HomeNewsRussia's Gazprom Nef...

Russia's Gazprom Neft calls for flexible quotas in OPEC-led deal

  • Source:
  • Jun.11,2018

Russia's third-largest crude producer, Gazprom Neft, wants flexible quotas in the crude production cut deal, as it is ready to fully recover its frozen output within one to two months, the company's CEO Alexander Dyukov said Saturday.

Dyukov's statement comes less than two weeks before OPEC and non-OPEC participants meet in Vienna to discuss further joint action on the deal and consider raising quotas for producers, as Russian and Saudi Arabian energy ministers signaled late-May.

"Time has come to keep the agreement but make it more flexible in terms of quotas. The situation in the market is changing and we have to react quicker to changes," Dyukov said at a briefing following the company's annual shareholders meeting.

Otherwise, the market risks overheating with rising oil prices encouraging the launch of a large number of low-margin fields, to be followed by crude surplus and a new price drop, and high volatility, he added.

While taxation specifics make Russian crude producers resistant to low prices, companies would still prefer stability, Dyukov said.

"We are resistant to low oil prices, but the principle of having stable and understandable prices is true for all in the global economy. In this case, clearly, quotas have to be revised, quotas have to be increased. This will benefit absolutely everyone -- producers and consumers," Dyukov said.

The deal to remove 1.8 million b/d of crude from the market included Russia cutting 300,000 b/d from its October 2016 crude production, an obligation it had complied with before exceeding the production in the past three months.


With the cut proportionally distributed between Russia's main producers, Gazprom Neft had reduced its output by 2.7%, or about 4,600 mt/d, the company's first deputy CEO Vadim Yakovlev said.

So far, under the current OPEC/non-OPEC deal parameters, Gazprom Neft maintains the plan to keep its output flat on the year at 62.3 million mt of crude, Yakovlev added.

If the quotas are revised up, however, the company will be able to increase production by 5,000 mt/d, or 37,000-40,000 b/d, within one to two months, Dyukov said.

"If the deal stays in place, hydrocarbons production will grow by 1.5%-2%, while crude production will be flat at last year's level," he said. "If a decision is taken to hike the quotas, our production will depend on how big a quota increase we get. Technically, we can boost production in the nearest one to two months by 5,000 mt/d."

While the size of the potential quota increase has yet to be determined, "we will take all they give us," Dyukov said.

Despite the fact oil producers had benefitted from recent rise in oil prices, they had sold fewer barrels at higher prices, Dyukov said. Gazprom Neft would still prefer the option of raising its output for longer-term market stability.

"Naturally we are interested in raising production. We have the capacities for this, and we would like to use them," he said.

While Dyukov expected no major oil price reaction to the potential increase in crude supply as "statements have already been made and the market has already priced this in," Dyukov said, adding that he saw a drop in oil prices as a result of higher crude supply as beneficial in the mid- and long-term.

"At the moment, we see market overheating and we see companies' desire to invest in everything they can, which will lead to surplus," he said. "Sometimes it is better to receive less in short-term revenue, but have stable, confident revenue in the long run. Greed leads to poverty."

Russia's largest crude producer Rosneft was also in a position to be able to add 100,000 b/d to production in a few days, if the conditions of the production cut deal were eased, Aton's analysts said recently, following meetings with Rosneft officials.