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2020-11-10 11:30:00

RUSSIA IS RESPONSIBLE PLAYER

RUSSIA IS RESPONSIBLE PLAYER

PLATTS - 09 Nov 2020 - Russian Prime Minister Mikhail Mishustin nominated Rushydro CEO Nikolay Shulginov as energy minister Nov. 9 in a government reshuffle that could have major implications for Russia's OPEC+ and climate policy, as current minister Alexander Novak is set to be made deputy prime minister.

Novak has served as energy minister since 2012 and played a key role in negotiating and maintaining the OPEC+ crude production cut agreement. Government sources said that he may continue to oversee aspects of energy policy, including that deal, as deputy prime minister.

"We don't know yet, but I believe that Novak is likely to remain the head of our delegation regardless of his new role in the government," Denis Deryushkin, co-chairman of the joint technical committee, said.

Deputy energy minister Pavel Sorokin said it was too early to talk about future responsibilities in the new government.

"In any case, Russia is a responsible player on the energy market and that's something which governs our decisions and our thinking," Sorokin said, during the ADIPEC virtual conference Nov. 9.

The State Duma may approve Novak's promotion later this week.

Some analysts see the reshuffle as unlikely to result in any major changes to Russia's OPEC+ policy, which Russian President Vladimir Putin has played an active role in.

"I think Putin has made it clear that he wants this agreement and cooperation between Russia and the OPEC states to continue. He's already said that he'd be prepared to make changes in January if OPEC also agrees to that. So all the implications are that the OPEC+ agreement remains intact and remains important," Chris Weafer, founding partner of consultancy Macro-Advisory, said.

If Novak were to take a step back, there could be some impact however. His positive relationship with then-Saudi oil minister Khalid Al-Falih was credited as a key factor in reaching the initial deal, as well as maintaining trust and cooperation on oil production cuts through market fluctuations.

The agreement survived Falih's replacement with Prince Abdulaziz bin Salman as Saudi energy minister in September 2019, although there have been disagreements in the last year. Talks over a coordinated coronavirus response broke down in March, leading to a brief price war.

"We have lost an ally in the White House and now a comrade in Russia," one OPEC source said, asking not to be named. The source said the US and Russia changes have created "heightened policy uncertainties" for OPEC and its allies, as they get set to decide on 2021 production quotas.

Novak was due to co-chair the joint ministerial monitoring committee overseeing the agreement with Prince Abdulaziz Nov. 17, and take part in a full OPEC+ ministerial meeting Nov. 30-Dec. 1.

Under the current agreement, OPEC+ is set to ease the current 7.7 million b/d collective production cut to 5.8 million b/d at the start of 2021. Rising supply in Libya and uncertainty over demand due to the second wave of the coronavirus pandemic is driving speculation that the group may extend the current cut into 2021.

New appointments

Novak's likely replacement is Nikolay Shulginov, who has worked in the Russian power sector since 1975, and currently heads government-owned hydroelectricity company Rushydro.

The appointment of a hydropower executive to such a key position could mark a shift towards a greater focus on renewables at a time when climate is becoming an increasingly important issue in Russia, which sees risks and opportunities from warming temperatures.

The government has also proposed new appointments to other key ministries that are likely to be impacted by climate policy, including Alexander Kozlov as natural resources minister, Vitaly Savelev as transport minister, and Alexei Chekunkov as minister for development of the Far East and the Arctic.

Putin said earlier this year that oil and gas revenues would account for a third of the state budget in 2021, down from 50% in 2011.

Russia is looking to mitigate the potential impact of a proposed EU carbon border tax. and develop new renewable energy projects with international partners.

It is also set to be significantly impacted by rising temperatures, raising concerns over the impact of thawing permafrost on infrastructure, greenhouse gas emissions and the duration that winter roads can be used in the far North. Temperatures in the Arctic are warming at twice the global average.

The Russian government also sees this as an opportunity to boost oil and gas production in the region, and capitalize on higher temperatures to develop the Northern Sea Route through Arctic waters. Earlier this year, the Russian government approved tax breaks for oil and gas projects in the Arctic, and a new development strategy for the region up to 2035. It estimates that oil production from the Arctic will increase to make up more than a quarter of the country's total output by 2035.

The new appointments are unlikely to lead to any significant changes in the metals and mining industry, one Moscow-based analyst, who wished to remain anonymous, told S&P Global Platts.

"With regards to metals and mining, [the changes] could only have a negligible impact as the new ministers [whose appointments are pending] have no sectoral background; neither do they represent it in terms of advocating its interests," the analyst said.

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Tags: RUSSIA, OPEC, OIL, PRODUCTION