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Oil Production Goes down in Russia
May 6, 2008 17:14

Russia has cut oil production for the first time during the past 10 years. Other oil exporting nations also prefer to save their oil deposits rather than sell it on the international market. No wonder, their profits head all the records anyway.

The first quarter of 2008 saw 1% decrease of oil production in Russia compared to that period of 2007. Last time this happened 10 years ago in 1998. The present cut of oil production is due to gradual slowdown in the production growth rate for several consecutive years.

From 2000 to 2005 the oil production rate made up 8% annually, but that was the time of quick buildup of absolute production volume at the expense of aggressive oil recovery method. However, such methods can’t be chronically applied to one and the same oil fields and this approach has worked itself out.

To maintain the present oil production level the oil companies have to drill new wells and invest a huge amount of money in the new projects. Although the domestic oil producers are hardly motivated by the Russian legislation and tax burden.

The oil production capacities developed in the Soviet time are no longer able to meet the growing market demand. The oil industry of the country desperately needs development of new capacities. It takes on average 5-10 years for a new oil field to reach the peak level, while the 1990s were disastrous for both the Russian geologic exploration sphere and development of already opened oil fields. Today the consequences of that lost period reveal in full: the companies operating in Western Siberia, where oil has been mainly produced since the Soviet time, are the first to cut production.

The development of new and hard-to-get oil fields such as oil sand in Canada or distantly located deposits in Eastern Siberia and the Arctic shelf as well as low-gravity oil fields become economically viable providing the oil prices are set at over $60-80 per barrel.

 Today oil is traded at $120 but nobody has fixed the price and anything can happen. Nevertheless, some experts think access to new deposits to be the principal problem. E.g. Saudi Arabia doesn’t let foreign oil companies conduct exploration works on its territory. The Russian Federation also limits access for foreign companies to inland oil and gas deposits.

The International Energy Agency forecasts the oil production volume in Russia will resume growth before the year is over and expectedly make up 0.8% compared to the figures in 2007. This is three times less than the average growth rates recorded for the last three years.

However, the Russian ministries have their own opinion on the possible changes in oil prices. The Russian Ministry of Industry and Energy supposes the national oil production volume will increase by 1.8%, but the Ministry of Natural Resources cannot rule out the possibility of lower productivity this year.


Olga Pletneva

Tags: Russian oil Soviet Union    

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