Russia’s oil production down 0.3% m/m driven by production cuts, gas up 4.3%

Russia’s oil production down 0.3% m/m driven by production cuts, gas up 4.3%
Russia’s oil production was down 0.3% m/m in February driven by production cuts that are part of the OPEC+ deal
By Ben Aris in Berlin March 5, 2019

Russia’s oil production was down 0.3% m/m in February, driven by production cuts that are part of the OPEC+ deal, CTEK reported on March 4.

At the same time gas production grew 4.3% y/y as the state owned gas giant Gazprom ramps up production and has increased its exports to European customers.

Total Russian crude output was down 0.3% m/m, driven by the production cuts at all integrated oil companies under the OPEC+ agreement. The highest production cut, 1.8% m/m, was printed by Gazprom Neft, while Bashneft’s crude output was down a modest 0.3% m/m. Rosneft and Tatneft reduced production 0.6% m/m each, while Lukoil and Surgutneftegaz’s crude output declined 0.5% m/m. Non-integrated oil producers increased crude production 0.6% m/m, VTB Capital (VTBC) said in a note.

Russian gas production was up 4.3% y/y in February. Novatek’s production increased 17.1% y/y, driven by the ramp up at Yamal LNG. Rosneft, Lukoil and Surgutneftegas reduced gas production 1.4% y/y, 3.9% y/y and 3.5% y/y, respectively. Gazprom’s gas production was published at 42.7bcm in February, according to Interfax, implying an increase of 2.6% y/y.

“We calculate that Russian crude production in February was 0.7% below the October 2018 level (the reference point) and almost in line with the required level for February within the OPEC+ production cut agreement reached back in December 2018. We note that the highest contribution to the production reduction since October 2018 has been made by Gazprom Neft, which cut its output 5.2%. Although Surgutneftegas posted crude production cut in line with its peers in February, since October crude output at the company’s fields has even slightly increased (up 0.4%),” VTBC said.

Gazprom’s gas production declined slightly m/m in February (-0.3% m/m) along with weaker gas exports to Europe (-13% y/y). Novatek’s consolidated gas production (including its share in joint ventures) increased 17.1% y/y, thanks to the contribution from Yamal LNG (it more than tripled gas production at the field compared with February 2018, +31.5% m/m) and higher production at Arcticgas (+1.9% y/y).

Gazprom's head Alexey Miller earlier said that the company increased its gas output by 5.4% to 497.6bn cubic metres (cm) in 2018, and gas export by 3.4% to 201bn cm. Gazprom expects gas exports to Europe at 200bn cm in 2019, the company says.

Gazprom may increase its output by 80bn-115bn cm by 2035 thanks to developing projects in new regions, board member Oleg Aksyutin said on February 26. But most of the increase will be going to China as the new Power of Siberia pipeline comes online at the end of this year.

Gazprom estimates that its share of the European gas market grew to 36.7% in 2018, from 34.2% in 2017, amid lower production in the region. At the same time Gazprom's average gas price grew by 24.6% in 2018 and reached $245.5 for 1,000 cm. The company expects natural gas prices in Europe this year to average $230-250/kcm.