Oil Rout Weeds Out Russia's Rivals on Soviet Field Declineby and
Kazakhstan, Azerbaijan reduced output for second year in 2015
Aging Soviet-era projects weigh on volumes from both countries
Kazakhstan and Azerbaijan, Russia’s biggest oil-producing rivals in the former Soviet Union, have seen the supply gap with their larger neighbor grow as collapsing crude prices deter investment in aging fields.
Azerbaijan, the birthplace of the regional oil industry, cut output by about 1 percent last year to a nine-year low of 41.7 million metric tons, or about 840,000 barrels a day, state statistics committee data show. Kazakh oil and condensate production fell 1.7 percent to a three-year low of 79.5 million tons, or less than 1.68 million barrels a day, according to its statistics committee. Both countries also saw volumes drop in 2014.
The bulk of Kazakh and Azeri output comes from fields discovered during the Soviet-era. The slump in oil prices to a 12-year low has curbed their ability to revive production from the deposits, where widespread depletion has driven up the cost of extraction. By contrast, Russia has brought several new projects on stream, helping to counter the effects of low prices and international sanctions.
Russia boosted output 1.4 percent to 10.73 million barrels a day last year, a post-Soviet high, according to the Energy Ministry. The government, which relies on oil for about 40 percent of its budget revenue, expects to maintain production this year, while Kazakh and Azeri volumes may continue to shrink.
Kazakhstan expects a further decline to 77 million tons this year before production picks up in 2017, Interfax reported, citing Energy Minister Vladimir Shkolnik. Next year’s volumes depend on the restart of Kashagan, the world’s largest offshore field outside the Middle East. The deposit was suspended in 2013 following a pipeline leak.
Azeri output will drop to 40 million to 41 million tons this year as fields deplete, according to Gulmira Rzayeva, a senior research fellow at the Center for Strategic Studies in Azerbaijan. Although the decline is slow, the trend will continue, she said by e-mail Monday.
The Azeri government hasn’t yet given official estimates for 2016 output, while it prepares to review this year’s budget based on an average oil price of $30 a barrel, down from $50 used earlier, APA news service reported Wednesday, citing central bank Governor Elman Rustamov. Kazakhstan, which expected crude to average $40 this year, may revise the budget based on results for the first two months, according to the Economy Ministry.
Russia sees oil averaging $40 a barrel this year, the Finance Ministry said last month. The world’s biggest energy exporter will keep its oil output stable this year, the Energy Ministry has said.
Russian producers have been raising output even amid plunging prices. The companies have managed to squeeze more crude out of some aging fields in West Siberia and brought a few mid-sized new projects on line, including those in the Arctic Yamal region.
Rising output in Russia and lower volumes from Kazakhstan and Azerbaijan may ease the pressure on Russian producers fighting for customers in Europe just as Iran ramps up exports following the end of sanctions.
“In an oversupplied market, every barrel counts,” said Ehsan Ul-Haq, a senior staff consultant at KBC Advanced Technologies Ltd.