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A high level of investment will be required to maintain Russian oil output at close to recent record levels, putting pressure on the domestic industry and hindering global ambitions .Gazprom faces similar challenges in developing sufficient gas to meet European and, possibly, growing Asian demand. Revisions to the Russian tax and regulatory system will be required if Russia is to meet its targets.
The main trends and developments we highlight for Russias Oil and Gas sector are:
- Russian oil production reached a post-soviet high of 10.27mn barrels per day (b/d) in 2011, according to preliminary data from the countrys energy ministry. This represented a rise of 0.4% month-onmonth (m-o-m). Production rose owing to the implementation of a new tax structure, which includes a reduction in export duties on crude and certain refined products. Duty on Russian oil exports has been cut by 4.3% to US$53.62 per barrel (bbl) from US$56.13 per bbl, according to a decree published in the Rossiiskaya Gazeta newspaper.
- Production from the Vankor field averaged 250,000b/d in 2010. Peak production capacity of 500,000b/d is expected by 2014. Lukoil has now brought into play its Yuri Korchagin field, one of the first to be developed in Russias section of the Caspian Sea, with a peak capacity of 50,000b/d.
TNKBP is pushing ahead with further development of the Uvat oil project in the Tyumen region of West Siberia. The company expects to reach peak output of around 220,000b/d in 2015-2016. BMI is assuming average Russian production of 10.27mn b/d in 2011, with scope for an increase to 10.62mn b/d by 2016. The economy ministrys latest long-term production forecast sees output stable at 10.6mn b/d in 2015-2020. However, we see output slipping from its 2016 peak to 10.24mn b/d by 2021.
- Beyond 2011, Russian oil consumption is expected to rise at an average rate of 3.0% per annum, much faster than supply expansion. Oil consumption, which is believed to have hit 3.09mn b/d in 2011, should therefore edge towards 3.57mn b/d by 2016 – providing export potential of 7.05mn b/d.
- With Russia having produced an estimated 630bn cubic metres (bcm) of gas in 2011, BMIs latest projections show output rising to 723bcm by 2016 – dependent on growth in European demand. Gas output rose 3.7% year-on-year (y-o-y) to 546.8bcm in January-October 2011, and was up 4.7% y-o-y at 55.7bcm in October 2011, according to RosBusinessConsulting, which refers to data released by the energy ministry. Gas exports climbed 9% y-o-y to 158.9bcm in the first 10 months of 2011, but slid 14.5% in October to 14.1bcm. BMI is anticipating gas exports in excess of 210bcm by 2017, thanks to domestic consumption reaching almost 530bcm.
Russias dependence on energy prices leads to high volatility in the countrys export revenues. Our anticipation of slower growth in China, a faltering recovery in the US and further uncertainty with regard to the eurozone debt crisis, clearly pose a threat to global demand. As a result, we assume OPEC basket oil prices will fall from US$107.52 per barrel (bbl) in 2011 to US$99.38/bbl in 2012, thus creating downside risk for the Russian macroeconomic outlook.
Click for Report details:Russia Oil and Gas Report Q2 2012