Russia Can’t Count on Returning to Current Levels of Oil Production in the Future, Moscow Experts Say

Paul Goble

            Staunton, April 27 – Four days ago, Reuters reported the enormous problems Moscow faces in cutting back its oil production by two million barrels a day as required by the deal with OPEC (reuters.com/article/us-global-oil-russia-production/repair-abandon-burn-russia-explores-options-for-historic-oil-cut-idUSKCN2252RD).

            The news agency focused on the immediate tasks the Russian government must perform if it is to meet the May deadline, but it devoted less attention to a reality the Kremlin is loathe to acknowledge: For a variety of reasons, Russia can never expect to see a return to the level of production that it had achieved as of only a month ago.

            Two Russian analysts, Pavel Pukhov, a longtime specialist on the country’s oil and gas industry, and commentator Andrey Nalgin explain why that almost certainly is likely to be the case (newizv.ru/article/general/27-04-2020/obratnogo-hoda-net-pochemu-rossii-nelzya-sokraschat-dobychu-nefti).

            Pukhov focuses primarily on technical issues, albeit ones that are exacerbated by Moscow’s proclivity of adopting a one-size-fits-all approach to fields in extremely different climatic conditions and stages of development and exploitation.  It has few fields, the expert says, where it can simply stop pumping and hope to pump again at the same levels in the future.

            On the one hand, suspending pumping will change pressure gradiants in many wells and cause the oil reservoirs below to be reabsorbed by the surrounding geological formations and also lead to the flooding of the wells themselves with mud that may be difficult if not impossible to remove, the oil specialist says.

            As a result, and especially if Moscow does not carefully distinguish among fields that are at very different levels of exhaustion, the central authorities are likely to end pumping now to meet the OPEC deadline only to discover that they can’t restart it, in some cases physically and in others because the cost of doing so would far exceed the value of the oil to be pumped.

            After providing a technical description of these problems in Russian fields, Pukhov concludes by saying that his “main concern is concentrated on two points – the length of nay shutdown and the variety of fields,” whose very diversity will present particular challenges to any policy of shutting down now and reopening later as Moscow hopes.

            Nalgin in turn focuses on the broader economic challenges in this area.  “Even if everything in the oil market is restored in the medium term,” something he thinks is unlikely given the impact of the pandemic, “and the OPEC++ limitations are limited, a return to the former levels of extraction will be problematic.”

            That is the case not only for technological issues but because of declining demand. Consequently, those in the Kremlin who think they can simply wait out the crisis and return to the normal of the past are mistaken. The new “normal” will be something quite different than the one they want to return to, Nalgin suggests.