Deputy Prime Minister Alexander Novak has said that Russia is willing to cut its crude oil production, if necessary, as part of its response to the G7 price cap of $60 per barrel on the country’s crude exports.
Novak told the Rossiya 24 television channel that output could fall by 500,000 to 700,000 barrels per day in early 2023, although Russia hoped to avoid such a scenario by redirecting exports to “friendly” countries.
He said President Vladimir Putin will soon sign a decree which will include “a ban on supplying crude oil and petroleum products to those countries and those legal entities that demand compliance with the price cap in contracts.”
Putin himself has said that he expects to sign the decree on Monday, Dec. 26 or Tuesday, Dec. 27.
Energy Intelligence has assessed Russia’s November production of crude oil and other liquids at 11.4 million b/d, with crude alone amounting to 9.8 million b/d.
With an EU ban on seaborne imports of Russian crude oil and the G7 price cap taking effect on Dec. 5, Novak said that Russian companies will do their best to redirect exports to friendly countries.
But he added that Russia is also willing “to take the risk of lowering [production] rather than comply with the policy of price caps and become dependent on decisions of unfriendly countries.”
Novak said Western sanctions targeting Russia’s oil exports are “unacceptable” and will lead to underinvestment, supply shortages and higher prices.
“Road to Destruction”
Speaking on Thursday at a session of the State Council, which advises the president on key policy matters, Putin said Russia’s oil industry would will feel little impact from the price cap because it was already selling its crude at prices close to the cap.
Indeed, as European customers started to back away from Russian oil following Moscow’s invasion of Ukraine earlier this year, Russian producers began to offer deep price discounts, which led to a sharp increase in purchases by India and China.
The G7 price cap bars countries outside that group and the EU from using Western shipping and insurance services for Russian crude imports, unless they pay $60/bbl or less. In essence the cap merely reinforces the discounts that Russia already offered.
Nevertheless, Putin described the cap as “the road towards the destruction of global energy.”
He warned that by discouraging upstream investment, it could lead to a shortfall in global supply, “and then prices will skyrocket and hurt those who are trying to introduce these tools.”
EU Gas Price Cap
Putin and Novak also spoke in dismissive terms about the EU’s recent agreement on a mechanism to cap European wholesale gas prices.
The move was prompted by a surge in European gas prices this summer in response to a sharp fall in Russia’s pipeline gas exports to the region.
The EU is seeking to end the heavy dependence on Russian gas that it developed over several decades, while Russia wants to shift its exports to China and other countries.
Novak said those efforts will continue and include plans to expand exports of LNG, as well as a recently floated proposal to develop an international gas hub in Turkey, which could play a role in regional price formation.
Novak said Russia has talked to other gas-producing nations including Algeria, Qatar and Azerbaijan about this proposal which was put forward by Russia and favorably received by Turkey.
Separately, Putin recently signed a decree that will cap the prices that Gazprom pays to Germany’s Wintershall Dea and Austria’s OMV for gas and condensate produced from joint ventures with Gazprom in West Siberia.
Both companies have retained their stakes in the joint ventures but plan to diversify away from Russia over time