Russia's Novak sees Brent oil prices at $80-85/b in 2024

Russian Deputy Prime Minister and chief OPEC+ negotiator Alexander Novak said Dec. 27 he expects Brent oil prices to trade between $80-85/b in 2024.

In an interview broadcast on the Russia 24 news channel, Novak said there was strong demand for Russian crude and oil products in Latin American, Africa and Asia-Pacific where customers could be supplied via new routes including the Northern Sea Route. He added, China would account for 45-50% of Russian oil exports, and India around 40% in 2023.

"For the first time, such volumes have arrived, and this volume will increase, because this is a very profitable transport route, which is approximately half as long as traditional routes through the Mediterranean Sea, the Indian Ocean and so on," he said.

Platts assessed Dated Brent at $80.78/b on Dec. 22. It assessed the discount on Russia's key crude grade Urals at $17.6/b. Platts is part of S&P Global Commodity Insights. Analysts at S&P Global see Dated Brent trading between $75-100/b in 2024.

Gas supplies

Novak also discussed the development of Russia's gas industry, which stalled after the invasion of Ukraine drastically reduced pipeline supplies to Europe.

Russia is focusing on developing LNG exports, increasing pipeline capacity to Asia, and creating a new gas hub in Turkey to mitigate the impact of this lost market share. Novak added that Russia is aiming to launch deliveries from the first 6.6 million mt/year train of Arctic LNG 2 in the first quarter of 2024.

"The first stage [of Arctic LNG 2] has actually already started operations. We expect that in the first quarter of 2024 there will be shipments from the project," Novak said.

Arctic LNG 2 was sanctioned by the US on Nov. 2. This legislation added to earlier sanctions imposed on two ships designed to serve as trans-shipment terminals for cargoes from the project, which had been expected to create shipping bottlenecks.

Sanctions threaten the project's access to financing and shipping, in addition to hindering foreign shareholders from offtakes.

Despite the impact of sanctions, Novak said Russia still plans to reach 100 million mt of LNG production by 2035 and account for 15-20% of the global market. The Kremlin also aims to sign an agreement on the Power of Siberia 2 gas project with Chinese partners. Running through Mongolia, the route has a planned supply capacity of 50 Bcm/year.

"An agreement to implement this project has been reached in principle with the Chinese. Now the final approval of economic conditions and commercial conditions for implementation of the project is underway between Gazprom and the China National Petroleum Company," Novak said.

Currently, design and survey work for the project is being carried out in Mongolia, he said.

China is a major growth market for Russian gas pipeline exports, with deliveries hitting daily records in 2023. Gazprom has supplied CNPC via the Power of Siberia pipeline since the end of 2019. Flows are set to hit 22Bcm in 2023 – up from 15.5 Bcm in 2022. Russia is targeting supply of 30 Bcm in 2024.

Novak added that he hopes that a roadmap for the Turkish gas hub will be adopted soon.

"In the near future our Turkish partners will visit St. Petersburg to learn about our experience, and I am sure that it will be useful to ensure development of an electronic platform and hub in Turkey. Let's hope that next year implementation of the project will begin," he said.

The platform will be designed to create price assessments for gas in South-East Europe, Novak said.

Russia proposed creating a gas hub in Turkey in October 2022, after sanctions and countermeasures led to a drastic fall in Russian pipeline gas supplies to Europe.

High prices

The Kremlin needs high oil and gas prices, at a time when costs associated with the invasion of Ukraine continue to grow, and sanctions are causing Russian crude to trade at a discount.

Novak said that Russia's 2023 oil and gas revenues were around Rb 9 trillion ($98 billion). These revenues would be at a similar level to 2021, but around Rb 2.5 trillion below the 2022 mark, when the invasion of Ukraine led to significant price spikes.

To boost prices and combat the discount on Urals, Russia introduced voluntary oil supply cuts in 2023. It plans to deepen an existing 300,000 b/d voluntary export cut to 500,000 b/d in the first quarter of 2024. This includes 300,000 b/d of crude and 200,000 b/d of products, which Russia will continue to calculate from the May and June 2023 export average.

Novak said Dec. 27 that Russian companies are complying with its OPEC+ commitments, with the cuts distributed proportionally.