Energy Ministry: Russian oil output unlikely to surpass pre-pandemic levels

Russian oil production might never recover to pre-coronavirus levels, says The Moscow Times citing a strategy document prepared by the country’s Ministry of Energy. According to the document outlining prospects for Russia’s oil and gas industry, the government’s “base case” scenario envisages that domestic crude output will never again hit the record levels registered in 2019, when the country produced 560 million tonnes of oil (11,3 million bpd). In 2020, output dropped for the first time in more than a decade as a result of OPEC-driven production cuts and totalled only 10,3 million bpd.

According to the scenario labelled as most probable, Russia’s oil output will grow until the end of the decade but fail to hit the record result of 2019. Production is expected to hit a post-coronavirus peak of 11,1 million bpd in 2029 and decrease to 9,4 million bpd by 2035. The most optimistic scenario envisages that production will exceed pre-coronavirus levels and peak at 12,8 million bpd in 2030 before starting to decline. Under this scenario, which envisages higher global oil prices, around two-thirds of Russia’s recoverable reserves will be taken out of the ground. In the case of lower oil prices, only a third of Russia’s proven reserves will be profitable to extract. The ministry considers tax cuts on high-potential oil fields, such as those in the Arctic region, to be essential for the country to make the most of its vast energy resources.

The Russian economy remains heavily dependent on energy exports. In pre-pandemic years, extractive industries accounted for almost 40% of Russian GDP, reads data of the country's Federal State Statistics Service. Experts consider Russia poorly positioned to take advantage of the global energy transition to cleaner and renewable sources of energy. Even if all currently developed projects are completed in time, Russia’s electricity generation from renewable sources excluding hydropower will reach only 1% by 2024, say analysts.

“While international oil [majors] are falling over themselves in their business transformation potential to become ‘clean’, Russians are unlikely to compete with them in this renewables drive,” said Deputy Head of Oil and Gas Research of VTB Capital Dmitry Loukashov in a research note. However, he considers that the Russian oil and gas industry can capitalise on so-called transition fuels like hydrogen or ammonia and еngage with investment and research into carbon capture technology.