Russia needs new technologies to compensate for oil output decline

Crude production in Russia could increase to 11,35 million bpd next year, but the prolongation of the OPEC+ deal is likely to curb it to the 2018 level. Brownfields’ output decline and high production costs on greenfield sites are also among the factors constraining the country’s production.

Russia needs to actively expand its resource base and increase usage of the new technologies to bring hard-to-recover oil reserves into operation to avoid production decline, considers Petroleum Economist, naming declining output on brownfield sites as a major threat to the sustainability of the country’s oil production. In 2020, Russian oil production will also depend on the launch of new projects, increases in production at greenfield sites and the agreement with OPEC on output cuts.

Across the country, average oil output decline rates amount to 5-6%, with a more significant decline of 10-15% in Western Siberia. At the same time, several oil companies including Surgutneftegas and Rosneft’s subsidiaries Yuganskneftegaz and Purneftegaz have managed to reduce decline at the brownfields to about 2% per year over the past decade. To increase production rates at brownfield sites, they used physical methods such as horizontal wells, lengthening of wellbores and multistage hydraulic fracturing.

As for greenfield sites, they are performing well. Nonetheless, the majority of the country’s new fields require additional tax incentives to become profitable. According to the Russian Ministry of Energy, 51% of Russian oil was produced under different tax exemptions last year. Further reducing the tax burden may result in much lower revenues, warns Petroleum Economist.

Overall, taking into account the commissioning of new fields, growing output from greenfields and the use of methods that increase production rates at brownfields, Russian oil output could increase to 11,35 million bpd by the end of 2020. However, if the OPEC+ deal remains in place into 2020 and Russia adheres to the current terms of the agreement, oil output is expected to stay at the 2018 level of 11,16 million bpd.

Petroleum product exports are expected to decline slightly in 2020 due to an increase in export duties on heavy petroleum products as well as growing competition and slowing demand in the European market. Skolkovo School of Management’s Energy Centre estimated that Russian petroleum product exports could decrease by 0,5% in 2020. For the first eight months of 2019, export volume totalled 2,8 million bpd, which was 10% less than in 2018. At the same time, crude oil exports to Europe in the first eight months of 2019 were higher than in the corresponding period of 2018 despite the interruption of supplies due to the contamination of the Druzhba pipeline in April 2019.

By Anna Litvina