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The production and export of oil and gas are the primary sources of income for many CIS countries. Russia produces the bulk (73%) of the region’s liquids and provides the largest share (84%) of the crude oil processed in the region. About two-thirds of high-quality Caspian crude oil production is currently exported outside the CIS. Considering the planned expansion of export routes from the Caspian region, this share is expected to increase.
According to BP’s Statistical Review of World Energy 2015, Russia’s proved oil reserves are estimated at 103.2 billion barrels and reserve projections for the Caspian region (Kazakhstan and Azerbaijan) are estimated at 37.0 billion barrels. Russia’s established oil production potential, combined with Caspian Sea prospects, makes the CIS an important non-OPEC supplier to global oil markets.
Source: Stratas Advisors
Despite diversification efforts, the oil and gas industry continues to play a key role in the Russian economy; oil, gas and mineral exports account for more than two-thirds of Russia’s exports. The tax structure is a major tool that shapes the Russian oil sector. In the past, high export taxes for crude oil were designed to force domestic processing and the export of higher-value finished products.
Exceptions were the new Far Eastern fields. In 2009, the government set a zero export duty rate for oil produced at 13 fields in East Siberia, including Vankorskoye, Yurubcheno-Tokhomskoye and Talakanskoye. In 2010, the list was extended by nine oil fields. These steps are the government’s main efforts toward stimulating oil production in East Siberia and offsetting the production decline in maturing fields in West Siberia. New tax breaks were enacted on Sept. 1, 2013, to include hard-to-recover tight (shale) oil. The preferential rates are currently applied to fields with large reserves and depletion of no more than 5%. An updated fiscal incentive package to promote production at offshore fields was enacted on Jan. 1, 2014.
Contrary to widespread belief and in line with Stratas Advisors’ projections for the past seven years, Russian oil production continues to grow and surpass post-Soviet era records. In 2014, Russian crude oil and condensate production averaged 10.58 million b/d, which was 1.1% above 2013 levels and 2.1% above 2012 levels (this does not include NGLs).
Reported data indicate that new additions to production capacity in East Siberia and the Far East are, for the time being, offsetting the decline of production from maturing fields in the West. The largest addition in recent years was the launch of Rosneft’s massive Vankor deposit in the Arctic in July 2009 and its continuing production increases. The plateau of 25 million tons (0.5 million b/d) is planned to be reached by 2019.
In addition to new production brought onstream in 2008-2009 (Lukoil’s Yuzhno-Khylchuyuskoye, TNK-BP’s Uvatskoye, Surgutneftegaz’s Talakanskoye and Rosneft’s Vankorskoye and Verkhnechonskoye) and in 2013 (Prirazlomnoye), near-term new field developments at Vladimir Filanovsky (2015), and other major projects that are scheduled to come online, will help stem production declines at existing fields.
In the next few years, several existing major oil fields (primarily in West Siberia) will contribute significantly to Russia’s supply and others will offset decreasing production elsewhere. These fields (Pribskoye, Tevlin-Russinkoye, Tyanskoye, Sugmutskoye, Sporyshevskoye and West Salym), which have come online in the past decade, are adding between 1.2 million b/d and 1.5 million b/d to the Russian supply.
However, new field developments are expected to produce almost all of Russia’s annual oil growth in the next five years and will likely produce more than half of the country’s oil in 2020. West Siberia’s share of Russian production is thus expected to decline in later years in favor of East Siberia.
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