30 May 2022 10:53

Lukoil VP sees drop in Russian oil output from 10 mln bpd to 7-8 mln bpd as reasonable, but calls for keeping OPEC+ deal

MOSCOW. May 30 (Interfax) - It makes sense that oil production in Russia is falling amid the significant restrictions due to the situation in Ukraine, Lukoil vice president Leonid Fedun said.

"Why produce and export more commodities than necessary for dynamic economic growth and increasing current prosperity? To secure the future?" Fedun asked in his article in newspaper RBC.

It is more rational to preserve untapped reserves for future consumption and create infrastructure reserves than to accumulate questionable debt obligations that, furthermore, depreciate with every year due to uncontrolled devaluation, he said.

It is "highly likely that the need for natural resources will increase in the coming decades and their price will correlate with real inflation," Fedun said, adding that it is "very amusing to see how the politicians who talked about hydrocarbons as a commodity with 'questionable' value and the arrival of a 'hydrocarbon-free' era are now actively urging oil companies to increase investment in exploration and development...The political situation has changed."

"Therefore, why should Russia ensure production of 10 million barrels of oil per day if we can effectively consume and export 7 million-8 million without losses for the nation's budget, domestic consumption and supporting imports? Let's return to the discussion that we had on the eve of the OPEC+ agreement. What's better, to sell 10 barrels of crude at $50 or seven but for $80? The same is true now. Do we need to try to maintain the volume of pre-crisis exports, agreeing to 30% and sometimes even 40% discounts?" Fedun said.

He also said that, amid the political storm, it is extremely important to preserve the OPEC+ agreement. "Only Arab producers have available capacity capable of partially replacing Russian oil exports in the short term. There is no doubt that it makes sense to coordinate all subsequent steps to optimize oil supplies with our partners in the agreement," Fedun said.

In time, as global demand for hydrocarbons increases and export infrastructure oriented toward eastern markets is developed, Russia will be able to again increase oil production, preserving the OPEC+ format of cooperation, he said.

Another important step could be to increase the capacity of the national tanker fleet, including river-sea class tankers, to create alternative transport corridors for exporting Russian oil through Turkey, Iran and Central Asian countries, Fedun said.