November 27, 2017 / 4:17 PM / 2 years ago

Exclusive: Rising Russian Sakhalin oil output may threaten OPEC deal compliance

NEW DELHI/SINGAPORE/MOSCOW (Reuters) - Oil output from Russia’s Far Eastern Sakhalin-1 project is set to rise by about a quarter from January, sources with knowledge of the plan said, signaling Moscow may find it hard to comply with output cuts in tandem with OPEC for the whole of next year.

A fiaker horse carriage passes the Organization of the Petroleum Exporting Countries (OPEC) headquarters in Vienna, Austria September 22, 2017. REUTERS/Leonhard Foeger

Russia and the Organization of the Petroleum Exporting Countries will meet in Vienna on Thursday to discuss an extension of the pact to curb output, possibly by another nine months until the end of 2018.

The Sakhalin-1 project, operated by U.S. oil giant Exxon Mobil off the coast of Sakhalin, currently produces about 200,000 bpd. As a production sharing agreement (PSA) with the Russian state, it is excluded from any output curbs.

The project also involves the Kremlin state oil major Rosneft, whose boss Igor Sechin, a close ally of President Vladimir Putin, has long been one of the main critics of Moscow’s deal with OPEC.

“From January, total oil production from Sakhalin-1 and a small stream from Rosneft’s separate block will be about 250,000 bpd,” said one of the sources.

A second source said production would increase to 260,000 bpd in the March quarter from about 190,000 bpd in 2017. A third source said output would rise to more than more than 250,000 bpd.

None of the sources wanted to be identified due to the sensitivity of the issue. Exxon and Rosneft did not reply to a request for comment. Indian partner ONGC Videsh declined to comment.

Production at Sakhalin-1 has been fluctuating at below 200,000 bpd for many years before the group began to explore a third deposit, Arkutin Dagi, in 2015.

“We are discussing it today with the energy ministry. We have such an option (of output increases), which we didn’t have before. It is because of the new deposit,” Masao Fujita, president of Sodeco, a fourth Japanese partner in the consortium, told Reuters in Moscow.

Rosneft and Exxon have long been trying to develop closer ties, including via drilling in the Arctic. But the plan was shelved after the United States imposed sanctions on Rosneft for Russian actions in Ukraine.

The Sakhalin project is exempt from sanctions because it dates back to the early 1990s.


In the meantime, the joint venture has opted to “front load” production and may cut it later if government permission is not granted to keep the annual average intact, the third source said.

OPEC, Russia and several other major producers have cut their combined output by about 1.8 million barrels per day since January to reduce bloated inventories and boost oil prices.

Moscow has said it was ready to support extending a deal but has sent mixed signals about the duration of the extension with some ministers arguing the oil rally could lead to an overly strong rouble and undermine the competitiveness of the economy.

Russia’s oil-dependent economy grew an annual 1.8 percent in the September quarter, slowing from 2.5 percent in the second quarter.

Under the current deal that ends in March, Russia agreed to cut output by 300,000 bpd from its level in October 2016.

“Russia may have to cut output from other fields to compensate for a rise in output from Sakhalin-1. It is in Russia’s interest to comply with deal to keep oil prices high,” said Ehsan Ul-Haq, director of crude oil and refined products at consultancy Resource Economist.

Goldman Sachs said on Tuesday an OPEC supply cut extension by a nine months was far from guaranteed given that some members including Russia were having concerns about the market overheating.

“We continue to expect a gradual ramp up in OPEC and Russian production from April onward,” Goldman said.

Additional reporting by Vladimir Soldatkin in Moscow; Writing by Dmitry Zhdannikov; editing by Philippa Fletcher

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below