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Russian Oil Production Down
The following report from Bloomberg details declining Russian oil production. Even more troubling for the world’s increasing shortage of oil is what this implies for the future.
Turning around Russia’s production problem requires mobilizing capital, labor, and expertise in massive amounts. This can not happen quickly, even if the Russians really want it to happen, which is arguable. Recent attacks on TNK-BP are redolent of previous attacks on foreign oil majors in the Sakhalen projects. They are aimed at increasing Russian financial interests and decreasing those of the foreign entity.
Such policies may have the impact of limiting the interest of foreign companies in bending to the task of increasing Russian oil production. This impact may or may not be desired by Mr. Putin and his government. That question is truly unknowable but equally troubling.
The other implication of the above facts is what it says about the “Export Land Model” that points out that when an exporter is rapidly increasing its internal consumption of oil, as Russia is, any decline in production is magnified in its impact on exports. The exports decline much more rapidly. That will clearly be the case here.
The Bloomberg report adds more details worth noting:
Russia’s Oil Output Falls in June, Extending Decline (Update1)
By Greg Walters
July 2 (Bloomberg) — Russian oil production declined in June, bringing the world’s second-largest crude exporter closer to its first annual drop since 1998.
Production fell to 9.77 million barrels a day (40 million metric tons a month), 1 percent less than in June last year, according to data released by CDU TEK, the dispatch center for the Energy Ministry. Output rose 0.2 percent compared with May.
Russia’s production may have peaked as producers struggle with aging fields, rising costs and increasingly remote new deposits, senior executives at Moscow-based OAO Lukoil and TNK-BP, the country’s two-biggest independent oil companies, have said. The finance and energy ministries are developing tax-cut proposals in a bid to revive growth.
Crude oil exports via OAO Transneft, Russia’s oil pipeline monopoly, fell 1.3 percent compared with the same month last year.
Russia’s government has supported raising the level of when its oil-extraction tax takes effect to $15 a barrel from $9 a barrel as oil companies’ costs soar. OAO Rosneft, the country’s biggest producer of crude, raised capital spending 69 percent in the first quarter this year to $1.75 billion.
The oil market will be “tighter” than previously expected because many major projects throughout the world are experiencing “slippage” of 12 to 15 months in their completion time, Nobuo Tanaka, executive director of the International Energy Agency, said yesterday.
Oil prices touched a record $143.67 a barrel in New York this week on concerns of a disruption to Iranian output, capping a 47 percent increase in the first half of the year.
To contact the reporter on this story: Greg Walters in Moscow gwalters1 [Email address: gwalters1 #AT# bloomberg.net - replace #AT# with @ ]
Last Updated: July 2, 2008 05:14 EDT
Tags: peak oil energy investments
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5 responses so far ↓
1 KV // Jul 3, 2008 at 2:34 pm
The article states: …many major projects throughout the world are experiencing “slippage” of 12 to 15 months…
This is the delay on the ongoing projects; large new exploration like ANWR are simply not going to add anything for 15+ years (to feeze away in 10 or so years).
In that time, either we would be obliterated as civilized world and society or we would have figured a better way of life - less commute, better transport, and renewable as well as alternative energy sources while conserving either through price hikes, or by figuring out better way to live.
Russia does not care if the production drops by a percent or so when prices are going up exponentially.
2 KV // Jul 3, 2008 at 2:39 pm
Forgot!
Happy Forth! Yes, We Can!
3 Simon // Jul 3, 2008 at 4:53 pm
I’m beginning to wonder if there will not be a massive growth in global infrastructure investment sparked by the sudden overwhelming realization that Oil really has peaked and that and a world wide recession may not result in respite from high oil prices for any significant duration. The infrastructure developments themselves causing oil to stay high.
On top of this is the need for infrastructure development required to support non energy needs such as transportation, communication, water supply and treatment and environment damage mitigation/repair works in developing and developed counties. All these works have of course an energy component.
Infrastructure works are often carried out by governments. Is it possible that energy will be nationalized almost globally by Governments restricting the private use of fossil fuels so that they can funnel remaining supplies towards the development of projects of national need?
Perhaps they should be. Are the days of the freewheeling capitalist buccaneer numbered?
4 paultaut // Jul 4, 2008 at 1:11 pm
Go for it Simon. It will take years unless Oil projects are put on a War footing.
Crush the EPA, treat all environmentalists as criminals, etc. Otherwise, every project will be delayed indefinitly by lawsuits.
Desperate times call for desperate measures.
Lets have a committee look into this…we are all Dead Meat.
5 Alexei K. // Jul 8, 2008 at 6:35 am
I’ve been watching the Russian oil sector for 12 years, on and off admittedly, and for all I know, this decline should not be nearly as bad as 1990s. Yet the long-term outlook for Russian oil is not as good as it was back then.
Russia, Sakhalin exempted, started declining slowly in 2H 07 but output was flat y-o-y in June 08 and the downward trend is not obvious. With LUKOIL and Rosneft launching new fields this year, I would expect flat y-o-y output in 2008. There could be a 1%-2% pa decline in 2009 and 2010 but by 2011, Eastern Siberia should make up for the shortfalls. Russian companies’ expertise is OK as there has been a massive technology transfer from the West since the late 1990s. LUKOIL in particular is learning from ConocoPhillips (they have a JV in Timan Pechora). Plus, Schlumberger is always there to help.
The long-term problem is that Western Siberia (2/3 of Russian output) may be in terminal decline and, unlike the 1990s, no new recovery methods can reverse it. Eastern Siberia, Timan Pechora, the Northern Caspian may fill in and keep output flat in 2009-2012 or so but that’s it. Yes, there may be billions of barrels of ultra-heavy crude in Tatarstan and regular oil in the Bazhenov formations in Western Siberia but recovery outlook is not rosy.
Regarding TNK BP, this is not a straightforward “government vs. BP” situation but rather, a clash of many interests. I can give more details if anybody’s interested.
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