(Bloomberg Opinion) -- It’s just been six months since the biggest crisis for Russian oil distribution in living history, and the leader of the country’s largest oil company is already flinging mud in the direction of the world’s other two giant oil producers, Saudi Arabia and the U.S.
On Thursday, speaking at the Verona Forum, Igor Sechin, chief executive officer of state controlled Rosneft PJSC, which produces more than a third of Russia’s crude, said it was time to “reassess Saudi Arabia’s role as the unconditionally reliable oil supplier” in light of last month’s drone attack on Saudi oil infrastructure. Then he turned his sights on President Donald Trump’s decision to pull the U.S. out of the Iran nuclear deal, saying it was “a serious blow to security of supplies from the Middle East.”
He also questioned how long America’s shale boom would last, suggesting that the long-term potential is unclear, especially without more in-depth study of the resource base underpinning the industry there.
Sechin has always been a champion of the Russian oil industry, and he’s been consistent in his opposition to the output restraint that followed President Vladimir Putin’s decision to join Saudi Arabia and the rest of OPEC in managing oil supplies.
In Verona, he was right of course at least as far as Saudi Arabia was concerned. The attack on the kingdom’s oil-processing facilities at Abqaiq and Khurais was something the industry had long feared, but it still took everyone by surprise — not least the people in charge of the country’s air defenses. It revealed that Saudi Arabia’s oil infrastructure is more vulnerable to attack than almost anyone could ever have imagined and called into question the kingdom’s long-held role as the world’s oil security blanket. The risk factors section of the prospectus for Saudi Aramco’s IPO could do with an addendum.
He was not completely wrong about the U.S. either.
The country’s output growth has slowed dramatically this year and its second shale boom is nearly over. Over the past three months the Energy Information Administration has halved its forecast for incremental U.S. oil production over the course of next year. It now sees the country boosting output by just 370,000 barrels a day between December 2019 and December 2020.
Russian oilmen have always been suspicious of the shale boom. While I was running a course for oil executives outside Moscow in 2013, I was informed that my projections for continued growth in output from U.S. shale were wrong and that the boom would be over in a matter of months. Sechin is simply following a well-trodden path.
Of course his unspoken corollary to critiquing the world’s other two giant oil producers is that Russia is the only one that is a reliable source of future supply.
But he clearly has a very short, or very selective, memory. As recently as April Russia had its own reliability crisis.
Crude in the Druzhba pipeline, which carries about 1.5 million barrels a day of Russian oil to international markets, was found to be contaminated with organic chlorides. The episode not only shut down the country’s main oil export artery to Europe for the first time ever, it undermined confidence in Russia’s own position as a reliable oil supplier. It also reminded the world that the nation’s shipments are - just like those of Saudi Arabia - reliant on some very specific pieces of infrastructure.
What’s more the contamination was caused by issues that Russia has yet to fully address, with investigators pinning blame on a band of black marketeers working in concert with a local company that had access to the country’s pipeline system. And the impact of the contamination has lingered, with crude flows in Poland and the Czech Republic briefly halted again in June when excess organic chlorides were detected once more.
The Druzhba crisis caused Russia “very serious damage” economically, financially and in terms of public image, according to Putin.
So before Sechin flings mud at the world’s other big oil producers, he’d do well to remember that there are no oil supplies anywhere in the world that are perfectly secure — Russia’s included.
Russia and Saudi Arabia have both shown themselves able to weather their respective crises. But each has had its veneer of invincibility tarnished this year and that’s just two more little cracks in oil’s image as the world’s most important source of energy.
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Julian Lee is an oil strategist for Bloomberg. Previously he worked as a senior analyst at the Centre for Global Energy Studies.
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