Russian production discussion

smiley · Fission Joined: Apr 16, 2004 Posts: 2104 Location: Europe

There are tons of people looking at Saudi Arabia, and Ghawar in particular but Russia is the number one producer of the world, larger than SA.

And I believe the production numbers from Russia are more alarming than those of Saudi Arabia at this moment.

russian production

Of course the picture is a bit disturbed by the perils surrounding Yukos, but if I remer correctly Campbell predicted a peak in 2007 and it indeed seems like the production is 'plateauing'.

Could this be the onset of the actual peak, perhaps in one or two years time? Because if it is we don't have to wonder when the peak is going to be. If Russia peaks, the world peaks.

That is why I would like to use this tread to collect and discuss the information on the FSU.

mekrob · Expert Joined: Dec 09, 2005 Posts: 2663

Reports that I've seen say that they are supposed to peak in 07, but that can probably vary and push into 08. However, Russia still claims that there is more to be found, faster than depletion rates; however, they only say that can happen for a few years past 07. So even they aren't all giddy about oil production in their own country.

From looking at that graph, it doesn't show that they've peaked or even plateaued yet. It slowly went down for a few months, but that was in the winter when worldwide demand is lower. They also did that in the previous year and they obviously didn't peak there. We'll have to wait a few more months to get better data on their production levels. If it declines or fails to increase much even at these prices, then we can definately say they've peaked.

What is the story about their oil fields compared to their nation? I mean Mexico, UK, Norway, SA, Kuwait, Iraq, etc rely on a few massive fields while the US relies mostly on hundreds of tiny fields that produce little a piece. How about for Russia? Lots of tinies? or a few giants? Samotlar is pretty depleted, isn't she?

mekrob · Expert Joined: Dec 09, 2005 Posts: 2663

Oh yeah, did anyone notice that once oil prices started to climb worldwide (late '90's), oil production in Russia finally broke through her 4+ year old 6.0 mpd ceiling? Interesting. Russia increases its production 50% and oil prices more than triple. Nice return on investment.

PolestaR · Light Sweet Crude Joined: Jun 21, 2005 Posts: 1047

Just remember that there isn't quite "unlimited" demand for oil yet, so it doesn't necessarily mean they have peaked in production, they could just be at the line between supply/demand.

If you take a look at Saudi Arabias output over a pediod of time you could use the same analysis you guys did to say it peaked too, a while ago.

I sure hope Russia has peaked though. :D

nth · Light Sweet Crude Joined: Feb 24, 2005 Posts: 1973

After the Yuko crisis, Russian oil exploration and field development investment went down, especially combined with the new tax system put in place.

It is very unlikely that Russia oil production will go higher. The main culprit is the new tax system. The second is that lots of oil fields are getting old and depleting. They got a nice boost by BP when they adjusted the oil equipment to pump out more oil.

Salkin fields in the Pacific are hit with delays and issues. This is one of the new oil fields that will come online, but doesn't look likely anytime soon to contribute large production numbers.

khebab · Moderator Joined: Sep 27, 2004 Posts: 935 Location: Canada

MOCKBA · Heavy Crude Joined: Sep 05, 2005 Posts: 412

The problem with Russia is not the lack of production capacity, but the lack of transportation. IMHO, Russia could boost its output to 10mbpd, but it would never move that much to export points. Thus anything above transportation thruput to export points bottleneck is for local consumption, or if local consumption would be flat, then the production will not break 10 mbpd.

Now, both the pipelines and production is aging. The only good thing Yukos did was upgrading production, but transportation was still in communists hands, so at the end China was paying for shipment over rail which is very limited in terms of how much oil one could move to export points. Since 2004 it is all (production and transportation) in communist hands, which means that only limited amounts of money are and will be invested in both production and transportation, which in turn means that Russia would be flat in production and exports.

Thus, IMHO, in the next 5-10 years Russia would be able to maintain 8-10 mbpd in production and 5-6 in exports with grade going sourer. It all could change if 2008 election would result in change of regime, then most likely the figures could drop or rize about 1 mbpd. Also, exports would depend on demand for sour crude. If the demand for sour crude would drop (as if there would be more sour crude due to other countries decline) Russian figures could be on the lower side of the range.

Russian_Cowboy · Posted: Wed Mar 01, 2006 2:54 am Post subject: Re: Russian production discussion

Preliminaty data on February 2006 oil production in Russia will be released within the next 24 hours. It may be quite ugly and even show a year-on-year decline. This is due to the stoppage of drilling and production operations in Yugra when the temperatures there fell below -50C. The problem in Russia is not just the lack of transportation, but the lack of infrastructure. It is quite expensive to build and maintain infrastructure in places with extremely severe climate. So, nobody eants to build it.

Also, the promised polar oil may never be found in reality. The only major oilfield that Russia has in the Arctic Ocean is Prirazlomnoye with about 1.5 Gba of oil. Russian oil companies have been looking for coastal shelf oil, but failed to come up with any major finds in the last 10 years except for the 500 Mba field in the Caspian sea found a month ago by Lukoil. Also, the average cost of producing oil in Russia is climbing fast. It was only $6.7/ba in 2001, $10/ba in 2003, and $15/ba in 2005. In the near future, Kremlin may be kissing goodbye to the fabulous oil royalties it is enjoying now.

Taskforce_Unity · Posted: Wed Mar 01, 2006 3:47 am Post subject: Re: Russian production discussion

Russian Cowboy, were do you get this dollar per barrel production data from?

smiley · Fission Joined: Apr 16, 2004 Posts: 2104 Location: Europe

Thanks for the replies. A couple of points.

- Last December Russian production was higher (9.6 Mb/d) than Saudi Arabia (9.5 Mb/d) according to the EIA. I know it is a bit childish to knit over 0.1 Mb/d Smile

But the reason I made this point is to show that we shouldn't stare ourselves blind on SA.

- Seasonal variations do play a role in the oil production. But with the 12 month average you filter that out, and that still points to a production slowdown.

But what is causing the slowdown. In the tread several points were mentioned.

- Infrastructure
- Investment
- Depletion

I think all three points are valid. But also I think the first two are overplayed in the media. In the run-up to the peak for Norway, UK, Oman and Mexico, you heard similar stories. Lack of investment, poor management unexpected delays etc. Of course a company or a government is hesitant to admit that the production is close to hitting decline. They want to have investments flowing in as long as possible. Only after the peak they suddenly bring out the real culprit.

I cannot judge on the infrastructure. I know there are problems transporting the oil, but how serious they are or what the maximum capacity is I don't know.

But lack of investments. A large portion of the Russian oil industry is in foreign hands. BP-TNK produces about 1.5 mbd in russia. Shell is also active and so are the Chinese and the Japanese. I can understand why a company like Yukos would have problems attracting investors, but surely that cannot be the case for BP.

Yet these companies are not able to find large bodies of oil. And these companies also see their growth percentages declining. So perhaps we have to face the truth that Russia is becoming a very mature area and will not be able to post 10% growth percentages in the next few years.

Again I cannot stress the importance of that enough. Russia has been the engine behind world production growth. In the past 5 years over 50% of the world production growth came from Russia. W oil prod

So in the business-as-usual scenario we need to see growth in Russia, and preferably double-digit.

Leanan · News Editor Joined: May 20, 2004 Posts: 4439

Russia is so hard to predict, because of their weird history.

Russia's production is a bone of contention over at The Oil Drum. Some think they are not yet at peak. Others think what we're seeing is a "dead-cat bounce," and they will decline sharply, very soon.

dukey · Light Sweet Crude Joined: Feb 20, 2005 Posts: 1984

in simmon's book he briefly goes over russia
although i wished he had gone into more detail because its something i had actually wondered about

all i can remember from what i read is thus
CIA predicted russian oil would peak in the 70's, and it did ! But now russia is having a 2nd peak. He said the oil fields were very badly managed and just pushed to the max. There was a lot of oil left behind after water flooding. He said that most of russias production increases was basically getting this oil left behind from old existing fields and that russia would peak again, probably sometime soon. And the decline after the second peak would be much steeper than the first.

Leanan · News Editor Joined: May 20, 2004 Posts: 4439

Yes, that is what some people are arguing. The "second peak" we are seeing now is just the production they would have had naturally if the Soviet Union hadn't collapsed and severely depressed oil production.

Dunno if that's true, but if Simmons believes it, that certainly adds some credibility.

Russian_Cowboy · Posted: Thu Mar 02, 2006 3:09 am Post subject: Re: Russian production discussion

OK, finally the February production data have been published. In February, Russia was producing oil at 1290.6 thousand tonnes a day or 9.52 mln bpd, representing a 0.2% increase over January.

Leanan · News Editor Joined: May 20, 2004 Posts: 4439

Thanks for the info!

That's good news, isn't it? An increase, despite the weather shutdowns?