Analyst Suverov: “Russia is inferior in the energy confrontation with the West”

Large-scale energy supplies to India and China do not save the federal budget from losses

Over the past year and a half, Russia has managed to significantly restructure its oil export routes, shifting its main flows from West to East. According to the recently published estimates of the Deputy Prime Minister of the Russian government Alexander Novak, China and India have significantly increased their purchases of Russian oil over the past year, while Europe has reduced its former imports from our country by more than half. However, not everything is so simple. Exports to Asia, due to additional transport and infrastructure costs, will bring much less profit for a long time than deliveries to the West.

In 2023, according to Novak, the West will import only 40% of the previous volume of oil supplies from Russia: instead of 223 million tons, European states, until recently considered the main buyers of raw materials from our country, will receive no more than 87 million tons. In turn, Russian exports of “black gold” to Asia back in May 2022 for the first time in the history of trading exceeded the volume of shipments of raw materials to the countries of the Old World. In particular, oil sales to India last year increased 19 times (up to 41 million tons), and to China – by 28% (up to 89 million tons).

“Currently, significant government efforts are aimed at developing energy infrastructure in the Asia-Pacific region, as well as building up a friendly fleet and creating financial infrastructure, including a system of payments and insurance. In addition, a mechanism is being worked out for the sale of not only energy carriers, but also services for their delivery to the end consumer,” Alexander Novak assures.

In general, Russia managed to partially compensate for the loss of supplies to Europe. This is evidenced by open figures for oil exports. So, since November last year, daily exports from the Russian Federation to the countries of the Old World fell by 900 thousand tons: by 400 thousand – by sea and by 500 thousand – through the Druzhba pipeline. But exactly the same amount, by 900 thousand tons, increased daily shipments of “black gold” to Asia. At the same time, according to the International Energy Agency, despite record volumes of sales to China and India, due to the provision of serious discounts to eastern buyers, our country’s monthly foreign profit from oil exports decreased by $700 million.

To assess the scale and prospects for the reversal of domestic export oil flows to the East, MK asked industry experts.

Sergey SUVEROV, investment strategist at Arikacapital:

“The reorientation of Russian energy supplies from Europe to Asia is a forced step for domestic mining companies. The West is going to minimize its dependence on the import of hydrocarbons from our country. The change in export policy confirms Russia’s flexibility with respect to foreign supplies of energy resources – despite Western sanctions, there has been no collapse in our fuel industry. The discount on Russian oil sold to Asian consumers is gradually decreasing. If in winter the discount for our “black gold” reached $35 per barrel, then in May it dropped to an average of $22. Nevertheless, the losses of the domestic federal budget cannot be denied: from January to May, Russia’s oil and gas revenues decreased by 50% compared to the same period last year. Due to the increase in the transport arm, the growth of logistics costs and problems with the insurance of sea transportation of raw materials, the profitability of exports to Asia turns out to be much less than the sale of hydrocarbons to Europe.

China, as well as India, in the future, that is, after the complete abandonment of the restrictions associated with the coronavirus pandemic, will turn out to be the most important consumers of energy resources, so an increase in exports to Asia will be able to somewhat offset the problems of the federal budget of our country, the deficit of which has approached in five months. to the mark of 3.5 trillion rubles. However, the profitability of deliveries to China and India due to geographical features will continue to lag behind exports to Europe for a long time to come. So it can be stated that at the moment Russia is more likely to concede in the energy confrontation with the West than to benefit financially from it.”

Spartak SOBOLEV, Head of Investment Strategies Research at Alfa-Forex:

“The turn to the East has actually already been completed – talk about this pirouette began a decade ago – before the construction of the Power of Siberia pipeline and before a significant increase in oil supplies to China and India in the wake of Western sanctions. Now Russia has only the infrastructure for this reversal that it has been able to create over the past years. In financial terms, the loss from the reorientation from the European to the Asian direction, of course, exists. But if the supply of our energy resources did not go to the East, then it would be practically impossible to find alternative sales markets. Under the circumstances, the Russian budget is at least replenished with petroyuans instead of petrodollars, and retains the possibility of planning spending in the coming years.”

Sergey RAMANINOV, analyst at Markets. Money. Power”:

“In oil and oil products, a reorientation from West to East has taken place. As a result of such a maneuver, Russia suffered certain financial losses, which so far do not look fatal. However, some negative circumstances that are not obvious today may still appear in the future. The logistics of deliveries of hydrocarbons have risen in price significantly. For many years, a significant part of the pipeline and port infrastructure necessary for foreign transport operations was oriented to the West, so the redirection of export flows of raw materials to Asia led to an increase in the cost of transport and other services. In general, in the oil sector, Russia has already been able to cover the dropped volumes of deliveries to the unfriendly West with sales to the East, as well as to Africa. True, due to significant discounts, such supplies bring in less money than previously brought oil exports to Europe.