Russia redirected all oil and oil products to new markets

Russian oil companies have redirected the entire amount of oil and oil products “fallen out” after the introduction of anti-Russian sanctions to new markets. This was announced on March 28, 2023 by Energy Minister Nikolai Shulginov during the final meeting of the board of the Ministry of Energy.

“Dense work is underway to reorient the supply of oil and oil products [с рынка стран Евросоюза и других недружественных государств] to Asia, Africa, Latin America and the Middle East. Already today we can state that we managed to completely redirect the entire volume of exports that fell due to the embargo, there was no decrease in sales,” Shulginov said.

After the start of the JMD in Ukraine in February 2022, Western countries tightened anti-Russian sanctions. The United States and Great Britain announced in March last year that they were refusing to import Russian fuel, and the EU imposed an embargo on its sea supplies. On December 5, 2022, the EU embargo on offshore oil supplies from Russia came into force, and on February 5, 2023, the embargo on petroleum products. At the same time, restrictions on prices for Russian energy carriers began to operate.

The price ceiling for oil from the Russian Federation was set at $60/bbl, the limit for more expensive oil products (for example, diesel fuel and gasoline) at $100/bbl, and for cheaper ones (fuel oil) at $45/bbl.

As a result, Russian companies began to redirect supplies from Europe to Asia, where India and China have become the largest buyers of oil. In 2022, they imported 33.4 million tons and 86.25 million tons of oil, respectively.

During his speech at the collegium of the Ministry of Energy, Shulginov listed the priority areas for the development of the Russian oil industry this year. In particular, according to him, the Ministry of Energy plans by the end of 2023 to work out the issue of expanding the application of the tax on additional income (ATD) in order to stimulate the production of hard-to-recover oil and unprofitable fields.

The AIT regime began to operate in the oil industry in 2019. Such a tax regime should encourage companies to extract oil from depleted fields or invest in the development of new ones. AIT is paid at a rate of 50% on the income from the sale of raw materials, minus the costs of extraction and logistics, while the MET is reduced by an average of 40%. There are five groups of deposits within the AIT. In 2022, the fourth group of AIT was extended to another 56 fields (there are 88 sites in total in this group), and from January 1, 2023, the third group of AIT increased from 39 to 69 fields.

Among other tasks of the ministry for this year, Shulginov named the modernization of oil refineries and petrochemical plants. According to him, the total investment in oil refining projects may exceed 1 trillion rubles, which will allow the construction and reconstruction of 50 processing units for the secondary processing of oil and auxiliary units. As a result, the output of light oil products in Russia by 2030 will grow “by 6% to 72.5%.”

Together with Transneft, the Ministry of Energy is working on further expansion of oil pipelines going to the ports of Kozmino, Primorsk and Novorossiysk. Also, the ministry will continue monitoring retail prices for petroleum products in the domestic market and will track export prices, help reduce dependence on imported equipment and software in the oil and gas sector.

Shulginov’s statement about stimulating the development of TRIZ, according to Finam analyst Andrey Maslov, “does not really correlate with the economic picture”, when Russia voluntarily reduces oil production by 500,000 barrels per day from March to July. Senior analyst “BCS The world of investment” Ronald Smith, on the contrary, considers the use of AIT to stimulate the development of TRIZ a good idea, since this is a more flexible tax regime. According to him, a single tax for TRIZ projects with significantly different capex and production profiles can make some projects unprofitable, and the other part taxed understated.

It will be impossible to talk about a complete reorientation of Russian exports of oil and oil products for several more years, Maslov believes. According to him, “in a couple of years” it is technically impossible to rebuild the infrastructure for export to Asia. Smith elaborates that officially in Russia such trade is considered as export to third countries, so “it is quite likely that all Russian oil and all oil products were diverted, or at least in such a large amount that is equivalent to ‘everything’.”

Offshore deliveries of Russian oil have been redirected to new markets. According to S&P, in February 2023, such exports exceeded the pre-CBO level and amounted to 3.36 million barrels per day (an increase of 11.6% in annual terms), said Kirill Rodionov, an expert at the Institute for the Development of Fuel and Energy Complex Technologies. At the same time, oil supplies to Europe via the Druzhba pipeline in February 2023 fell three times in annual terms to about 940,000 tons (Vedomosti wrote about this on March 24). But there were difficulties with the export of petroleum products, so in February this year it fell by 27.6% yoy to 2.13 million barrels per day, adds Rodionov.

Vedomosti sent inquiries to the Ministry of Finance and major Russian oil companies.