April 18, 2024

Russia in 2024: Learning to live with sanctions, Q&A featuring insights from leading expert Viktor Katona

Following the positive feedback we received since the release of our recent white paper, "Russia in 2024: Learning to live with sanctions," we are pleased to introduce this Q&A featuring insights from leading expert Viktor Katona.

What are the volumes exported for Urals 2021-2023-2024 ytd? What do you expect of Urals?
Since 2020, exports of Urals have been on an upward curve. First and foremost, Russian oil production has been going up after the price war of the early COVID months, even in 2023 output was moving higher by some 200 kbd to an annual average of 10.83 Mbd. Second, the gradual disappearance of Druzhba pipeline flows has been adding to the volumes available for seaborne exports. Both Germany and Poland are no longer recipients of Russian pipeline flows, and all of those volumes went towards seaborne markets. As for an outlook into 2024, Ukraine’s drone strikes on Russian refineries have boosted crude exports in H1 2024 even in months when all these barrels should have gone towards domestic refining. With Russia starting to cut production into Q2, it is unlikely we’ll see Urals exports above 2 Mbd as we have seen in March but a historical average of 1.8 Mbd should be within reach. So for a set of various reasons, the volume of Urals exports will be more of the same. 


What's the rationale for Urals differentials increasing as the buyers remain limited and the same? Spike on freight should not hit FOB diffs?

Were it not for sanctions and the opacity of respective Russian trades that arose therefrom, hiding immediate pricing signals such as the availability of Russian oil would be much more difficult than it is right now. In an environment where the oil market is split on Russian oil production figures, debates real-time refinery run rates and generally disagrees about their future, pricing signals are completely muted. Consequently, delivered Urals prices to India could stay around a -$4/bbl discount to Brent for most of this year, even though January saw relatively limited crude exports and March saw exceptionally strong outflows because of the drone strikes. So it’s a visibility problem. 

How likely is the nationalisation of Schwedt refinery by the German government? If probable, what retaliation do you expect from Russia towards Germany?

It seems that gradually we’re moving towards a situation where nationalisation would be all but inevitable. However, I do not think it’s the optimal solution for both parties. For Germany, the downside of nationalisation would come in the form of protracted litigation - which they might lose - and the reputational damage of seizing assets. For Russia, Rosneft’s defiance will only delay the moment when a decision needs to be made, but will not change the overall negative outlook of its Schwedt ownership. Should the nationalisation happen, I believe Russia could do the same with Uniper assets in Russia, similarly placed under state administration, so it would definitely trigger tit-for-tat dynamics.

You mentioned that there are three Russian refineries that plan to end fuel oil output by 2026.  How likely is it that each of the three will meet this goal by 2026?

Unless there’s a significant change in the geopolitics and the nature of the Russia-Ukraine conflict, I think that seeing the Moscow, Yaroslavl and Novoshakhtinsk refineries expedite their secondary capacity upgrades is unlikely. The case of the catalytic cracker at the Nizhny Novgorod is very telling, as US sanctions have made it difficult for refiners to tap into the initial source of technology, so now Lukoil has to build new units in Russia, presumably heavily infused with Chinese know-how. Seeing this, I think the 2025-2026 that these refiners had are unlikely to be met and a more realistic timeline would be 2027-2028, with Russia increasingly leaning into Chinese technology providers. 

What are your thoughts on U.S. sanctions on Russian LNG? Who will be able to offtake volumes from Arctic LNG 2?

Arctic LNG 2 is hampered by its shipping limitations. The project needs Arctic-class LNG carriers, however for fear of negative press and reputational damage the initially contracted set of vessels remains in South Korea whilst the five carriers that are being worked on in Russia’s Zvezda shipyard are still several months away from being floated out. In my opinion, demand would be less of a problem than shipping would be, Chinese buyers would be glad to see a dedicated stream that would most probably be slightly below the market in general. So looking out, the summer months seem most likely for the restart of Arctic LNG 2 when a thawing Northern Sea Route and a potential delivery of dedicated LNG carriers could pave the way towards full commissioning.

Did you know?

You can schedule a personalised demo to delve deeper into the data, analytics and research behind this report which is all sourced from Kpler's intelligence platform.

Enabling you to pinpoint opportunities and minimise risk across commodity markets, these powerful tools are critical for global commodity professionals. To learn more, contact us today.

Get your demo now.

See why the most successful traders and shipping experts use Kpler.

Request a Demo

Hey, how can we help you today?

Get in touch and see why the most successful traders and shipping experts use Kpler