Gazprom Neft Sees Bright Future for Opec-Plus

Russia could support an extension of the current Opec-plus pact beyond 2022 as an effective mechanism for market stability, according to the head of one of the country's top oil producers.

Alexander Dyukov, CEO of Gazprom Neft, Russia's third-largest oil producer, said Friday that the impacts of the Opec-plus agreement to control oil production are apparent on the Russian economy and the broader global economy.

"It would be logical to keep this effectively working mechanism beyond the horizon of 2022," Dyukov said in an interview with Rossiya24 TV channel.

Dyukov's comments were broadcast on a program marking five years since 23 Opec and non-Opec producers signed the Declaration of Cooperation in 2016 in a bid to support stability in global oil markets.

The current Opec-plus pact, signed in April 2020 as a response to the sharp demand drop brought on by the Covid-19 pandemic, expires at the end of next year. Countries jointly agreed to cut 9.7 million barrels per day of production under the deal, and agreed this year to gradually curb the production cuts from May.

Dyukov said even though "it is not easy" to cut and to grow production, Gazprom Neft has "managed to overcome technical difficulties and [is] ready to promptly react" to the situation, echoing comments by other Russian oil industry officials suggesting the agreement with Opec is here to stay.

Future Cooperation

Russian government officials have a slightly different view of what future cooperation will look like.

Deputy Prime Minister Alexander Novak said in a separate interview with Rossiya24 Friday that Opec-plus activities after 2022 would be regulated by the charter the producers' group signed in 2018.

He said future cooperation would look more like the Gas Exporting Countries Forum, which includes exchanges of information and shared market analysis but no compulsory production cuts. However, Novak has maintained in the past that producers could always take joint steps necessary to respond to a dynamic market.

Russian President Vladimir Putin said in October that Moscow intends to honor the current Opec-plus until it expires at the end of 2022. After that, Putin said, cooperation should expand to other areas, including technologies for cleaner oil and gas production and reducing emissions.

In a statement commemorating the 2016 partnership, Opec hailed the "continued commitment to a stable oil market."

"The 23 oil-producing countries have continued to rise to the challenges they have encountered," Opec Secretary-General Mohammed Barkindo said.

Balancing the Market

On Friday, Dyukov said supply and demand in the global oil market would be balanced soon, although he acknowledged seasonal declines and measures to stop the spread of new Covid-19 variants could limit demand growth in the near term.

"If demand continues to exceed supply, Opec-plus has all the necessary instruments and capacities to balance the situation on the market," he said.

For its part, Russia is set to fully utilize its spare production capacity by the end of the first quarter of 2022, so further supply growth would depend on bigger investments, particularly in drilling operations.

Russian companies are all planning to increase spending next year.

Gazprom Neft said it would increase its investment program by 10% in 2022. Lukoil and Rosneft could grow their capital expenditures by 20%, if no new restrictions emerge.