GENERICO.ruEconomicsRussia will withstand a decline in oil prices, but will Europe withstand an increase in gas prices?

Russia will withstand a decline in oil prices, but will Europe withstand an increase in gas prices?

For the first time in decades, Europeans began to feel poor

The formation of reserves by Western and Middle Eastern companies, including the increase in production capacity, may be an expectation of serious changes in the global oil market. At the same time, Europeans have already felt the onset of a new reality – for the first time in many decades, they have become poorer. Rosneft Chief Executive Officer Igor Sechin spoke about this in his key report at the Energy Panel at the XXVII SPIEF.

For the first time in decades, Europeans began to feel poor Photo: SPIEF 2024.

“The formation of reserves by both Western and Middle Eastern companies that we are seeing may be an expectation of serious changes in the market. The presence of “phantom barrels” that can have a large-scale impact on the market offsets the impact of the voluntary reduction in production quotas undertaken by the main OPEC members. This is also shown by market quotes that have gone down after the recent decision by the ministers of the member countries,” the head of Rosneft said.

According to him, the Gulf countries are actively increasing free production capacity, establishing distribution channels and investing in assets in consuming countries. At the same time, four key OPEC member countries – Saudi Arabia, UAE, Kuwait and Iraq – Already have significant spare production capacity of 5.6 million barrels per day, equivalent to 13% of current OPEC+ production. Some time ago, these countries announced plans to further increase capacity.

At the same time, the volatility and unpredictability of the energy market may increase in connection with the upcoming presidential elections in the United States, where the choice of voters depends, among other things, on the increase in the cost of one gallon of gasoline. “So, the average price is $3.6 per gallon, and in some states such as California – 5.4 dollars&rdash; noted Igor Sechin.

According to him, industry regulation could change if a certain candidate wins the US election. “Emerging risks give reason to assume the possible existence of a plan “B” in case of a special period for each major participant,” – said the head of the company.

He also noted that large American majors are carrying out merger deals with other producers, increasing their production capabilities in order to ensure growth in profits and dividends, while production growth remains behind the scenes, since it requires capital expenditures, which must be secured by high prices.

According to the head of the oil company, the budgets of most OPEC+ member countries are able to withstand a possible decline in oil prices, which can be partially or fully compensated by an increase in supplies. Theoretically, for the Russian oil industry, a price reduction could mean the possibility of lifting all restrictions on the price ceiling, and the revenue side of the approved federal budget is based on $60 per barrel.

Regarding the gas situation, despite government subsidies, gas prices almost doubled for EU consumers from 2021 to 2023, forcing “European households to cut gas consumption on an unprecedented scale.”

“As a result of the price shock, demand for gas in the residential and commercial sectors of Europe has fallen by more than 20% over the past two years and has continued to fall this year. As a result of this, for the first time in many decades, Europe found itself faced with a new reality – Europeans have become poorer,” – said the head of Rosneft.

Essentially, Europe is achieving its emissions reduction goals by directly reducing energy consumption and slowing economic growth. “Continuation of this policy could ultimately destroy European industry. As you know, the lowest energy consumption – at the cemetery”, – he added.

The head of the company noted that Europe lags behind the United States in economic growth and in terms of average per capita income. According to the IMF, over the past 15 years the EU economy has grown by only 13% compared to the US at 85%. At the same time, the average per capita income of the EU countries has fallen compared to most North American states, and is now 52% lower than the US average, Sechin said. “If this trend continues, then by 2035 the gap in GDP per capita between the US and the EU will be five times, that is, the same as between Japan and Ecuador today,” – he summed up.

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