Thursday, September 11, 2014

Window on Eurasia: Decline in Russian Oil Production Will Last Until At Least 2016-2018, Russian Analysts Say

Paul Goble


            Staunton, September 11 – Moscow’s earnings from the export of oil and gas, a figure that reflects both world prices and domestic production, are likely to continue to decline until new fields in the Far East come online two to four years from now, given that world prices are soft and Russia’s production is falling.


            That conclusion is suggested by an analysis presented on the Moscow portal today, which notes the Russian oil production has been declining since December 2013, that the falloff is greater in the older European fields, and that the Far Eastern fields will not come online for some time (


            Russian oil production will continue to decline over the next two years even if nothing radically changes in the international situation, Chaskor reports, because only at the end of that time will new fields in the Russian Far East begin to come into full production and thus compensate for declining output in the fields of European Russia.


            The development of Russia’s oil industry “geographically” recalls “the dynamic of the establishment of Russia or reports from a war that is being lost: forces withdraw from the western front, give up one after another European regions, and move ever further to the east, with resistance continuing only in the most distant parts of the country.”


            “For some,” the portal continues, “this military metaphor may seem to grate on the ears, but it is sufficient to recall the USSR for which the lowering of world prices at that time at the peak of production served as one of the catalysts of the loss in a real and not a hypothetical conflict.”


            With regard to oil production, Russia is divided into three regions: the European portion of the country, Western Siberia, and Eastern Siberia together with the Far East. The first passed its peak production in the mid-1970s and has been falling since. The second grew after that but has since stabilized or fallen, and the third is the only reason the overall figure isn’t falling faster.


            Another way to capture this development, Chaskor continues, is to see that “since 2010, the amount pumped from green fields has not grown.” Instead, in the European and West Siberian portions of the country, there has been a decline of three to four million tons a year. As a result, these fields should now be classified as brown or declining fields.


            “Today,” the portal says, “the main falling fund is in the Khanty-Mansiisk AO which produces 90 percent of the oil in Western Siberia,” even though it was the main source of the “explosive” growth in production in the 1970s.  Production there for the last six years has been falling by 4.5 million tons annually.


            That means that production elsewhere and especially in the difficult to access regions of the Far East has to increase by some 26 million tons just to bring Russian output back to the level it was at in 2008. That won’t be possible without the development of significant new fields and that won’t happen for several years at a minimum.


            And given the international climate, that may prove impossible even then given Russia’s dependence on the West for the most advanced oil extraction technologies.  Moscow economists have been coming up with numerous “theoretical” models to suggest that Russia will be able to overcome these problems and thus increase oil production.


            But Chaskor notes, “in theory there is no difference between theory and practice. However, in practice, there is.”



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