Alexey Gromov, Principal Director on Energy Studies of the Institute for Energy and Finance, gave a detailed interview to the Federal Press news agency about the prospects for developing the Russian oil industry against the backdrop of the global trend towards green energy.
The global fashion for climate neutrality is spreading to more and more countries that are the main importers of Russian oil. A massive program of re-equipment of existing oil refineries has been launched in Europe. This trend will inevitably lead to a reduction in demand for hydrocarbons. Alexei Gromov, Principal Director on Energy Studies of the Institute for Energy and Finance, told FederalPress how Russia and its OPEC + partners will act in these circumstances.
OPEC + countries last week decided to increase oil production again. We see that the organization adheres to a restrained tactic - recovery of production volume is taking place, but in a slow mode. How do you assess the situation on the oil market today?
- This year began unusually for the industry - no one expected such an increase in oil prices, which occurred in the first quarter. Many were “tempted” to end the OPEC + agreement as soon as possible and withdraw their commitments to limit production. But a pandemic came into play, the third wave of coronavirus led to another lockdown in a number of countries - large oil importers. And in order to minimize the risks of an immediate sharp change in the market situation, including a possible collapse in oil prices, as well as other unpredictable consequences, the OPEC + countries decided very carefully and gradually to get out of voluntary restrictions on production. The OPEC + decision made a few days ago to increase production again from May this year is a cautious step. Now we need to test the market, since the risks of new waves of coronavirus and possible new lockdowns will persist, at least until autumn.
How, in your opinion, will the OPEC + countries continue to behave within the framework of the current agreement? When will they be able to abandon the "manual" market regulation?
- I think the OPEC + agreement will be preserved as a tool. But we know that formally, the restrictions under the current agreement have been agreed upon until April 2022. Nevertheless, I think if the situation on the world oil market develops the way it is developing today, that is, we do not see sharp drops in global demand for motor fuel, and the market continues to recover, then we can witness the complete lifting of restrictions on production from OPEC + at the end of this year.
If we imagine that OPEC + lifts the current restrictions and we return to a normal market economy. How will prices behave in these terms? What will be the demand for oil in the next few years, given the statements of many large importers about the transition to clean energy sources?
- A rather interesting situation is developing here. The upward rebound in oil prices that we saw in the first quarter is certainly not a long-term trend. The market reacted to the recovery in demand, which happened faster than expected. But this is exactly the recovery demand, it is clear that in the long term, the course towards low-carbon energy will cover an increasing number of countries, industries and economies. Therefore, I would not say that we will receive consistently high growth in demand for hydrocarbons in the foreseeable future.
If your forecast turns out to be a reality, and prices still go down, will it be profitable for Russian oil and gas companies to increase production?
- If in the long term the oil price reaches the level of $ 50-55 per barrel, then this will suit both Russian companies and the state. We know that for several years in a row the Russian budget has been drawn up with a reference point for lower world oil prices, so I can say with confidence that $ 50-55 per barrel is a comfortable level for Russia. If the oil price falls below $ 35 per barrel, then, of course, difficulties will arise here, many new projects will be threatened with closure or will require additional government funding. But even despite the expected commercially comfortable price level, there are risks of a different nature - from a possible decrease in demand. Nevertheless, in my opinion, we still need to ensure at least the maintenance of our own oil production at current levels in the foreseeable future of the next 10-15 years.
We know that, according to various estimates, the depletion of fields in the Volga region is already about 80%, in Western Siberia - 60%. What regions are capable of increasing oil production today?
- According to our estimates, until 2030–2035 Western Siberia will still remain the main center of oil production for our country. Of course, there is a problem of reduced production at a number of large fields, in particular, due to a natural drop in the production rate of wells in depleted fields and a high water cut in a number of production facilities. But there are some advantages, including a well-developed infrastructure, which significantly reduces the cost of production in comparison with the development of fields in new regions.
Nevertheless, you are talking about a decrease in demand for hydrocarbon fuels due to the global trend for alternative energy. Which countries, in your opinion, will continue to buy oil?
- The most promising, of course, seem to be the Asian markets. Europe, due to the "green" agenda, will gradually move away from oil in favor of other types of fuel. The countries of the European Union have already begun a large-scale program to modernize their oil refineries in order to produce renewable fuels: the so-called "green" motor fuels based on biomass. I think that this program, in 10 years from now, will bear fruit, and we, to a greater extent, will focus on the eastern direction in terms of further developing the export of Russian oil and oil products.
What's the biggest challenge for the industry in technology development?
- Today it is obvious that we have made significant progress over the past 6 years in a number of areas of the oil industry technological development: we have developed our own technologies for directional drilling and hydraulic fracturing, as well as preparation of mixtures (proppant) for its implementation, which are already actively used to enhance oil recovery in depleted fields in Western Siberia. Today, Russia is also actively working on new methods of seismic exploration. But, along the way, companies face high costs. However, in my opinion, the bottleneck in the import substitution program in the Russian oil industry is the creation of its own software. All Russian companies, as before, are almost 100% dependent on foreign software solutions,
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