Russia is going to find it hard to exceed 50 million tons of oil exports to China before 2020

15 august 2016 | IA REGNUM

Experts note that after the lifting of the sanctions Iran is going to expand its oil industry under any scenario, regardless of whether it will be doing it on its own or with the help of foreign investors. “In this situation the best option for Russia would be if Russian companies managed to get a stake in the Iranian oil industry,” said the Head of the Department for Strategic Studies in Energy of the Analytical Center Alexander Kurdin in an interview for Regnum News Agency.

Alexander Kurdin
Alexander Kurdin
Department for Fuel and Energy Sector

As Iran tries to regain the market share it had in the oil market before the sanctions, it is boldly expanding its oil exports to China, India, Japan and South Korea. Thus, this July alone Iran’s oil sales to these Asian countries almost doubled, going up by 47% and reaching 1.72 million barrels a day.

Mr. Kurdin noted that Russia is just one of several major oil suppliers to China and cannot possibly hope to dominate the Chinese market. Last year China imported some 335 million tons of crude oil, with Russia supplying about 40 million tons, meaning that Russia’s share in China’s oil imports is just 12% and our country’s share in China’s consumption is even less than that. In the past, Russia was actively strengthening its positions, including by capitalizing on the sanctions against Iran. Thus, in 2015 the amount of oil supplied from Russia went up by about 10 million tons on 2014, while Iran’s sales to China in 2014 and 2015 remained the same in the range of between 25 and 30 million tons (they are expected to grow somewhat in 2016).

“Despite Russia selling more and more oil to China, for the time being it is going to find it really hard to go beyond 50 million tons before 2020, given the problems with expanding domestic production and infrastructure and other obligations to sell oil. Iran is also going to find it difficult to drastically expand production over the next few years to achieve the pre-sanctions level; now is not the best time to invest in oil production and investments are a must if production is to be expanded,” the analyst said.

As for China, its demand for imports is going to grow really fast, Mr. Kurdin is sure. Perhaps, not as fast as before, though. Seeing how its economic growth seems to be slowing down. “However, we can expect to see oil consumption in the Celestial Kingdom to end up being at least 10 million tons a year. Thus, in the medium term the growing Chinese market can absorb the increase in both Russian and Iranian exports,” the expert concluded.

In terms of output, in 2016 Iran already practically reached the pre-sanctions level, at least according to the data of the International Energy Agency. However, in the summer, output practically stopped growing in Iran, Mr. Kurdin noted. “This means Iran is having difficulties with exceeding the levels of output it reached earlier, especially now that few people want to invest in the oil industry around the world in general,” the analyst concluded.