Novak: Russia’s fuel prices not to top inflation in 2020

MOSCOW, Apr 13 (PRIME) -- The rise in Russia’s fuel prices in 2020 will not exceed inflation, and may even stay at the current level, Energy Minister Alexander Novak said in a television show on the Rossiya 1 channel on April 12.

“Gasoline prices (in Russia) added an average of 2% on the year in 2019, and same for diesel fuel, below inflation. I am sure that this year we will have growth below inflation, too, or the prices may even stay at the current level,” he said.

Russia will weather the current situation on the crude market linked to the spread of coronavirus and will be able to restore its economy, Novak said.

“There is no doubt that we have a special situation today, a stress situation. Everybody is working in the government in a non-stop regime and with no days off. But I am sure that we will weather the period. In 2008–2009, we went through such crisis events with a falling market and a continuing global crisis,” he said.

“But I am sure that we will cope with the situation. We have everything for that including willingness, competences, support of the government, of the prime minister, and of the president… We will work in a team to overcome the problems and restore the economy after solving the coronavirus problem.”

Novak said that from the beginning of self-isolation, Russia’s fuel consumption through the filling stations fell by 30% like in many countries, which reduced global demand for crude by an unprecedented 15–20%.

“Keep in mind that the 2016 OPEC+ deal was struck in conditions of growing demand, and crude overproduction amounted to around 2 million barrels per day that time. And now (oversupply) is seen at 20 million (barrels per day), which is 10 times more than three years ago,” he said.

“Economic activity declines, 4 billion people are self-isolated, aviation travel has fallen sharply, which resulted in a 30–50% fall in oil product sales at the filling stations around the globe, insufficient loading of oil refineries, and halving of air fuel consumption.”

The minister also said that Russian oil companies are ready for the end of the “golden age” of easy crude sales, and are still competitive.

“Our oil companies are involved not only in oil sales, they also actively expand, diversify refining operations, turn to production of chemicals and consumer goods with a high added value… It is really important because in the future people will use oil not as an (energy source), but as a source of carbon for new substances… Our (companies) are… very competitive comparing to other global oil majors,” he said.

The oil industry is a driver for development of Russia’s economy with 5 trillion rubles of investment. The companies introduce cutting edge technologies in production, refining and manufacturing of new products.

“There is an opinion that the sector is simple crude production, but in reality, it is a high-performance and digitalized sector, one of the most up-to-date.”

The Russian companies are ready to reduce production under the new OPEC+ deal.

“Our companies are ready, and we keep in constant touch with their directors… Of course, (the reduction) will be short-term. The size (of the cuts) is huge, but we need them to balance the market. In the future, we will restore the production volumes, of course.”

Novak separately said that Russian companies will prevent closure of producing wells in light of the cuts.

The OPEC+ states cut production by 9.7 million barrels per day in May–June, by 7.7 million barrels per day in July–December, and by 5.8 million barrels per day from January 2021 through April 2022 to counter the consequences of the spread of coronavirus.

The government banned imports of cheap fuel for six months as an anti-crisis measure, Novak said.

“The measure is anti-crisis, it is designed for six months. And it is a forced measure, it is not a market one, but many states use it in the current environment… We use the step to save our oil refining industry, to save the jobs, to retain operations of the refineries, and ensure supplies of oil products to the domestic market, which has decreased significantly.”

Global consumption and demand for oil will recover slower than before the current crisis, the present situation will be long, at least until the end of 2020.

“We need to survive the bottom of demand, and we need to drag the fall in demand and in production long. I think we will be extricating from the current oil market situation for a long time, until at least the end of this year under an optimistic scenario,” he said.

Novak also said that Russia will no doubt finish construction of the Nord Stream-2 gas pipeline.

“This is a commercial project, implemented by several multinational companies. And considering the colossal investment in the project – only 5% of the total value and investment are not ready – the project will be implemented.”

The Nord Stream-2 project envisages construction of two lines of a natural gas pipeline with an annual capacity of up to 55 billion cubic meters, running from the Russian shore to Germany under the Baltic Sea. Russian gas giant Gazprom is implementing the project together with Germany’s E.ON and BASF, Royal Dutch Shell, Austria’s OMV, and France’s Engie.

Novak also hoped that Russia’s current energy cooperation with the U.S. will help restore trust between the two states.

End %%as/jst%%