Urals Deliverable Futures to Be New Benchmark?

13 january 2017

In order to create an independent national price indicator for export oil, Russia started trading Urals deliverable futures on November 29, 2016. As the positions of key oil benchmarks have weakened, the Russian futures holds a lot of promise but more serious work is needed to evolve it into a true Russian oil benchmark, the Analytical Center experts note in their new energy bulletin "Is a Urals deliverable futures a new benchmark?"

It is a well-known problem that the market tends to undervalue Russian oil by $ 2-3 per barrel. Usually, this is explained by the fact that Russian oil tends to have a higher sulfur content, which reduces its quality. At the same time, it is impossible to substantiate the price of the Russian export oil which may fluctuate. The move to create a futures and then transition to a national benchmark is the right thing to do, according to the analysts. As the quality of oil improve in the future, the national benchmark will allow Russian oil companies to get a fairer prices for the export oil they sell, which the Russian finance ministry and oil and gas companies consider possible today, the specialists are convinced.

The specialists also considered the possible ways to create common energy markets in the Eurasian Economic Union. "Developing common markets for the Eurasian Economic Union is going to take some time since the participants pursue different interests. The importance of this task stems from the huge role that energy plays in the GDP and industrial production of the Union," the specialists write. In the end, the integration processes should increase competition and improve efficiencies and potentially reduce prices for those categories of consumers that do not need protection under social programs, the analysts believe.

The authors of the bulletin paid special attention to the carbon capture and storage technology. The specialists point out that just ten years ago greenhouse gases capture (CCS) when using hydrocarbon fuel was viewed as the most promising way to reduce carbon emissions, for example, in Europe. Various experiments were being conducted to capture carbon prior to, during or after the burning of fuel. However, in the end, commercially viable technologies came too late: if matters had been left to their natural course, these technologies would have become available commercially within reasonable time, but safety concerns came to the fore, and the EU bet the farm on renewable energy. "Escape from hydrocarbons" (and especially natural gas) stripped carbon capture and storage research of the financial resources that were needed for industrial (pilot) trials. As a result, unlike shale oil and natural gas, these technologies are regarded as investments that have failed to produce any tangible results. It should be reminded that according to global energy forecasts (the International Energy Agency, the United States Department of Energy, the Energy Research Institute of the Russian Academy of Sciences), hydrocarbons are expected to have roughly the same share in global energy consumption as they have today until 2040. It is expected that as part of the implementation of the 2015 Paris Agreement, capture and storage technologies may come into great demand to find radical solutions to reduce carbon emissions.

The latest bulletin was prepared with the participation of the Eurasian Economic Commission.

For more see the bulletin "Is the Delivery Futures for Urals a new Benchmark?"

You can find the other energy bulletins in Publications.