Oil
Russia and China set to increase Crude oil relationship
BEIJING – Russia is planning to more than triple crude-oil exports to China over the next decade, but it doesn’t look set to increase production proportionally. How will it manage this?
The two countries have signed agreements that would increase the amount of oil flowing from Russia to China by around 700,000 barrels a day from 300,000 barrels a day currently, prompting oil watchers to ask where the additional supply will come from.
Russia may be the world’s biggest oil and gas producer for now, but the U.S. is overtaking it, according to the International Energy Agency. And while Russia produced more oil last year, the U.S. will likely surpass it this year or next, while Saudi Arabia is still the top producer.
Most of the oil fields in Russia’s biggest production center, Western Siberia, which accounts for around two-thirds of its output, are more than three decades old and in decline.
“We expect the declines in West Siberia to accelerate from here: as high as 3.5% per year on average from mature West Siberian fields,” Rob West, senior research associate at Sanford C Bernstein Ltd., said by email.
This is despite several years of efforts by Russian companies to maintain oil production at maturing fields by investing billions of dollars in technologies such as horizontal drilling and hydraulic fracturing.
What gains in production Russia has made over the past five years have been thanks to new production areas such as Rosneft’s large Vankor field in Eastern Siberia, a region that holds relatively limited and poorer-quality oil reservoirs compared with older finds to the west. And discoveries are getting smaller in the region.
“The sad reality is that Russia has no other large greenfields [new developments] which could continue to offset declines in the next decade,” HSBC analyst Ildar Khaziev said in a note last month.
And the prognosis isn’t promising. Mr. Khaziev noted that no new giant fields have been discovered in Russia since the 1980s, and unless there are such discoveries, “it will be very difficult to replace the declines in production.” The country’s crude-oil output will peak in 2018-2019, by his estimate.
Energy consulting firm JBC forecasts Russian output of oil liquids will hover between 10.7 million and 10.8 million barrels a day for the remainder of the decade.
In June, Rosneft, the world’s largest listed oil producer, agreed to supply China National Petroleum Corp. with 300,000 barrels a day of crude over a 25-year period in a deal valued around $270 billion. This matches the volume that Rosneft and Transneft are sending to CNPC via pipeline based on a 2009 deal.
Russia and China are also planning to build an oil refinery in the Chinese port city of Tianjin that would use up to 180,000 barrels a day of Russian crude oil a year. And earlier this month, it agreed to supply China’s largest oil refiner, Sinopec Group, with 200,000 barrels a day of oil for 10 years.
“The Rosneft-Sinopec deal now raises somehow the question of where will Rosneft get all that oil from in order to fulfil all of its export commitments,” said Johannes Benigni, Singapore-based consultant for JBC Energy.
One option is to drill more, an approach that Russia is taking by, for example, seeking Chinese investments to unlock more oil in Eastern Siberia. Rosneft and China National Petroleum Corp. earlier this month agreed to form a joint venture for that purpose.
Another option is to reallocate. According to the IEA, Russia exported around 4.8 million barrels a day of crude oil in 2011, with nearly four-fifths destined for Europe and around one-sixth for Asia.
David Wech, managing director at JBC Energy, said Russia’s crude exports to the east and north will continue growing at the expense of declining volumes to its west and south.
Of course, peak-oil prognosticators have been wrong before. Just as the U.S. has been able to reduce its reliance on foreign supplies thanks to technological advances in recent years, Russia may also find ways to tap additional supplies to meet its export commitments.
“Rosneft has significant additional volumes it could redirect depending on the pace of production growth in East Siberia,” said Ian Thom, an analyst at Wood Mackenzie. “We see the key issue as the extent to which oil will be redirected rather than if Rosneft can fulfill the agreements” it has made with Chinese buyers.
– WALL STREET JOURNAL
In a strategic move to revitalize Nigeria’s oil and gas sector, the Federal Government has unveiled two key fiscal incentives aimed at attracting investment and enhancing energy security.
The announcement was made by Mr. Wale Edun, the Minister of Finance and Coordinating Minister of the Economy on Wednesday.
The first initiative, the Value Added Tax (VAT) Modification Order 2024, introduces critical exemptions for essential energy products and infrastructure, including Diesel, Feed Gas, Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG), Electric Vehicles, Liquefied Natural Gas (LNG) infrastructure, and Clean Cooking Equipment.
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These exemptions are designed to reduce living costs for Nigerians, promote energy security, and accelerate the transition to cleaner energy alternatives.
The second initiative, the Notice of Tax Incentives for Deep Offshore Oil & Gas Production, offers new tax relief options for deep offshore exploration projects.
This measure aims to position Nigeria’s deep offshore basin as a premier destination for international oil and gas investments, boosting the country’s appeal to foreign investors.
These reforms are part of a broader set of policy initiatives, known as Policy Directives 40-42, endorsed by President Bola Ahmed Tinubu.
The directives reflect the administration’s commitment to fostering sustainable development in the energy sector and enhancing Nigeria’s competitive edge in the global oil and gas market.
By Yemie Adeoye
NIGERIA’s President Bola Tinubu has announced that the protracted ExxonMobil-Seplat upstream oil divestment will be formally approved by the Minister of petroleum within a matter of days, just as he announced his government’s intention to expand the Compress natural Gas, CNG buses initiative.
The President who stated this during his Independence day nationwide broadcast stated that the move is in line with his administration’s commitment to free enterprise, free entry and free exit in investments which is the hallmark of his administration investment policy.
“Fellow compatriots, our administration is committed to free enterprise, free entry, and free exit in investments while maintaining the sanctity and efficacy of our regulatory processes. This principle guides the divestment transactions in our upstream petroleum sector, where we are committed to changing the fortune positively. As such, the ExxonMobil Seplat divestment will receive ministerial approval in a matter of days, having been concluded by the regulator, NUPRC, in line with the Petroleum Industry Act, PIA. This was done in the same manner as other qualified divestments approved in the sector.”
The President also seized the opportunity to plead with Nigerians to be patient with his administration’s reform policies. “As your President, I assure you that we are committed to finding sustainable solutions to alleviate the suffering of our citizens. Once again, I plead for your patience as the reforms we are implementing show positive signs, and we are beginning to see light at the end of the tunnel”.
“Our energy transition programme is on course. We are expanding the adoption of the Presidential Initiative on Compressed Natural Gas for mass transit with private sector players. The Federal Government is ready to assist the thirty-six States and FCT in acquiring CNG buses for cheaper public transportation.
Fellow Nigerians, while we are working to stabilise the economy and secure the country, we also seek to foster national unity and build social harmony and cohesion. Our economy can only thrive when there is peace”. he enthused.
As part of the administration’s push to improve Ease of Doing Business (EoDB), Nigeria’s Vice President Kashim Shettima has expressed support for ExxonMobil’s plan to invest $10 billion in the country’s deep-water oil sector.
Speaking on Wednesday, September 25, 2024, during a meeting with ExxonMobil executives at the 79th United Nations General Assembly (UNGA) in New York, Shettima called the investment “a clear testament to the administration’s economic reforms and investor-friendly policies.”
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This announcement follows news that international maritime company DP World intends to develop a multibillion-dollar port project in Nigeria.
Stanley Nkwocha, Senior Special Assistant to the President on Media and Communications, shared the development in a statement on Wednesday. He quoted Shettima as saying: “ExxonMobil’s potential investment aligns with the vision of President Bola Ahmed Tinubu’s administration for a more investment-friendly Nigeria.
We are committed to fostering an environment that supports such transformative projects.”Shettima also discussed the administration’s broader efforts to improve the ease of doing business, highlighting the “Renewed Hope Agenda,” which aims to simplify bureaucratic processes, enhance transparency, and offer fiscal incentives to attract global investors.
“Our administration has taken bold steps to unify the exchange rate, remove fuel subsidies, and implement tax reforms. These measures, though challenging in the short term, are intended to create a stable and predictable business environment in the long term,” he added.
On the oil and gas sector, Shettima mentioned that the government is revising the fiscal framework for deep-water operations to attract investment while ensuring fair returns for the Nigerian people.
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