FSU Oil Supply - November 2015

Total FSU oil supply is expected to decline by 0.16 mb/d in 2016 to average 13.43 mb/d, without any changes from the previous month’s estimation. Oil production in Russia, Kazakhstan, Azerbaijan and FSU others will decrease due to a lack of investment in 2016.

On a quarterly basis, total FSU oil supply in 2016 is seen to average 13.55 mb/d, 13.39 mb/d, 13.34 mb/d and 13.46 mb/d, respectively.

Russian oil supply is expected to decrease by 0.06 mb/d to average 10.69 mb/d in 2016, unchanged from the previous MOMR.

The intense debate over next year’s oil and gas taxes is largely over following a compromise solution reached by the Russian producers and the government. The plan would allow keeping Russian crude production unchanged next year, with an insignificant decline expected in 2017. However, these plans will be ruined if the Finance Ministry decides it doesn’t have enough revenue to plug holes in the budget and needs to milk the oil and gas sector beyond 2016. This fear is shared by both oil producers and the Energy Ministry. To get additional income in state coffers, export duties on oil exports next year will be frozen at the current level of 42% from the actual oil price minus $25. It was supposed to sink to 36% next year and 30% in 2017, in accordance to the so-called tax maneuver that went into force this year. The freeze would last only for eight months of 2016, which would bring an additional 133 billion rubles ($2 billion) into the state budget, Russian Minster of Energy Alexander Novak said. The government wants another 200 billion rubles from the oil sector next year. The difference would be provided as a result of higher oil output, since the more companies produce, the more income comes to the state in the form of the mineral extraction tax (MET).

According to the Energy Ministry, the production next year is to stay at this year’s level of 10.68-10.7 mb/d, since all major investments to support output at this level have already been made.

On a quarterly basis, total oil supply from Russia in 2016 is seen to average 10.73 mb/d, 10.65 mb/d, 10.64 mb/d and 10.73 mb/d, respectively. Oil production in Kazakhstan will decline by 30 tb/d to average 1.57 mb/d in 2016, unchanged from the previous month’s forecast. With no new project startups lined up for next year, decline rates are likely to step up in 2016. Different sources have said that the giant Kashagan project was unlikely to start production before mid-2017. Azerbaijan’s oil production is predicted to decline by 40 tb/d to average 0.82 mb/d in 2016, unchanged from the previous MOMR. Lower prices are likely to accelerate declines in Azeri production in 2016 compared to 2015. Other Europe’s oil supply is estimated to remain flat from 2012 to average 0.14 mb/d and continue at this level in 2016.