OPEC Chases Its Market Share
OPEC and Russia are old competitors
OPEC (Organization of the Petroleum Exporting Countries) and Russia are old rivals in the Asian and European markets. In 2014, Russia (RSX) produced 10.8 MMbpd (million barrels per day) of crude oil. It accounts for 12.7% of the world’s total crude oil production. It consumed 3.2 MMbpd. Russia is a net exporter of crude oil.
In the past, Saudi Arabia led China’s (FXI) market. Now, Russia leads the market. OPEC can’t keep Russia out of the market—like it has done with US shale producers. In Russia, the cost of oil production is less than some of OPEC’s member countries like Algeria, Venezuela, and Libya. Russia agreed to talk to Saudi Arabia regarding the fall in oil prices. To date, there hasn’t been any official dialogue.
Above, you can see why the Arctic Circle is important to Russian energy companies.
Gazprom PAO (OGZPY), Lukoil (LUKOY), and Tatneft (OAOFY) represent the large-cap Russian ADRs (American depositary receipts) in the oil and gas sector.
Relevance to the Arctic Circle
Reports claimed that the Arctic Circle has large oil and gas reserves. Geographically, Russia borders about 60% of the Arctic Circle. The reserves can help propel the Russian oil and gas industry as well as the Russian economy at large. It could make Russia the world’s leading oil and gas producer. This could give Russia OPEC-like discretion to manipulate prices.
In commoditized markets, “whoever produces the most controls the most.” However, the recent and substantial fall in crude oil prices made the costs too high. Currently, the interest in the excavation isn’t economically viable. Recently, Royal Dutch Shell (RDS.A) stopped its drilling in the Alaskan Coast off the Arctic Circle. The project wasn’t economically feasible.
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