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Oil Exports

Russia Sees Strong 2022 Sales, Uncertainty Ahead

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Moscow expects its crude oil exports to rise this year as more and more countries are increasing imports of Russian barrels ahead of the EU’s embargo on seaborne shipments from Russia that takes effect on Dec. 5 along with a parallel European ban on shipping insurance and financial services.

But the prospects for 2023 are less clear as Moscow and the West continue to ratchet up the stakes in the ongoing energy war: G7 countries are moving ahead with their initiative to impose a price cap on Russia's oil exports, while Moscow is threatening to stop all supplies to countries that support such initiatives.

Politics aside, though, market players remain fairly skeptical that the EU will be able to choke off Russian crude and oil products exports without seriously damaging its own economics and global supply patterns. Russia could not easily abandon those markets, even in favor of new opening markets in Asia.

View From Vladivostok

Speaking on the sidelines of the Eastern Economic Forum in Vladivostok last week, Energy Minister Nikolai Shulginov said that Russia believes crude oil exports will rise this year because of higher demand after the Covid-19 pandemic and because many countries are ramping up imports ahead of the EU embargo.

Indeed, Russian crude oil exports to countries outside the former Soviet Union states jumped by almost 17% in the first eight months of 2022 compared to 4.21 million barrels per day sent to world markets in the same period last year, according to sources familiar with Russia’s official data. For all of 2021, Russian exports to countries outside the FSU came in at 4.3 million b/d.

September is usually the month in which Russian oil companies submit their export plans for next year, but this time there are too many uncertainties to make any plans, industry sources say. The EU embargo would impact some 1 million b/d of crude still flowing to the EU by sea, while Russia's largest pipeline oil importers — Germany and Poland — pledge by the end of the year to stop buying Russian crude via the Druzhba pipeline. The two countries account for two thirds of overall Druzhba supplies of some 800,000 b/d.

Political Factors

While 2023 export plans will largely depend on a number of factors, including mainly political decisions, market players in Russia still hope that exports to Europe won't dry up after Dec. 5. First, Slovakia, Hungary and the Czech Republic will still be allowed to purchase Russian barrels. Second, there are expectations that Germany and Poland will continue purchasing Russian barrels as both countries do not have enough alternatives to replace some 500,000-600,000 b/d of Russian crude. According to some market estimations, Germany alone will still need to replace roughly 300,000 b/d of Russian crude.

With Russian oil trading becoming murkier by the day, some experts suggest that Europe will also continue purchasing Russian seaborne crude. So far, shipping data show that Europe has made little progress in its efforts to significantly reduce imports of Russian barrels. Shipping data for August show that the EU keeps buying Russian oil at almost pre-war levels although there were some ups and downs since Ukraine conflict started on Feb. 24.

Asian Pivot

Moscow boldly says it will still be able to find alternative markets if the EU fully rejects Russian barrels. China, India and Turkey have helped Moscow to keep exports relatively stable in recent months with Russian companies actively looking for new buyers in the Asia-Pacific region. Russian officials said recently that by October, capacities for shipping Russian crude to the east will increase, while there are also ways to expand other ports' capacities in order to be able to reroute exports.

According to Shulginov, Moscow is also working on ways to work around shipping and insurance issues. Russia is talking to shippers about using insurance companies from friendly countries or setting up a new national insurance company in Russia — although sources say both options are in the initial stages.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact >

Topics:
Non-Opec Supply, Sanctions, Ukraine Crisis
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