Freezing due to the energy crisis, Europe is still being interrupted from the more expensive gas for cheaper coal. But in some places in the EU, fuel oil power plants are already being revived. However, the United States is becoming the largest consumer of fuel oil. And here Russian oilmen (right after the Canadian ones) are again entering the forefront in deliveries.
The main role in this was played by politics – the quarrel between the United States and Venezuela, which previously supplied large amounts of fuel oil to its northern neighbors. And world prices for fuel oil are steadily growing. But for the Russians, it is not only the export success of the domestic oil industry that is important, but what the prices will be on the Russian market. After all, domestic prices for fuel oil, like oil, are tied to world prices.
The United States is entering winter with the lowest fuel oil stocks in the current century, Bloomberg reported. According to the Energy Information Administration (EIA), there are only 31.2 days of fuel oil reserves in the country, which is the lowest level since 2000.
The fuel shortage is largely a result of the February freeze in Texas, which shut down eighteen refineries at once. The 5.5 million barrels per day shutdown of production capacity led to a reduction in stocks of almost all types of liquid fuels. In the fall, the situation was further exacerbated by the fact that many refineries in the United States stopped production for routine maintenance.
In this situation, the salvation of the United States from the energy crisis would be an increase in the supply of Russian fuel oil, which in the past two years has already become one of the key commodities exported from Russia to the United States.
– Here we were very much helped by the Venezuelan boy Guaido, whom the US politicians decided to declare the “president” of Venezuela, and as a result, they quarreled with this country, – considers Deputy Director General of the Institute of National Energy Alexander Frolov:
– The USA is quite active in oil production. And different grades of oil differ in their physical and technical properties. Shale oil belongs to light and ultra-light grades. US refineries have been sharpened for medium and heavy oil. Accordingly, for effective oil refining, in order to obtain the entire required range of oil products that these refineries rely on, it is necessary, using this light and ultra-light shale oil, to blend it either with heavier types of oil or with some kind of oil products. For example, with fuel oil. This is a normal operating procedure.
The United States, although it exported its oil, even before the pandemic crisis was the largest consumer of oil in the world, at the same time remained one of the largest importers. That is, while exporting, the United States also imported significant volumes of oil.
For export – light and ultralight oil, which did not find much demand within the country, and for import – grades that were suitable for processing in the United States. At the same time, Canada is the largest supplier of oil and oil products; it occupies half of this segment of the US market. And Russia and Mexico have been fighting for the “honorable” second place for the last two years. At the same time, Russia alone supplied almost the same amount of oil products to the United States per month as the OPEC countries combined.
“SP”: – Why did they like our oil products so much?
– This is thanks to the “wise” foreign policy of the United States. As part of this “wise” policy, they found Guaido, and announced that he was the real president of Venezuela. And when the inhabitants, the authorities of Venezuela began to object, sanctions were imposed on this country. Venezuela is located close to the United States, its oil is very viscous, heavy, and it was very suitable for the tasks that the American oil industry has to solve. And after the sanctions imposed on Venezuela, the US oilmen simply threw up their hands: how now, where to get oil of a suitable quality for us? And then Russia – with its proposal to provide the United States with fuel oil in any amount.
At the same time, if we look at the statistics of oil supplies to the United States, then Russia will be somewhere in the 7th position. But in the category of “oil and oil products” we are now competing with Mexico for the second place in supplies to the United States. With varied success.
Here I propose to recall how the United States was going to take over Mexico’s share in the signing of the OPEC + agreement, when Mexico said that it could not cut production by 400 thousand barrels, we could only cut it by 100 thousand barrels. And then she said – we will generally produce as much oil as we can.
Guess why the United States immediately announced its readiness to take over the “abandoned” Mexican volumes? If you look at the statistics of oil supplies from Mexico to the United States, it is immediately clear that it was easier for the States to tighten up their production more than to increase purchases from the Russian Federation and other countries. And Mexico is close at hand and provides the required volume of supplies.
Therefore, if it were not for this “wise” move with the “presidency” of Guaido in Venezuela, which aroused the indignation of this country, and the sanctions against it, Russia would hardly have been able to occupy those positions in the supply of oil and oil products to the United States, which we occupy now. … We are breaking into second place. This is a big plus for us.
Russian refineries produce a fairly large volume of fuel oil. And at the same time, by the beginning of 2020, there were certain concerns related to the tightening of standards under the MARPOL Convention (International Convention for the Prevention of Pollution from Ships). According to these standards, it was necessary to reduce the sulfur content in the emissions of ships. In this regard, supplies to the US are a fairly good market for these excess volumes of fuel oil. So, all that remains is to say thank you to this venture with Guaido.
“SP”: – But domestic prices for fuel oil, as well as for oil, are tied to world prices. And they confidently went up. What can Russian consumers of this oil product now expect?
– I do not think that domestic prices for fuel oil will jump sharply. Moreover, the use of fuel oil in the domestic market in the country is decreasing due to the modernization of existing facilities for the production of electricity. For the past three years, our state has been systematically working to increase the dependence of the domestic market for oil products on foreign markets. That is, it makes the Russian economy more and more open to external trading floors.
This is happening within the framework of a round of a large tax maneuver, due to a gradual reduction in the export duty on oil and oil products. In this regard, the dependence of prices within the country on prices outside the country is indeed growing. But at the same time, the capacity of foreign markets is limited. This is the first moment.
The second point is that the state still has a number of mechanisms that can be used to curb the influence of external platforms on exchange platforms within the country. And in this regard, if there is a sharp rise in prices for fuel oil, then the state, for example, may require an increase in the supply of this product to the exchange within the Russian Federation in order to simply increase its supply.
“SP”: – It looks too simple …
– This, as practice shows, is really not a universal solution, especially it cannot be considered universal in the conditions of increasing openness of our economy. But, at least something. I would still draw your attention to the fact that, although oil prices have risen, the ruble has strengthened in parallel with them. This is the main plus, and the main hope, which allows us to look more or less optimistically at the future of our oil market. After all, it is not important for us how much oil and oil products cost in dollars, but for us it is important how much it costs in rubles.
“SP”: – It is difficult to say more precisely.
– Yes. And the price in rubles depends on the exchange rate. That is, when our oil prices were growing and rubles were falling – that was the most “wonderful” thing. The budget included 3,300,000 rubles per barrel, and prices reached 6,000 rubles per barrel. And 6 thousand rubles per barrel means that the tax on the extraction of minerals will be twice as high as predicted.
Is this good for the state? Yes, the financial and economic bloc of the government claps its hands and says: “Yes, go on!” And the Energy Ministry clutches its head. Because here the interests of financial and industrial entities collide.
It is in this confrontation that our objectively existing economic reality is born. In particular, the strengthening of the ruble – it was a positive step – very correct and timely. It’s another matter that, on the one hand, the rise in prices for oil products on external sites has already been won back. That is, the prices of oil and oil products, say, in Europe, have increased, and this has had some effect on prices within Russia. And in this regard, it is probably not worth expecting any sharp jumps, especially for fuel oil.
But there is one funny circumstance that creates risks for the domestic market. These circumstances are called – inter-fuel competition in the electric power market of the European Union.
This year, the demand for electricity in the EU has increased relative to 2020. And the production of electricity from wind farms has declined. And it was necessary to satisfy this demand at the expense of some energy sources. At the same time, gas began to rise in price. At the same time, gas and electricity generation began to be squeezed out by coal, which, although it was becoming more expensive, was not so fast. And not all EU countries, thanks to their “wise” policies, have coal-fired power plants.
Some of them closed their coal-fired power plants to applause and the release of balloons filled with helium into the sky. Austria, Belgium and Sweden and other countries continue to reduce the volume of coal generation. The same Germany, which, at the same time, has a fairly large number of coal-fired power plants, and the share of coal-fired generation increased from 30% in September 2020 to 37% in September 2021. At the same time, the share of gas has even decreased, because it has become very expensive.
However, not everyone has coal-fired power plants, they have to dodge, use some alternatives. So, in particular, in the same Sweden they fired up a fuel oil power plant, which had not worked for many years. Because they are experiencing an energy shortage. In Germany, the production of electricity from fuel oil power plants is growing. But so far there has not yet been an excess demand for this resource in order to pull prices behind them in such a way that they will hit the prices for fuel oil in Russia. Therefore, there is a risk, but so far it has not fully manifested itself.