Oil and gas
Last year, Russia hit record post Soviet production levels when it came to oil and gas condensate of 10.58 million bpd, however, this is expected to fall over the next five years due to sanctions but stay above the 10 million bpd level. According to BMI, Russia is increasingly focusing its investment on projects to support the diversification of exports away from China and Europe. Looking downstream, output is standing strong with upgrades improving efficiencies in the country’s major refineries.
BMI has downgraded its refined fuels consumption forecast due to a weaker economic outlook for the country. Russia is expected to enter recession this year, with private consumption among the hardest hit sectors. Despite middle distillate production growing last year, with increased volumes of diesel, jet fuel and fuel oil being output, gasoline output fell.
The sanctions currently in place between Russia and the US and the EU have reportedly significantly curtailed progress in Arctic offshore, shale exploration as well as major LNG projects. Access to technology and financing is severely hindering developments. However, BMI has reported that Russia has granted the Yamal LNG projects funds from the National Welfare Fund to support the development in the face of sanctions.
For 2015 BMI is adopting a bearish outlook for Russia’s petrochemicals industry. This is due to the above mentioned sanctions which are hampering and will continue to hamper growth in petrochemicals consumption. Further, given the recent capacity growth and the move towards import substitution, this could have a big impact on the country’s petrochemicals output and profitability. For last year, BMI estimates petrochemicals growth of 2% with the likelihood of stagnation in 2014 as the recession kicks in.
Structural inefficiencies have largely deterred investment in export oriented production in the country. Manufacturing in Russia, according to BMI, is not competitive without the presence of government incentives, and these are largely applicable only to vehicles sold in the domestic market. BMI is expecting these hurdles to stay in place for the foreseeable future and have said that there is little change of manufacturers reorienting production towards export markets despite a slowdown in the domestic segment.
Edited from report briefs by Claira Lloyd