Russia is the second largest producer of crude oil globally and in 2015, output averaged 11.1m bpd, the highest level since 1990. Most Russian oil is produced in West Siberia (around 60%) and the Urals-Volga region (20%) and a number of oilfields in these areas are ageing. However, fields in East Siberia and the Russian Far East have been developed in recent years, partly aided by Chinese investment, and total Russian output has expanded at a time when oil demand growth in Asia has been strong.

A Crude Boost In 2015

Despite the start-up of new fields, Russian seaborne crude exports fell on average by 3% p.a. in 2010-14 to reach 2.7m bpd in 2014, partly as exports of high-value oil products were encouraged. However, in 2015, the depreciation of the rouble supported overseas demand for Russian oil and seaborne crude exports grew 8% to 2.8m bpd. Exports were also bolstered by the combination of the low oil price and lowering of the crude export tax at the start of 2015, which partly helped to offset the impact of a higher mineral extraction tax.

Between 2011 and 2015, the share of Russian crude exports shipped to China, Japan and Korea rose from 11% to 30%, while the share exported to the EU and US fell from 72% to 62%. The shift in trade patterns was partly driven by an expansion in oil output in the East, robust Asian demand growth and, more recently, western sanctions. Growth in exports to the Far East (from 0.4m bpd in 2011 to 0.7m bpd in 2015), was in part facilitated by the completion of the East Siberian-Pacific Ocean (ESPO) pipeline in 2012, connecting East Siberian oil to the Port of Kozmino, from where crude is shipped, largely on Aframaxes, to the Far East.

Quality As Well As Quantity

Meanwhile, Russia’s oil products exports have grown firmly in recent years. Overall seaborne exports from Russia increased 4% y-o-y to reach an estimated 2.4m bpd in 2015 on the back of tax incentives. However, the government has encouraged upgrades of old refineries to boost revenues, which, in 2015, contributed to a 12% y-o-y decline in net fuel oil exports from the FSU and a 13% y-o-y increase in exports of light products.

So, in 2015, Russia’s oil exports proved resilient and this year crude exports look set to rise further. The weak rouble, growth in oil output in the East and contracts to boost Chinese imports via the ESPO pipeline are expected to drive further growth, despite the delay to another planned reduction in the crude export tax. While exports could eventually come under pressure as oil output begins to be affected by the lack of recent investment due to sanctions and the low oil price, for now prospects for Russian oil exports in the short-term still appear positive.
Source: Clarkson Research Services Limited