By Tim Korso | Sputnik | March 12, 2020
Russia’s Energy Minister Alexander Novak earlier stated that the sudden drop in crude prices, which happened following the collapse of the OPEC+ deal, doesn’t mean that Russian oil companies will stop being competitive on the global market.
Russian oil companies could survive and compete on par with their Saudi rivals even if the price of black gold drops to 15 to 20 dollars per barrel, Bloomberg reported, citing several energy analysts. This is possible due to a number of strengths of the country’s oil industry, as well as to precautions taken by Moscow in the aftermath of the last price drop.
“Russian companies can ensure sustainable production until oil hits $15 to $20 per barrel”, Karen Kostanian, an oil and gas analyst at Bank of America, was quoted by Bloomberg as saying.
The news outlet notes that due to having well-developed infrastructure, as well as cost-efficient railways and pipelines, major Russian oil companies can extract and transport crude at a price of $17 – including capital and operational expenditures.
Taxes and duties would not prevent them from working at extremely-low prices either, since Moscow established a floating tax rate after the last oil price dive in 2016. This means that instead of paying 40% of their revenue when oil prices were near $50, they will be paying next to nothing at prices under $20, Bloomberg reported, citing Senior Director at Fitch Ratings Dmitry Marinchenko.
“Under the current tax regime, it is the Russian state that shoulders most of the risks associated with low oil prices”, Marinchenko said.
Naturally, this means that the Russian budget, which is prepared for oil prices of around $40, will not receive some of the money from selling the crude, but at the same time Moscow still has the capacity to survive a relatively short-term price war, the media outlet said. According to Moscow-based analyst for Raiffeisenbank Andrey Polischuk, quoted by Bloomberg, such a war would only begin to affect Russia after three to five years, while the last price dip was over sooner than that.
In addition to this, Russian oil producers also benefit from the ongoing weakening of the national currency, the media outlet stressed. Because they are mostly paid in foreign currencies for their exports and most of their costs are denominated in rubles, they actually benefit from the current decline. When crude prices plunged and the ruble to dollar exchange rate doubled in 2016, one of Russia’s top oil producers, Rosneft, made use of the abnormal situation by boosting its capital spending by 66%. At the same time, other oil producers were forced to cut their spending that year, as their revenues dropped drastically.