PJSC Tatneft. Annual report 2017
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PJSC Tatneft. Annual report 2017

Stable demand for oil

STABLE DEMAND FOR OIL

As in the previous few years, in 2017, sustainable growth of the world economy ensured a significant increase in the consumption of oil and other energy resources. According to the International Monetary Fund (IMF), looking at the results of 2017, the world economy grew by 3.7%; in 2018 and 2019, it expects the rate to rise. In these conditions, world oil consumption in 2017 maintained high growth rates, which according to the IEA amounted to 1.6 million bbl/day, after 1.2 million bbl/day in 2016. Asian countries became leaders in the increase in steel consumption—the growth in demand in the region amounted to 1 million bbl/day, which was fostered by the continued rapid growth of the economies of China and India.

Meanwhile, the most developed countries significantly contributed to the growth of world demand for oil. The economy of the eurozone noticeably accelerated in the past year, which affected the consumption of oil products: the demand for oil in Western Europe rose by 0.3 million bbl/day. The IEA anticipates that world demand for oil will reach 100 million bbl/day in the first half of 2019.

RUSSIAN ECONOMY BEGAN TO RECOVER IN 2017. INFLATION IN 2017 WAS AT THE MINIMUM FOR THE ENTIRE NEW HISTORY OF RUSSIA—2.5%. ACCORDING TO THE DATA OF THE RUSSIAN FEDERAL STATE STATISTICS SERVICE, THE COUNTRY’S GDP INCREASED BY 1.8% IN Q3 2017 AGAINST THE SAME PERIOD OF THE PRECEDING YEAR.

Low inflation allowed the Central Bank of the Russian Federation (Bank of Russia) to significantly ease its monetary policy. The key rate of the Bank of Russia was reduced from 10% to 7.75% during the year. In early 2018, the rate reduction continued.

Stabilization of the macroeconomic picture and improvement of budget indicators enabled to increase the credit rating of the Russian Federation by leading rating agencies. The growth of oil and gas revenues and a decrease in the interest rates are creating the conditions for maintaining the positive dynamics of the Russian economy. With oil prices above USD 50/bbl, a positive growth rate of the Russian economy is anticipated in 2018.

The world economy continued to demonstrate positive dynamics in Q4 2017. Positive rates of economic growth in the US and the EU are expected at the end of the year. Relatively high rates of economic growth are maintained in the largest emerging economies, such as India and China. The situation in the global economy as a whole favors the growth of world demand for oil. The main source of growth in the oil supply by the end of 2017 within the context of the OPEC+ Agreement was US shale oil.

In the medium term, oil prices may increase due to the deferred effect of a reduction in investment from oil and gas companies in large, long-term projects, production decline at the old well stock and an increase in global consumption of liquid hydrocarbons. The growth of world demand for oil will be determined by the continuing motorization and development of industry in developing countries.

TAX POLICY AND REGULATION

Decisions in tax legislation relating to the oil industry in 2017 continued the logic of the changes that were made over the past few years. The upward coefficient to the rate of mineral extraction tax for oil in the amount of RUB 428 per tonne was extended until 2020. The schedule of changes in excise taxes for oil products was approved, stipulating, in particular, the growth of excise taxes for motor gasoline and diesel fuel until 2020. In addition, to counter the presence of surrogate fuels in the market, the notion of «medium distillates» was clarified for the purposes of excise taxation. At the end of 2017, the Government of the Russian Federation approved and submitted to the Federal Assembly the bills required for transition to the taxation of the financial result in the form of ExcessProfits Tax (EPT) for the oil industry. The purpose of the new regime, in particular, is to increase oil production in the fields that will be included in the pool of EPT pilot projects.

Oil and condensate production in the Russian Federation in 2017

546,8 million tons

Oil exports
from the Russian Federation in 2017

258 million tons

In 2017, the average price of Urals oil over 2017 was 53.1 USD/bbl, which is 27.3% higher than during the preceding year. The main factor for the increase in prices was the reduced oil production within the framework of the Production Restriction Agreement concluded at the end of 2016 between OPEC countries and large independent oil exporters, including Russia. The prices were supported by the decision to extend the Agreement to the end of 2018. At the same time, there was a steady increase in demand for oil from the world’s largest economies. Gradual balancing of the market was fostered by a high degree of coordination of actions by the countries-parties to the Agreement. By the end of 2017, Urals oil prices rose to a two-and-ahalf-year maximum, exceeding USD 66/bbl. Under the influence of the quoted oil prices, the average annual rate of the RUB against the USD strengthened by 14.9%, to 58.3 RUB/USD in 2017, affecting the ruble oil prices, which increased by 10.8% compared to the preceding year.

In 2017, the volume of oil exports from the Russian Federation did not change significantly. According to the Ministry of Energy of Russia, the figure was about 258 million tonnes. However, the structure of exports changed: exports to China continued to grow against a decrease in the supplies to Europe. The year-end showed that the Russian Federation had become the main supplier of oil to China, coming way ahead Saudi Arabia.

In 2017, the volume of primary oil refining in Russia was 279.5 million tonnes. Due to the modernization of oil-refining facilities and changes in tax and customs legislation, the structure of the output of oil products continued to change: the production of fuel oil dropped drastically, and the production of aviation kerosene increased. A significant fact in the development of the Russian oil-refining industry is an increase in the average depth of processing.

The situation with domestic demand for oil products corresponded to the heterogeneous dynamics of economic indicators. Fuel consumption by road transport showed moderate growth in the range of 1%–2% at weak dynamics of household incomes and retail trade. The air transportation market was being restored more dynamically.

Russia being a party to the Agreement on the restriction of oil production caused a decline in production in the Russian Federation. At the same time, the share of oil produced from hard-to-recover reserves increased.
VOLUME OF OIL PRODUCTION IN RUSSIA (GAS CONDENSATE INCLUDED), MILLION TONNES
Source: Ministry of Energy of the Russian Federation
PRODUCTION AND EXPORT OF PETROL IN THE RUSSIAN FEDERATION IN 2010–2017, MILLION TONNES
PRODUCTION AND EXPORT OF DIESEL IN THE RUSSIAN FEDERATION IN 2010–2017, MILLION TONNES
PRODUCTION AND EXPORT OF FUEL OIL IN THE RUSSIAN FEDERATION IN 2010–2017, MILLION TONNES