy electricity through a long-term power purchase agreement from those who put up solar panels. The offtake could be at the substation, the distribution transformer, or the consumer connection point with the purchase being limited to the Kw range and subject to absorption capacity. Our success so far has been through tariff-based bids for grid scale solar projects. The pace of solar capacity addition can be ramped up by tapping the potential of decentralised small solar power installations in rural India. Solar panels can be put up in villages on roof tops, over cattle sheds, grain stores, wastelands, and water bodies. The policy instrument of a feed in tariff to tap this potential would work. The Distribution Company would need to announce the rate at which it would buy electricity through a long-term power purchase agreement from those who put up solar panels. The offtake could be at the substation, the distribution transformer, or the consumer connection point with the purchase being limited to the Kw range and subject to absorption capacity.
India wants Russia to sell its oil at less than $70 per barrel: Report
Indian refiners have bought over 40 million barrels of discounted Russia crude since Vladimir Putin launched his ‘special military op’ against Ukraine on February 24, Bloomberg said India is trying to convince Russia to offer deeper discounts on crude oil – Delhi is looking to pay less than $70 per barrel – to offset risks in dealing with the OPEC+ producer in light of increasingly harsh financial sanctions against Moscow over its invasion of Ukraine. Sources told Bloomberg discounts are being sought to compensate for hurdles like securing financing for purchases. Bloomberg said the Indian government did not immediately comment. At the time of writing, global benchmark Brent is trading near $108 a barrel, down from a high of nearly $130 a barrel in the war’s initial days. Indian refiners – state and private – have bought over 40 million barrels of discounted Russia crude since Vladimir Putin launched his ‘special military op’ against Ukraine February 24, Bloomberg said. Last month too Russia offered India discounts on a fixed one-time purchase of 15 million barrels. Russia offers India discount on purchase of 15 million barrels of oil. Total purchases are significant in volume – 20 per cent more than Russia-India flows in 2021, according to Bloomberg calculations from trade ministry data. The purchases have also invited pointed remarks from the West, including the United States and the European Union, but those were countered by the government pointing out the EU too had bought more from Russia and that India welcomed competitive offers to meet domestic demand.
Lured by cheap oil, India becomes largest customer of Russian Urals crude
India emerged as the largest buyer of Russian Urals crude in April enticed by hefty discounts, as several of the grade’s regular European customers have boycotted this oil following Russia’s invasion of Ukraine Urals has been trading at record-lows in recent weeks, with some deals being done at discount of almost $40/b to the Platts Dated Brent crude oil benchmark. Around a quarter of Russia’s seaborne crude exports of the medium sour Urals in April is poised to travel to the South Asian country, according to trading sources and ship tracking data. Russia exported 627,000 b/d of Urals crude to India in April compared to according to 274,000 b/d and zero in March and February respectively, according to data from commodity intelligence firm Kpler. Seaborne Urals crude exports averaged 2.24 million b/d, its highest since May 2019, despite sanctions and boycotts by several of Europe’s refiners, Kpler data showed. Until Russia’s invasion of Ukraine, India very rarely bought Russian oil. But with Russian crude trading at record-lows in recent week weeks, Indian refiners have been unable to resist buying cheap crude despite pressure from Western governments. The medium sour grade Urals was assessed at its lowest level ever relative to Dated Brent at minus $39.40/b CIF Rotterdam on April 29, according to S&P Global Commodity Insights’ Platts assessment. The price of Russian Urals CIF Rotterdam averaged $69.89/b in April, according to Platts data. This compares with a monthly average of $104.40/b for United Kingdom’s Forties, which is similar in quality to Urals. Record lows Russia has been desperate to find new customers after a dramatic decline in interest for its oil among Western consumers and it has found an opportunistic buyer in India, according to trading sources. “Indian refiners are always desperate for a bargain. Russian crude is so cheap compared to other alternatives. They just could not resist Russian oil at these prices,” said a Geneva-based crude trader. Russian Urals crude exports to India were as less as 16,000 b/d and 32,000 b/d in 2020 and 2021 respectively, Kpler data showed. These shipments are heading to several of Indian’s refineries such as Reliance’s two refineries in Jamnagar which have a capacity of 1.36 million b/d, Nayara Energy’s 400,000 b/d site in Vadinar, Indian Oil Corporation’s 300,000 b/d Panipat refinery, Hindustan Petroleum Corp Limited’s 166,000 b/d Vizag plant and Bharat Petroleum Corp Limited’s 310,000 b/d Kochi refinery. Newfound appetite Despite strengthening energy ties between the two countries, India has not been an active buyer of Russian crude oil, mainly due to economic and logistical issues. Urals crude, which is exported from the Baltic and Black Sea ports, involves long shipping voyages, and even Russian ESPO crude has not very convenient for Indian refiners to import. But at these prices, refiners have found it tough to ignore Russian crude. India’s newfound appetite for Russian oil has come under pressure from Western governments such as the US, UK and Germany. But the government has defended its purchases of Russian oil. “The quantum of oil imports by India from Russia is a small fraction of what the rest of the world imports from Russia. Ultimately, we look at this from the perspective of energy security which not just India, but other countries are also pursuing,” India’s Foreign secretary Vinay Kwatra said at a press conference on May 2. India’s oil demand is also rebounding sharply as the country’s economy is on an upward curve after it emerges from COVID-19. Russian crude accounted for less than 3% of the around 4.3 million b/d crude that India imported in 2021, according to S&P Global Commodity Insights. This comes as the EU is likely to propose an embargo on Russian oil in its next sanctions package against Moscow this week, according to Germany’s economy minister, but may carve out exceptions for countries such as Hungary and Slovakia that continue to oppose a halt. But Indian refiners’ purchases of Russian crude could scale down with the tightening of sanctions by the EU and US from mid-May, which might hit logistics. The bulk of India’s refiners bought this crude on a delivered basis, with sellers bearing costs related to insurance and shipping. India, which has recently emerged as the world’s third-largest crude oil importer, has been hugely reliant on crudes from the Middle East and West Africa, but it has been diversifying its suppliers over the past few years. Russia is a significant supplier of oil to the world, exporting more than 7 million b/d of crude and petroleum products, or some 13% of total oil trade.