Oil & gas in 2021: gradual recovery after the shock
Russian oil production fell 8.6% in 2020, due to plunging demand and the OPEC+ deal. We expect oil production to increase 2% next year, despite a gradual easing of OPEC+ cuts. The major reason for that is a relatively high base of 2020, and continued pressure on global demand. The most recent OPEC+ easing will help in the short term, but won’t change the longer-term picture. Russia will reach its 2019 production levels only by 2023.
Russia’s crude oil exports fell by 13.6% y/y in 2020 to 4.6 mbd. That’s significantly more extensive than the decline in production (-8.6%). Exports of petroleum products declined by 1.7%, while gasoline exports surged by 28%.
Surprisingly, Russian oil majors have maintained a high level of capex and drilling activity, despite OPEC+. In 2020, investments in upstream will decline by 4% y/y to 1.78 trillion RUB. We expect that oil companies will increase their investment by 7% in 2021 in RUB terms, based on their announced plans.
In this report we also analyze and estimate the potential effect of the carbon cross-border adjustment mechanism likely implemented in the EU on the Russian oil & gas sector. One toe of Russian oil & gas production resulted in 120-140 kg of CO2 emissions in 2019 by company data. If the EU introduces a cross-border carbon tax at €30/t of CO2, Russian oil and gas companies could lose up to € 2.5 billion per year.
Natural gas production in Russia fell 6.2% in 2020 to 692 bcm, amid a decline in pipeline exports and lower domestic demand. LNG exports were resilient in 2020. In 2021 we expect production to grow by 2.8%, helped by higher pipeline exports and domestic demand.
In 2020 the gas industry’s investments will decline by 6%, after falling by 4% in 2019. In September 2020, Gazprom approved an additional 8% reduction of the 2020 investment program. We expect investments to remain subdued in 2021-2022.
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