Russia is planning to more than triple crude-oil exports to China over the next decade, but it doesn’t look set to increase production proportionally. How will it manage this?
The two countries have signed agreements that would increase the amount of oil flowing from Russia to China by around 700,000 barrels a day from 300,000 barrels a day currently, prompting oil watchers to ask where the additional supply will come from.
Most of the oil fields in Russia’s biggest production center, Western Siberia, which accounts for around two-thirds of its output, are more than three decades old and in decline.
“[W]e expect the declines in West Siberia to accelerate from here: as high as 3.5% per year on average from mature West Siberian fields,” Rob West, senior research associate at Sanford C Bernstein Ltd., said by email.
This is despite several years of efforts by Russian companies to maintain oil production at maturing fields by investing billions of dollars in technologies such as horizontal drilling and hydraulic fracturing.
What gains in production Russia has made over the past five years have been thanks to new production areas such as Rosneft’s large Vankor field in Eastern Siberia, a region that holds relatively limited and poorer-quality oil reservoirs compared with older finds to the west. And discoveries are getting smaller in the region.
“The sad reality is that Russia has no other large greenfields [new developments] which could continue to offset declines in the next decade,” HSBC analyst Ildar Khaziev said in a note last month.
And the prognosis isn’t promising. Mr. Khaziev noted that no new giant fields have been discovered in Russia since the 1980s, and unless there are such discoveries, “it will be very difficult to replace the declines in production.” The country’s crude-oil output will peak in 2018-2019, by his estimate.
wsj
