The Russian Crude Oil Industry and Export Patterns in 2014

CEIC Russia Data Talk - April 7, 2015 In spite of the recent political and economic challenges in Russia, crude oil production sustained its growth trend for a sixth consecutive year in 2014, reaching a record of 525 million tons. Crude oil production volumes collapsed during the 1990s, followed by a revival in the 2000s, but only recovered above 500 million tons in 2010 for the first time in the country’s post-Soviet Union era. Export duties and tax revenues from oil production and trade constitute the largest share of the federal budget. The volume of total crude oil exports declined by 5.6% year-on-year (YoY) in 2014. This, coupled with the steep oil price drop since the middle of last year, led to a decrease in export revenues in USD by 11.4% YoY. The Urals average crude oil price dropped from USD 108.93 per barrel in June 2014 to USD 46.58 per barrel in January 2015. The rouble devaluation accounted for increasing rouble-denominated federal budget revenues from foreign trade of oil and gas, absorbing the pressure on the federal budget resulting from the decreasing USD-denominated export revenues. Federal government revenues from export customs duties on crude oil amounted to RUB 2.6 trillion in 2014 (RUB 2.3 trillion in 2013), which was the largest amount recorded in recent history. The Commonwealth of Independent States (CIS) accounted for 10.8% of the total crude oil export volume of 223.4 million tons in 2014. In terms of value, however, crude oil export revenue from non-CIS countries totaled USD 145.6 billion or almost 95% of total crude oil revenues in 2014, since Russia sold oil at discounted prices to the CIS countries. The main CIS consumers of Russian oil have traditionally been Belarus, Kazakhstan and Ukraine. The balance, however, is changing in favour of Belarus, which increased its consumption of Russian oil by 73.1%, from 3.4 million tons in the first quarter of 2011 to 5.9 million tons in the third quarter of 2014. On the other hand, oil exports to Kazakhstan significantly diminished in 2014 from 2.3 million tons in the fourth quarter of 2013 to 0.1 million tons in the third quarter of 2014. Oil exports to Ukraine contracted to minimum levels and have remained close to zero during the past three years. The Netherlands, Italy, Poland and Germany have traditionally been the main consumers of Russian oil in Western Europe, which has remained the major and the steadiest market for Russian oil for decades. The Netherlands is the largest importer reaching a peak of 56.9 million tons in 2010 and recording 32.2 million tons for the first nine months of 2014. Oil export growth to Europe has remained stagnant during 2014, resulting from the strained trade relations with the European Union and Russia’s expansionary policy in Asia. Russia has expanded its presence in the Asian markets since 2009. Oil transportation capacities have grown in Siberia, streamlining Russia’s oil exports to its Asian partners. The initial phase of the Eastern Siberia-Pacific Ocean oil pipeline construction was completed in 2009, and expanded to the Pacific coastline by 2012 to reach maximum capacity by 2015. China has taken the permanent position of the second largest consumer of Russian oil during the past two years, swiftly outrunning major European consumers. China imported 8.2 million tons of Russian crude oil in the third quarter of 2014, or 16.2% of the total non-CIS exports. Oil exports to South Korea have also significantly expanded in the last decade, peaking at 3.2 million tons in the third quarter of 2014. Oil exports to Japan reached 2.1 million tons in the same period, placing it in the top-10 importer list. Given the deteriorating relations with European partners, Asian markets are becoming increasingly important for Russia and new contracts with China are critical for further growth. Oil and gas exports have been the main source of revenue for Russia and are a contentious topic due to the country’s total dependence on oil and gas trade. The rouble devaluation only increases this dependence. The global oil price decline did not have a significant negative impact on oil and gas revenues, which declined in foreign currency but rose in roubles at the same time. The rouble devaluation was a direct consequence of the oil price decline, providing a cushion for the budget revenues, while negatively affecting the financial system and purchasing power of the population. Interest rates and inflation have both risen, limiting internal access to credit. Foreign credit has been limited due to the sanctions. In the current conditions all industries, including oil and gas, might experience negative effects in terms of contracting investment and financing. By Alexander Dembitski - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
7th April 2015 The Russian Crude Oil Industry and Export Patterns in 2014