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1、 March 2024 OIES Paper:NG 189 Outlook for Russias oil and gas production and exports James Henderson,Distinguished Research Fellow,OIES Vitaly Yermakov,Senior Research Fellow,OIES Richard Connolly,Director,Eastern Advisory Group i The contents of this paper are the authors sole responsibility.They d

2、o not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its members.Copyright 2024 Oxford Ins

3、titute for Energy Studies(Registered Charity,No.286084)This publication may be reproduced in part for educational or non-profit purposes without special permission from the copyright holder,provided acknowledgment of the source is made.No use of this publication may be made for resale or for any oth

4、er commercial purpose whatsoever without prior permission in writing from the Oxford Institute for Energy Studies.ISBN 978-1-78467-235-5 ii The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of

5、its Members.Contents Figures.ii Tables.iii UKERC Research on the Geopolitics of Energy System Transformation.iv Analytical Framework.iv Introduction and Overview.1 1.Outlook for Russian Oil.5 1.1 Introduction.5 1.2 Russian oil reserves.5 1.3 Russias fiscal policies:systematic upstream incentives at

6、last.7 1.4“New Oil”versus“Old Oil”.8 1.5 Western sanctions and technological dependency of the Russian oil sector.10 1.6 Russian oil production by company.11 1.7 Russias oil production by region.13 1.8 Vostok Oil:Russias flagship new oil project.16 1.9 Estimates of Russian oil output to 2030.17 1.10

7、 Russian Oil Exports:Current Developments and Outlook.19 1.11 The Outlook.27 2.Outlook for Russian gas.28 2.1 Gas production and exports.28 2.2 Estimates of Russian gas output and exports to 2030.32 2.3 Conclusions on future Russian gas production and exports.38 3.Modelling the implications for the

8、Russian economy.40 3.1 The Russian Economy.41 3.2 Explaining economic growth to 2022.43 3.3 The central role of oil and gas exports.45 3.4 Scenarios to 2040.48 3.5 Conclusions.54 4.Overall Conclusions.54 Figures Figure 1:Russian liquid hydrocarbons production,1990-2022.2 Figure 2:Russian crude oil o

9、utput since 2019.3 Figure 3:Russias gas output,1990-2022.4 Figure 4:Russias A+B1+C1 hydrocarbon liquids reserves by region and location of main fields(as of 1 January 2021).6 Figure 5:Degree of depletion of A+B1+C1 reserves by Russias federal districts,per cent(as of January 1,2021).6 Figure 6:The c

10、hanging composition of Russias oil and gas tax take.8 Figure 7:“New”and“Old”Oil in Russias output.9 Figure 8:Development drilling in Russia in 2022 by month,thousand metres.9 Figure 9:Russian crude oil and gas condensate production by region in 2019.14 Figure 10.Incremental change in reported Russia

11、s regional oil and condensate production,2022 over 2013(million tonnes).14 Figure 11:Vostok Oil Project.16 Figure 12:Monthly output of Russian liquid hydrocarbons.17 Figure 13:Russian oil production scenarios to 2030.19 iii The contents of this paper are the authors sole responsibility.They do not n

12、ecessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Figure 14:Russia crude oil and oil product exports.20 Figure 15:Oil export trade flows by country,and Russias share.20 Figure 16:Russias oil export revenues and their share of Russias Federal Budget.21 Fi

13、gure 17:Russia crude oil exports by destination via seaborne and pipeline routes.22 Figure 18:Russian product exports by tanker,and change in destinations.23 Figure 19:Price of Russian crude oil blends and discount to Brent.24 Figure 20:Indian oil imports by source(2021-2023).25 Figure 21:Price of R

14、ussian oil delivered to India compared to Urals FOB Primorsk.26 Figure 22:Urals and ESPO oil prices and differential.27 Figure 23:Gazproms spare gas productive capacity.30 Figure 24:Russian gas supply and demand balance.33 Figure 25:Russian gas exports to Europe.34 Figure 26:Daily flows via pipeline

15、s from Russian to EU plus UK.35 Figure 27:Russian gas pipeline exports to China.37 Figure 28:Russian exports of LNG.38 Figure 29:Potential outlook for Russian gas output and its uses.39 Figure 30:Upside and downside scenarios for Russian gas production.40 Figure 30:Russian gross domestic product mea

16、sured using PPP exchange rates and market exchange rates(USD bn),2000-2022.43 Figure 31:Annual changes in Russian GDP(%)and the shares of components of final demand in GDP growth(percentage points).44 Figure 32:Export revenues from oil and gas under four scenarios to 2040($bn,2022 prices).49 Figure

17、33:Five-year average GDP growth rates under four scenarios(per cent).53 Tables Table 1:Main indicators of productive capacity and drilling.9 Table 2:Composition of the producing oil wells of main Russian companies by method of extraction in 2021.10 Table 3:Russian oil and condensate production by co

18、mpany(million tonnes).12 Table 4:Well productivity by company(crude oil),thousand tonnes per day.13 Table 5:Russian liquids output by region.15 Table 6:Growth rates to 2040 under the limited markets/temporary oil discount(LM-TD)scenario.51 Table 7:Growth rates to 2040 under the Pivot to Asia/tempora

19、ry oil discount scenario.52 Table 8:Growth rates to 2040 under the Limited Markets/permanent oil discount scenario.52 Table 9:Growth rates to 2040 under the Pivot to Asia/permanent oil discount scenario.53 iv The contents of this paper are the authors sole responsibility.They do not necessarily repr

20、esent the views of the Oxford Institute for Energy Studies or any of its Members.UKERC Research on the Geopolitics of Energy System Transformation This is the third,and final report,that is the result of a collaboration between the OIES and Theme 1 of UKERC-4 that deals with UK Energy in a Global Co

21、ntext.The first report by Bassam Fattouh on Saudi Oil Policy:Continuity and Change in the Era of the Energy Transition was published back in 2021.At the time it was envisage that there would be a partner report dealing with Russia,but events conspired to radically change the context for considering

22、the impact of the energy transition on Russias energy strategy.Following Russias invasion of Ukraine,just over two years ago,it has been necessary to rethink the role of Russia in the global energy system and the impact of oil and gas on the Russian economy in the context of extensive Western sancti

23、ons.As a result,this study has been a while in the making.Meantime,the OIES has published a second report by Marshall Hall on LNG and UK Energy Security,again conducted in a very different context from that originally envisaged.This report presents a comprehensive analysis of the current state of af

24、fairs with Russian energy and its impact on the countrys economic prospects.It is particularly timely,and I thank the authors for working through some extremely challenging times.The current phase of UKERC will soon come to an end and UKERC is about to celebrate its 20th anniversary.All being well,t

25、here will be a UKERC-5 and we look forward to continuing our work with colleagues at the OIES.Mike Bradshaw Co-Director UKERC Professor of Global Energy Warwick Business School Analytical Framework This paper is the combined work of three authors who have all spent decades covering the Russian energ

26、y sector and economy.Vitaly Yermakov,James Henderson and Richard Connolly have contributed sections on the future of the Russian oil and gas industry,the outlook for oil and gas exports and the future impact of hydrocarbon revenues on the Russian economy respectively.While the views of all three are

27、 complimentary on many issues,the paper was constructed to allow all of them to express their opinions individually,with the consequence that the resulting paper may show some alternative views in places.We attempt to pull them all together in our overall conclusions,highlighting where different int

28、erpretations are possible,but the paper should be read as offering an amalgam of individual analyses which can be combined to provide a useful lens through which the outlook for the Russian energy economy can be viewed.We believe that,amid the uncertainty which has been created by the war in Ukraine

29、 and the resulting shortage of data from Russia,this is just as useful as attempting to provide a definitive story based on restricted information.It should also be noted that the Russian government has significantly reduced the amount of data it publishes on the oil and gas sectors since the invasi

30、on of Ukraine in February 2022.As a result,much of the data for 2023 is taken from secondary sources or is based on estimates.James Henderson Distinguished Research Fellow Oxford Institute for Energy Studies 1 The contents of this paper are the authors sole responsibility.They do not necessarily rep

31、resent the views of the Oxford Institute for Energy Studies or any of its Members.Introduction and Overview The End of an Era Cheap energy from Russia has been a foundation of European industrial competitiveness over the past 50 years while the revenues from hydrocarbon exports have allowed the Krem

32、lin to finance Russias budget.However,the era of Russia-Europe energy cooperation that has produced these significant benefits to both sides has ended amid the largest geo-political conflict since the end of the Cold War.Geopolitics makes the split between Europe and Russia seem irreversible.A radic

33、al overhaul of Europes energy imports and a fast diversification of Russias exports toward Asia are already becoming the most likely way forward.Both would represent a radical shift in the global energy economy and trade with uncertain economic and geopolitical consequences.It is not the split itsel

34、f that is most surprising,but rather its abruptness.Even before the war in Ukraine,both Russia and the EU had formulated plans that suggested fundamental changes in the relationship.The EU had embarked on a path of deregulating its energy markets and transitioning to home-based clean energy(which wo

35、uld also lessen its energy dependency on imports from Russia).Russia envisaged a gradual and managed diversification from Europe towards Asia,where energy transition would take longer and where buyers continue to view security of supplies in a traditional sense as an obligation to deliver physical m

36、olecules,considering long-term contracts as viable insurance against volatile commodity cycles.But now there is less time for an orderly adjustment,and any issues must be addressed in a more ad hoc manner.Finding new markets:Russias Oil For Russia,the near-term shock of having to re-direct the flows

37、 of its energy exports to different markets and find alternative customers has been softened by the price windfall since global prices for all fossil fuel commodities,including oil,coal and especially natural gas have been robust since February 2022,albeit with some relative weakness in 2024.Russias

38、 export revenues in 2022 set historical records,helping to finance the transition to new export schemes.But in terms of redirecting volumes to new markets the story of Russias fungible oil and refined product exports has been markedly different from the story of Russias infrastructure-constrained pi

39、peline gas exports.Russian crude oil exports in 2022 increased to 242 million tonnes(about 4.9 mmbpd),up 7.6 per cent year-on-year.Alexander Novak,Russias Deputy Prime Minister in charge of the energy complex hailed this development as the evidence of the industrys resilience to the pressures from t

40、he Western sanctions in his recent article for the“Energy Policy”magazine1.In 2023,it is possible to say that Russia has managed to re-direct the flows of its crude oil exports away from so-called“unfriendly”countries to alternative markets and to limit any decrease to manageable levels driven mainl

41、y by an agreement with the OPEC+group to constrain exports.2 This happened thanks to the significant discounts that Russian energy commodity exporters offered to buyers in Asia(mostly to India and China),although the extent of these discounts has been somewhat exaggerated.The so-called“mirror statis

42、tics”from the Indian and the Chinese customs demonstrate that imported Russian crude was only$10-15/bbl cheaper than Brent,not the often reported$35-40/bbl.3 It appears that the relative success of this Russian diversification strategy achieved in record time has been facilitated by the Kremlins tac

43、it acceptance of a reduced tax take,at least temporarily,as a significant portion of the oil price windfall has been retained by the exporters(and used to build new logistical chains to Asia)at the expense of the Russian budget in the first five months of 2023.4 1 https:/energypolicy.ru/rossijskij-t

44、ek-2022-vyzovy-itogi-i-perspektivy/2023/12/13/2 OIES Oil Monthly,Dec 2023,p.9 3 https:/ That was primarily due to the use of international price benchmarks for Russian crude(the quotations for Urals crude as defined by Argus that lost their relevance in the new conditions)rather than the actual sale

45、s prices in the statutory tax formulae determining the tax obligations of Russias oil producers.Currently,the Russian government is considering different options for modifying the calculation mechanisms in the Russian oil and product taxes that would protect state tax take and introduce a new balanc

46、e of interests between the state and the hydrocarbon producers.2 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Compared to former exports to Europe,the netbacks to the export

47、ers on the new trade routes and rents for the Russian state are lower due to longer transportation distances,complicated logistics,and price discounts to the new customers.On balance,however,Russias ability to sustain and protect its niche in the global crude and product markets despite unprecedente

48、d trade restrictions could be considered a significant achievement.It has allowed Russia to avoid a significant reduction of oil output and refining throughput at home.In 2022 Russias liquid hydrocarbons output(crude oil and condensate)increased to 534 million tonnes(about 10.9 mmbpd),up 1.8 per cen

49、t year-on-year.This was a second year of robust growth after the sharp reduction of output in 2020 that Russia had to implement as part of its OPEC+commitments on dealing with the unprecedented fall in global oil demand during the COVID-19 pandemic.The support to overall liquids production came from

50、 the rising volumes of condensate produced.Since the early 2010s Russian gas condensate output has grown robustly,due to the wider development of deep layers of gas fields that contained a lot of“wet”gas,a trend that has continued to date.While in 2000 the share of gas condensate in total liquids ou

51、tput in Russia was 3.7 per cent,in 2010 it increased to 4.5 per cent,and in 2022 to 7.7 per cent.(See Figure 1).Figure 1:Russian liquid hydrocarbons production,1990-2022 Source:Author,data from Russias Energy Ministry,Rosstat,TEK Rossii magazine Russias oil industry performance in 2023 has further d

52、efied earlier pessimistic expectations from many market watchers.The Russian Energy Minister,Nikolai Shulginov,suggested in December 2023 that the countrys total output for the year would be 523 million tonnes(10.5mmbpd),a 2%decrease from the 2022 figure.5 However,a subsequent estimate from OPEC put

53、 production at 10.92 mmbpd(c.544 million tonnes),equivalent to a 1.7%increase,underlining the uncertainties in the data emerging from Russia at the present time.6 Finally,a statement by Deputy Prime Minister Novak in the Duma suggested that production was 531 million tonnes(10.66mmbpd).7 In any case

54、,the range of estimates suggests that overall liquids production remained relatively stable in 2023.Of the total liquids,crude oil production amounted to around 9.8 mmbpd and condensate for about 1.1 mmbpd,based on the higher OPEC figures.Crude output was affected by a series of cuts in production a

55、nd exports during the year.Russia announced a 500 kbd voluntary output cut for crude oil from March 20238,measured against the output in February,meaning that overall production was expected to fall 5 Interfax CIS Oil and Gas Weekly,10 Jan 2024,“Russian oil production in 2023 to reach maximum of 523

56、 mln tonnes”6 Interfax CIS Oil&Gas Weekly,14 Feb 2024,“OPEC increase liquid hydrocarbon production estimate for Russia in 2023”7 https:/neftegaz.ru/news/dobycha/814415-itogi-2023-g-ot-a-novaka-dobycha-nefti-v-rossii-upala-menee-chem-na-1-gaza-na-5-5/8 https:/ barrels per dayMillion tonneCrude oilCon

57、densateTotal 3 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.by a similar amount.On March 21st Novak said that the announced reduction of output has been almost achieved and

58、also that the voluntary cut would continue through the end of June 20239.The cut was then extended into August,and was then developed further into a cut in exports of crude oil and oil products in support of the OPEC+group.10 Crude oil accounted for 300,000bpd of the cut,with oil products making up

59、the remainder.As can be seen from Figure 2,crude output has remained at approximately 9.5mmbpd since March,with total liquids output then implied at approximately 10.6mmbpd.Figure 2 shows total oil output since 2019 and(on the right axis)shows the level of voluntary cuts that have actually occurred.

60、Figure 2:Russian crude oil output since 2019 Source:IEA,OIES forecast Notes:Excludes condensates Finding new markets for Russias natural gas The situation with Russian pipeline gas is markedly different.Supply of export sales to Europe has fallen by 80%since February 2022 due to sanctions,contractua

61、l disputes triggered by a Russian demand for payment in roubles and then exacerbated by infrastructure issues.Flows though the Nord Stream pipelines fell to zero due to a series of commercial issues before the physical infrastructure was destroyed by 4 explosions that prevented any further flows fro

62、m being possible.The transit via Ukraine was cut in half because of a dispute over the gas delivery points and is now 75%below contracted transit levels.Transit via Yamal-Europe fell victim to a commercial dispute between the Polish and Russian shareholders and consequent sanctions and countersancti

63、ons.As a result,having catalysed a series of legal disputes with European customers and lost access to most of the pipeline export infrastructure to the European gas market in 2022,Russia had to drastically reduce its gas output and consequently increase its spare productive capacity.Russias nationa

64、l gas output in 2022 amounted to 695 bcm,down 11.2 percent year-on-year,or by 87 bcm.This represented the largest year-on-year production decline since 1990 at a national level.It is also worth noting that Gazproms output in 2022 was affected disproportionately,ending up at only 412.6 bcm,20 percent

65、 less than in 2021,an annual decline of about 103 bcm,the largest in Gazproms history11.At the same time,Russian oil companies and independents increased their gas output in 2022(See Figure 3).9 https:/www.rbc.ru/business/21/03/2023/6419c07c9a7947949f0386ac?from=from_main_12 10 Reuters,5 Nov 2023,“R

66、ussia to continue voluntary cut of oil and oil product exports until year-end”11 https:/ The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Figure 3:Russias gas output,1990-2022 S

67、ource:OIES,data from Rosstat and Gazprom These developments have continued into 2023.Production fell by a further 36bcm to 659bcm(down 5%)driven by a further sharp fall in Gazproms pipeline exports to Europe(a fall of around 40bcm to 25bcm)which was only partly offset by rising exports to China(22bc

68、m)and stable sales to Turkey(21bcm).Sales to countries in the Near Abroad were also stable at approximately 32bcm.Gazproms share of national output has again been affected disproportionately as Russian independents increased their production.The biggest production increases occurred at two of Rosnef

69、ts projects,Rospan and Kharampur.For several years it seems that Gazprom will have to accept the reality of reduced production and lower revenues.Any pivot to the East is going to be neither fast nor easy.Natural gas volumes delivered by pipeline are limited by the available infrastructure.Natural g

70、as trade with China is expected to expand from 22 bcm in 2023 to 48 bcma by the end of the 2020s under the SPAs currently in place,as contracted gas supplies via the existing Power of Siberia pipeline reach their planned volume of 38 bcma by the end of 2025 and pipeline gas supplies from Sakhalin ad

71、d another 10 bcma(post 2027,even in the most optimistic scenario).This is significantly less than recent Russian pipeline gas exports to the EU-about 150 bcm in 2021.For Chinas gas market to become a viable alternative to the lost European market for Gazprom,a significant expansion of trade beyond t

72、he currently signed sales and purchase agreements(SPA)is needed.Russia and China have been in negotiations over a new 50 bcma gas pipeline that would connect Russias gas resources on Yamal with China via a pipeline across Mongolia and might become a game-changer post 2030.Obviously,for the project t

73、o move ahead a new giant SPA with China will be needed.China is set to be a clear winner in the situation since it would be able to use its negotiating leverage to secure Russian gas at discounted prices12.12 https:/ 01002003004005006007008001990199219941996199820002002200420062008201020122014201620

74、1820202022BcmGazprom(without JVs)OtherTotal 5 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.1.Outlook for Russian Oil 1.1 Introduction The longer-term outlook for Russian oil

75、 production is extremely uncertain.The IEAs World Energy Outlook 2022 postulates a 2 mmbpd drop for Russias oil production by 2030 in their STEPs scenario.However,the only supporting analysis for this assumption in WEO 2022(the latest WEO where oil production is discussed in country detail)is a shor

76、t paragraph that states:“Russia has been under sanctions since 2014 but the financial and technology restrictions bite much harder now.As access to technologies,oil field service expertise,equipment and assets is removed,Russia struggles to maintain production in existing fields and to develop large

77、 new fields in the Arctic,tight oil,and other offshore areas”13.This set of assertions,however,is no substitute for the analysis of the factors that have governed the dynamics of Russias oil production to date and the evaluation of how these might change in the future.The obvious lines of investigat

78、ion should attempt to answer the following questions:Are there reserves constraints on Russias future production growth?Where is most of Russian oil going to be produced out to the 2030s,and does Russia need to rely on the high-cost and technically challenging areas in the Arctic offshore and the Ba

79、zhenov suite(a tight oil formation in Western Siberia)to maintain its oil output during the next decade?What role will Russias tax policies play in addressing the risk of an oil production fall?What equipment will Russia need to manage the production declines at its producing fields and how critical

80、 are sanctions in this regard?Which specific projects is Russia planning to implement to produce“new”oil in the next decade and are there critical dependencies on Western technology?Each of these questions merits fundamental research.This note will merely highlight the key points.1.2 Russian oil res

81、erves The first thing to note is that Russia is one of the worlds“big three”oil producers(along with the US and Saudi Arabia)and has vast oil reserves and resources.According to the 2023 edition of the Energy Institutes Statistical Review of World Energy 2023,Russias proved reserves as of the end of

82、 2020 amounted to 108 billion barrels(representing 6.2 per cent share of global reserves)with a reserve to production ratio of 28 years.Russias methodology of reserves calculation differs from the Western system by putting greater emphasis on technical recoverability of reserves rather than the econ

83、omic efficiency of doing so(under the prevailing market prices at the moment of assessment).According to Russias Ministry of Natural Resources(MNR),as of January 1,2021,Russias oil and condensate reserves under the A+B1+C1 categories(which roughly correspond to proven and probable categories in the

84、Western methodology)constituted 19,010.4 million tonnes and 2,242.4 million tonnes,respectively14,equivalent to an overall total of 156 billion barrels.For 2020,the MNR assessed a recovery factor for oil under these categories of reserves in Russia at 37.1 per cent.This methodology thus suggests a“c

85、over”of about 16 years from what essentially are fields under development and assessment.The estimates of oil resources for Russia that might underpin new discoveries in the future run as high as 55,800 million tonnes for oil and 13,100 million tonnes for condensate.The bottom line:Russia is not goi

86、ng to run out of oil for many decades and there is a tremendous potential for additional giant discoveries,but these are most likely in the Arctic offshore(See Figure 4).13 IEA WEO 2022,p.338 14 State Report on the usage of Russias mineral resources in 2020.Moscow,2021 6 The contents of this paper a

87、re the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Figure 4:Russias A+B1+C1 hydrocarbon liquids reserves by region and location of main fields(as of 1 January 2021)Source:Russias Ministry of Natural Resource

88、s Regarding the geographical distribution of Russias oil reserves,there are several oil basins,including the“older”oil provinces in the North Caucasus and in the South,very mature production in the Volga region that has been under development since the 1930-40s,the most prolific and mature Western S

89、iberia,under development since the 1960-70s,and the“newer”Timan-Pechora in the northwest of the country,Eastern Siberia and Far East oil provinces,where large-scale oil production mostly started in the 1990s-early 2000s.Western Siberia is the core region,containing most of the countrys oil reserves

90、and accounting for the lions share of Russias liquids output.Khanty-Mansiysk autonomous okrug or KhMAO is home to Russias largest oil fields,whereas Yamal-Nenetsk autonomous okrug or YaNAO is home to Russias super-giant gas fields,and,consequently,to the largest condensate reserves in the country.Th

91、e available Russian statistics on the rates of depletion of the oil reserves by region is organized by the federal district,not by oil basin,which complicates the analysis(See Figure 5).Figure 5:Degree of depletion of A+B1+C1 reserves by Russias federal districts,per cent(as of January 1,2021)Source

92、:State Report on the usage of Russias mineral resources in 2020 8883.568.655.142.140.330.43259.515.948.317.452.69.410.212.7North Caucasus FDSouthern FDVolga FDUrals FDNorth Western FDFar Eastern FDSiberian FDOffshoreCondensateOil 7 The contents of this paper are the authors sole responsibility.They

93、do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.The overall conclusion,however,is that the remaining reserves will allow Western Siberia(located within the administrative borders of the Urals Federal District)to hold its position as the core of

94、 the Russian oil industry for decades to come,especially if modern production techniques are used.The older oil provinces would be able to maintain production at lower levels for many years,and new contributions to growth are likely to come primarily from the current periphery of the Western Siberia

95、n oil province in the Krasnoyarsk region and from Eastern Siberia,from fields that are logistically challenging but are conventional from the upstream development perspective.Russia does not need to develop new high-cost oil from tight formations or from the Arctic offshore for the next twenty years

96、 unless future market conditions justify the need for Russia to grow its total oil output aggressively.Given the predominance of peak oil demand theories and the policies of moving away from fossil fuels as part of the global energy transition agenda,this is unlikely to be the case.1.3 Russias fisca

97、l policies:systematic upstream incentives at last The most important above-ground factor for the future of Russias oil output is taxation.Since the early 2000s,the Russian government has been using fiscal instruments that have relied on taxing gross revenues of the Russian oil producers the so-calle

98、d Mineral Extraction Resource Tax(MRET)and the export duty(export tax).From the Russian states perspective,the administrative simplicity of these levies represented a clear advantage.The potential downside was that these levies did not take costs into account and thus could be detrimental for high-c

99、ost projects.To account for oil price fluctuations and to tax windfall price revenues,sliding scale formulae for both MRET and export tax were introduced,linked to the price of Urals crude in international markets.When oil prices were high,state tax take would go up,to a maximum of about 90%,and whe

100、n oil prices were low,it would decline to shield producers and secure their minimum operating margins.So long as the legacy of Soviet era investments could be run down,this was a second-best but reasonably rational tradeoff for Russian planners to choose,and indeed the tax system has worked reasonab

101、ly well and survived the oil price crashes in 2009,2015 and 2020.Mineral royalties are,however,usually site specific.The philosophy of the Russian MRET when it was introduced in the early 2000s was of a“one-size-fits-all”tax,but over time the Russian tax administrators had to accept the reality:an o

102、il production tax should reflect the differences in project economics that are a function of site-specific mineral rents.The flip side of relying on a gross revenue type of taxation for Russian oil has been its negative impact on the economics of many Russian brownfields and also on new big-ticket p

103、rojects.From a project development perspective,the tax burden was all front-end loaded,and the distribution of risks favored the state over the producers.Russias fiscal authorities had been reluctant to embrace the idea of a full-scale transition to oil taxes that would be sensitive to costs or prof

104、its(a few early production sharing agreements(PSAs)are the exceptions that prove the general rule)for fear of tax base manipulation by oil companies.At the same time,ad hoc state interventions to address the problems of non-performing oil fields were increasing and numerous exemptions and rate reduc

105、tions to MRET had flourished in Russia during the 2010s.These were primarily addressing the situations at depleted fields,and also new fields in regions that were lacking developed infrastructure.As Russias production base was deteriorating and more new fields were brought into production,the share

106、of assets that had different MRET exemptions reached almost 60 percent by 2020.Moreover,Russias Ministry of Finance was concerned that by 2035 the output with reduced rates of MRET would reach 90 percent of the total.The so-called Additional Profits Tax(APT),a cash flow-based alternative to MRET for

107、 certain fields was introduced in Russia on January 1,2019,initially with limited application to a few pilot projects.In 2021 it was finally moved from the pilot stage to more general application.The income tax rate was set at 50%after deducting production and transportation costs and this should si

108、gnificantly reduce tax terms for mature fields,while taxes for new fields would be slightly improved as well15.15 https:/www.nalog.gov.ru/rn77/taxation/taxes/ndd 8 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for E

109、nergy Studies or any of its Members.In 2021 the collected APT reached$13.7 billion and accounted for 11 percent of all collected oil and gas federal taxes.In 2022 these increased to$24.7 billion and 15 percent.(See Figure 6)Figure 6:The changing composition of Russias oil and gas tax take Source:Aut

110、hor,data from Russias Ministry of Finance The Russian governments ability to be flexible and to recognize the need for providing incentives to the oil producers has been a vital element of oil production growth in Russia in the past decade.The good news from the perspective of the Russian industry i

111、s that a systemic solution in the form of APT has finally replaced a practice of ad hoc exemptions.This is a definite improvement from a long-term planning perspective for the Russian oil developers.1.4“New Oil”versus“Old Oil”In the past twenty years Russian oil companies have achieved very good res

112、ults in managing the decline rates of the so-called“old”oil in Russia and have been consistently adding new capacity.Russias oil industry is relatively mature.One indicator of this maturity is that most Russian liquid hydrocarbon production comes from“older”fields.For example,fields that have been i

113、n production for more than five years accounted for 95.7%of Russias total liquids production in 2022.Many of these fields passed their peak production phase some time ago and have been in a natural production decline for many years.It is noteworthy that in the Russian statistics new fields are defin

114、ed as those put into operation fewer than five years earlier;the field composition changes with each passing year.The fluctuations in the category of“new”oil are often due to the departure of major fields from this category,as was the case in 2015 when the Vankors field production passed the five-ye

115、ar threshold and the output by other new fields was insufficient to compensate for the fallout.At the same time,the series since 2000 suggests that Russia has been able to develop and add to its overall portfolio of new fields very consistently suggesting sustainable investments in new productive ca

116、pacity(see Figure 7).-5005010015020025020182019202020212022Billion US$Additional Profits Tax(APT)Export dutyMineral Resource Extraction Tax(MRET)Negative excise tax(subsidy)on sales of refined products 9 The contents of this paper are the authors sole responsibility.They do not necessarily represent

117、 the views of the Oxford Institute for Energy Studies or any of its Members.Figure 7:“New”and“Old”Oil in Russias output Source:Author,data TEK Rossii magazine The bulk of activity,however,happens at mature fields.At the end of 2022 there were 158.8 thousand producing wells in Russia.After idling lot

118、s of wells in 2020 as part of the cuts agreed with OPEC,Russia brought most of them back into production and also developed new ones at a high rate in 2021 and 2022.It is universally accepted that drilling volumes represent one of the most reliable among the readily available indicators of the near-

119、term future production.The data for 2022 demonstrates a significant increase in development drilling that resulted in production growth that year(See Table 1).Table 1:Main indicators of productive capacity and drilling Source:Author,data from TEK Rossii magazine Moreover,the development drilling vol

120、umes were robust throughout 2022(See Figure 8)Figure 8:Development drilling in Russia in 2022 by month,thousand metres Source:Author,data from TEK Rossii magazine 01002003004005006002000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022Million tonnesFlowing old oilNew oil(fields put intooperati

121、on in the previous 5years)Total liquids production201320142015 2016201720182019202020212022(thousand meters)Total drilling volumes 21,65620,77222,88325,59428,63628,70228,49727,98426,97429,189Development wells20,83919,77822,06524,68027,64827,63427,35627,00526,13628,386Exploration wells817994818914988

122、1,0681,141979838803(units)Total well stock at end of year165,423168,315170,163173,073175,335177,459180,449178,712183,168186,443Producing143,835146,282148,658151,470150,770155,046154,965136,492155,590158,785Idle21,58822,03321,50521,60324,56522,41325,48442,22027,37827,658New6,4546,0656,2617,1416,2517,

123、9467,8616,9577,3657,8661500170019002100230025002700123456789101112Thousand metersMonth5-year range20212022 10 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.The data on the co

124、mposition of producing wells by method of extraction in Russia in 2021(the latest year for which this statistic is available)demonstrates that most of the methods are very traditional.The bulk of extraction in Western Siberia involves water flooding and extensive use of submersible electric pumps.Th

125、e Volga region producers typically use sucker rod pumps.The related equipment is produced in Russia(see Table 2).Table 2:Composition of the producing oil wells of main Russian companies by method of extraction in 2021 Source:Author,data from TEK Rossii magazine 1.5 Western sanctions and technologica

126、l dependency of the Russian oil sector The role of Western technology in Russias oil sector must be put in proper context.Western service companies have been instrumental in rationalizing field modelling and drilling practices in Russia.But they have always worked in close partnership with the Russi

127、an oil companies that have developed their own fit-for-purpose solutions and talent.Many Russian majors have relied on in-house service teams,using the Russian affiliates of the Western service companies only for the most challenging tasks.The“miracle”in Western Siberian oil fields in the early 2000

128、s is a case in point.The collapse of the Soviet Union and its command economy had a corollary in dwindling oil output at the Russian oil fields in the first half of the 1990s,followed by a stabilization at circa 60%of the 1990 level in the second half of the decade.Lack of investment during this per

129、iod resulted in high natural decline rates at the fields not being offset by enhanced recovery measures or new field development.By the end of the 1990s Western Siberia seemed to be written off as a future growth prospect.But instead,what happened in the Russian oil patch(primarily in Western Siberi

130、a)during the five years after 1999 was nothing short of a miracle,as national output increased from 6.2 mmbpd in 1999 to 9.2 mmbpd in 2004,up 50%for the period.Thane Gustafson,the famous scholar and historian of the Soviet and Russian oil and gas industries,attributes“the miracle in the oil fields”t

131、o a set of innovative practices introduced by two Russian oil companies,Yukos and Sibneft,in the early 2000s,which were consequently adopted and widely applied by the rest of the Russian oil industry.These included a creative merger of sophisticated Western reservoir modelling with low-cost Russian

132、logging data,which allowed the correction of water flooding patterns and well spacing design for Western Siberian fields to increase well productivity greatly while keeping lifting costs at very low levels;much wider use of hydrofracturing(Yukos)and horizontal drilling(Sibneft)to raise well flow rat

133、es;and the“re-discovery”of prospective zones between principal reservoirs and horizons left unexplored as a result of distorted incentives during the Soviet time.The main result was the realization that the size of the remaining opportunity in West Siberia had been grossly underestimated because of

134、the Soviet legacy16.The much publicized“exodus”of the Western service companies from Russia in 2022 and its assumed negative effect on Russias oil industry performance appears not to have had as big an impact as 16 See Gustafson T.Wheel of Fortune:The Battle for Oil and Power in Russia.Cambridge,MA

135、2012 GusherSubmersible electric pumpsSucker rod pumpsGasliftOtherTotalRosneft170430706272915238435675Bashneft9345487320512200Lukoil2862032968722139328882Surgutneftegas4342304698106424525Gazprom-neft28373564438082Tatneft844691501319490Slavneft4531333178Rusneft61157019041825NNK1395886535496609Total ma

136、in companies296999949350525971899140466Percent of total2.1%71.2%25.0%0.4%1.4%100%Total Russia155590 11 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.expected.The role of(or r

137、ather unavailability of)Western technologies for Russias oil sector that many market watchers consider to be the crucial factor in determining the future of Russias oil needs some further analysis.The overall share of the Western service companies in 2022 was about 20 per cent,with Schlumberger acco

138、unting for 8 per cent,according to“Yakov and Partners”research17.Some Western service providers like Halliburton decided to leave Russia in 2022,selling its business to Russia-based management teams made of their former employees18,but some,like Schlumberger(re-branded SLB and re-registered in Russi

139、a)stayed and expanded their business and revenues19.Presently,Russias service industry,which has been learning from the best global practices for thirty years,is fully capable of continuing to be successful in conventional oil developments and delivering oil production growth from these assets.A com

140、prehensive review of the situation with Russian oil services performed by Bloomberg in 2023 concluded that the sector has been largely immune to the Western sanctions20.1.6 Russian oil production by company The past few years have been very dramatic and challenging for Russias oil producers.First,th

141、e global economic slowdown as a result of the COVID-19 pandemic caused an unprecedented drop in global oil demand in 2020.For the first time since Russia joined OPEC+it had to introduce drastic production cuts to help stabilize and re-balance the global oil market21.Russia has never been a swing pro

142、ducer,but the unprecedented crisis called for unprecedented responses,and in the spring of 2020 Russia committed to reduce its crude oil output by almost 2 mmbpd.Implementing an abrupt production cut at this scale and within a very short timeframe represented a tremendous technical challenge for the

143、 Russian oil companies as they were confronted with the task of delivering 10-20 percent cuts from their upstream portfolios while having to solve a complex problem of optimizing output and trading it off against the risks of permanent loss of production22.The fact that Russian oil companies managed

144、 to implement the cut and then to resume increasing production in 2021 and 2022 suggests that very little if any productive capacity has been permanently lost after the wells were shut down and consequently re-started.The sectoral statistics for the“swing period”of 2019-2022 are extremely important

145、for understanding how the Russian oil industry managed to cope with the challenge.In recent years the state-owned companies have expanded their footprint in Russia.This is especially the case of Rosneft,which in the past decade has acquired Yukos,TNK-BP,and,most recently,Bashneft.Another state-owned

146、 company,Gazpromneft,has taken over the Sibneft assets and is developing a portfolio of liquids assets on behalf of its parent company Gazprom.The production data by company reported by Russias Ministry of Energy,however,has kept the notions of the previous era,providing separate output data for Bas

147、hneft and Slavneft(the latter is jointly managed by Gazpromneft and Rosneft),and also showing oil production by PSA projects(Kharyaga,Sakhalin-1 and Sakhalin-2)as a separate category.Gazprom and Novatek produce significant amounts of gas condensate.The“other”category consists of about a hundred inde

148、pendents with some companies(for example Tomskneft)and joint ventures(such as Arktikgaz,Salym Petroleum Development)producing very substantial output.(See Table 3).17 https:/www.forbes.ru/biznes/485635-eksperty-ocenili-zavisimost-dobyci-nefti-ot-zapadnyh-nefteservisnyh-kompanij 18 https:/ https:/ ht

149、tps:/ 21 See also Yermakov V.Changing Landscapes:New Strategies for the Big Three Oil Producers.Journal of International Affairs,April 2021.https:/jia.sipa.columbia.edu/online-articles/changing-landscapes-new-strategies-big-three-oil-producers 22 See Yermakov V.and Henderson J.The New Deal for Oil M

150、arkets:implications for Russias short-term tactics and long-term strategy.OIES Insight,Oxford,2020 https:/www.oxfordenergy.org/publications/the-new-deal-for-oil-markets-implications-for-russias-short-term-tactics-and-long-term-strategy/12 The contents of this paper are the authors sole responsibilit

151、y.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Table 3:Russian oil and condensate production by company(million tonnes)Source:Author,data from TEK Rossii magazine The first thing to note is that there is a slight discrepancy in the data

152、 reported by the Ministry of Energy for 2022,as the sum of the company contributions(535.2 million tonnes)exceeds the reported national total(534 million tonnes).The most likely explanation is that the 2022 production data by company was preliminary,and the final national production number has taken

153、 account of losses.This means that the reported production numbers by company might be corrected in the future,but the correction is going to be minor and not material.Another observation is that the 2022 national output was negatively affected by lower production by PSA operators,which declined 42

154、per cent or by 7.1 million tonnes year-on-year.The main reason for the drop was the withdrawal of ExxonMobil as the project operator from Sakhalin-1 in March 2022 causing a halt of oil production for many months.In October 2022 the Russian government established a Russian company,managed by Rosneft

155、subsidiary Sakhalinmorneftegaz-shelf,that will own investors rights in Sakhalin-123.The new operator started to restore output and managed to bring it back to about 70 per cent of capacity at the beginning of January 2023.It was reported that the oil output at Sakhalin-1 might be fully restored by t

156、he end of February 202324.As a result of Exxons exodus from Russia,Sakhalin-1 oil output in 2022 was only 4.6 million tonnes,59.2 percent lower year-on-year.Assuming a normal operation of the project,Russias national output could have been higher by about 5 million tonnes in 2022 suggesting an even

157、stronger bounce back.Rosnefts report on the operating results in 2022 noted that the companys total hydrocarbons output in that year was 5.1 mmbpd,but stood at 5.5 mmbpd at year end,most of the difference due to the recovery of output at Sakhalin-125.The return to normality at Sakhalin-1 in 2023 mea

158、ns that 2023 national production will receive a booster shot from the reinvigorated Sakhalin-1 output.Robust growth in Gazproms liquids production confirms the continuation of the recent trend in rising gas condensate output.Novateks liquids output declined,year-on-year,and even more so compared to

159、2019.As mentioned earlier,probably the most interesting question to address is what the available statistics tell us about how Russian companies managed to manage the“swing”in production during 2019-2022.Liquids output by vertically integrated Russian oil companies as a group(VICs)was up 3.3 per cen

160、t year-on-year in 2022 and 4.9 per cent below the level of 2019,the year when Russias oil production 23 https:/ https:/ https:/www.rosneft.ru/press/releases/item/214041/201520162017201820192020202120222020/19,percent change2022/21,percent change2022/19,percent changeLUKoil85.783.081.782.182.173.475.

161、780.0-10.6%5.6%-2.6%Rosneft188.8189.7188.2194.2195.1180.0168.9163.7-7.8%-3.1%-16.1%Gazprom-neft34.337.839.539.539.238.938.640.2-0.6%4.2%2.6%Surgutneftegaz61.661.860.960.960.854.855.559.6-9.9%7.4%-1.9%Tatneft27.228.728.929.529.826.027.829.1-12.7%4.6%-2.3%Bashneft19.921.420.618.918.712.913.818.1-30.7%

162、31.2%-3.3%Slavneft15.515.014.313.814.09.79.812.0-30.5%22.0%-14.0%Rusneft7.47.07.07.17.16.46.76.9-10.1%3.4%-2.9%NNK2.32.32.12.02.12.016.017.1-2.7%6.6%730.9%Total VICs442.7446.7443.4448.1448.8404.1412.8426.6-9.9%3.3%-4.9%Gazprom17.117.417.417.418.318.920.624.33.3%17.6%32.4%Novatek4.78.07.78.38.48.18.1

163、7.7-4.3%-4.1%-8.4%Other54.659.461.763.566.263.166.166.8-4.7%1.0%0.8%PSAs15.016.016.518.719.418.616.99.8-4.3%-41.8%-49.4%Total Russia534.1547.5546.7555.9561.1512.8524.5535.2-8.6%2.0%-4.6%13 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of t

164、he Oxford Institute for Energy Studies or any of its Members.hit an all-time record of 560 million tonnes.This is a surprisingly good result for the industry because when Russian oil companies were utilizing full productive capacities,from 5 to 7 per cent of the production was represented by margina

165、l wells,operating on the brink of financial profitability.The reasons for keeping these wells operational were license obligations and employment issues rather than economic rationale.To the extent that companies were able to rationalize their portfolios during the crisis by retiring the most margin

166、al assets,the fact that oil production in 2022 was 5 per cent less than in 2019 might be interpreted as a sign of a“leaner”and better positioned industry that has bounced back to the optimum and sustainable level of output.Another important insight from the dataset in Table 3 is that at first sight

167、the production cut in 2020 was not on a pro rata basis among the Russian VICs.The year-on-year reduction in output in 2020 for VICs as a group was 9.9 per cent.Surgutneftegaz was the only company among the Russian VICs that exactly matched its reduction in output with that number.Lukoil,Tatneft,and

168、Rusneft reduced their output slightly more than average;Bashneft and Slavneft much more than average,by over 30 per cent;Rosneft by 7.8 per cent,and Gazprom-neft by only 0.6 per cent.However,if we use the wider definition of Rosneft that recognizes its ownership of Bashneft and 50 per cent interest

169、in Slavneft,the production cut for the company in 2020 was 10.4 per cent.Gazpromneft was a special case indeed,apparently due to the higher share of condensate in its liquids output.(The agreement between OPEC+explicitly excluded condensate from the production cut).One should also use caution interp

170、reting the apparent deterioration of Rosneft output on the basis of Table 3 data.In 2021 Rosnefts output did not stabilize as was the case with other VICs but continued to fall.At the same time,we see a tremendous increase in production by NNK.The explanation is simple:that year Rosneft sold a colle

171、ction of its assets(mostly mature and with marginal economics)in the south of Russia,in the Volga region,in Timan-Pechora and in Western Siberia with a combined output of about 12 million tonnes to NNK as part of a portfolio optimization strategy.The effort apparently paid off since the average well

172、 flow rates for Rosneft improved and were the highest among the VICs in 2021(See Table 4).Table 4:Well productivity by company(crude oil),thousand tonnes per day Source:Author,data from TEK Rossii magazine After adjusting for non-organic factors,Rosnefts remaining portfolio did not fare too badly.Ho

173、wever,Rosneft without Bashneft and 50%of Slavneft registered a production decline in 2022 year-on-year while most of the other Russian producers were demonstrating growth.Adding back production from Bashneft and from the interest in Slavneft to the core Rosneft production,however,is just enough to m

174、ove gross Rosneft output into positive growth territory in 2022 with a 0.1 percent year-on-year increase.1.7 Russias oil production by region Unfortunately,the latest available aggregate national statistics on the split between crude oil and condensate output by region from the Ministry of Natural R

175、esources is available only for 2019.On the other hand,these historic statistics can still be very useful since 2019 was the year of the highest liquids production in Russia to date.Clearly,the lions share of Russian condensate is produced in YaNAO,which is home to Russias super-giant gas fields(See

176、Figure 9).201920202021LUKoil8.28.68.2Rosneft12.612.513.5Gazprom-neft14.314.513.1Surgutneftegaz7.36.37.6Tatneft4.55.04.1Bashneft3.93.84.5Slavneft10.312.812.2Rusneft9.910.710.8NNK7.87.56.6 14 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of

177、the Oxford Institute for Energy Studies or any of its Members.Figure 9:Russian crude oil and gas condensate production by region in 2019 Source:Russias Ministry of Natural Resources The combined regional data series for liquids production is currently available through 2022.Figure 10 demonstrates th

178、e incremental change in Russias oil and condensate output by region over the decade ending in 2022.Figure 10.Incremental change in reported Russias regional oil and condensate production,2022 over 2013(million tonnes)Source:Author,data from TEK Rossii magazine-8-6-4-202468101214TotalNorth-Western Fe

179、deral DistrictSouthern Federal DistrictNorth Caucasus Federal DistrictVolga Federal DistrictUrals Federal District(KhMAO,YaNAO,Tyumen)Siberian Federal District(Novosibirsk,Omsk,Tomsk regions)Siberian Federal District(Irkutsk region andKrasnoyarkiy krai)Far Eastern Federal District(Sakha republic and

180、Sakhalin)Million tonnes 15 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.It appears that in the past decade Russian oil companies have achieved good results in managing the d

181、ecline rates of the so-called“old”oil in Russia,specifically in the Volga region and in Western Siberia,and secondly,that during the past decade most of the “new”oil additions to output were not from high-cost offshore or tight oil formations but from onshore fields on the northern and north-eastern

182、 periphery of the developed oil provinces in Western Siberia.These projects are logistically more challenging and more expensive but otherwise are conventional and do not require state-of-the-art Western technological solutions.Clearly,the modest national production increase from 2013 to 2022 happen

183、ed against the backdrop of declining output in the Novosibirsk,Omsk and Tomsk regions,stable production in Western Siberia and growing output in Krasnoyarskiy krai and Russias Far East.Finally,Table 5 provides an illustration of the“swing”period of 2019-2022 with regards to regional production.Table

184、 5:Russian liquids output by region Source:Author,data from TEK Rossii magazine Thus,while a sharp decline of Russias oil output by 2 mmbpd cannot be ruled out,an alternative scenario is also plausible:a managed output reduction by 0.5-0.7 mmbpd and stabilization in the near term with subsequent ste

185、ady growth in the medium term once new giant onshore projects in Russias northeast take off.2019202020212022%changeTotal561.1512.8524.5535.12.0%European Russia165.7148.3153.6160.34.4%North-Western Federal District31.227.628.931.96810.6%Nenetsk Autonomous Okrug16.014.115.117.314.4%Komi Republic14.613

186、.013.314.37.7%Other0.60.50.50.4-25.6%Southern Federal District14.613.612.612.4-2.0%North Caucasus Federal District1.00.90.90.8-16.2%Volga Federal District118.9106.2111.2115.23.6%Bashkortostan16.111.111.914.320.4%Orenburg region21.720.721.320.739-2.6%Perm region16.115.115.616.5946.4%Samara region16.1

187、15.515.915.55-2.2%Tatarstan36.732.734.535.9234.1%Udmurtiya10.59.59.810.082.9%Other1.71.62.22.0-7.8%Western Siberia319.6292.4300.4310.33.3%Urals Federal District310.1285.3293.0303.23.5%KhMAO236.1210.8215.8223.13.4%YaNAO61.563.366.670.6116.0%Tuymen region12.511.210.79.539-10.9%Siberian Federal Distric

188、t9.57.17.47.1-4.4%Tomsk region9.16.97.26.946-3.5%Other0.40.20.20.1-34.0%Eastern Siberia and Far East76.072.170.564.5-8.5%Siberian Federal District41.837.536.936.3-1.5%Irkutsk region17.917.317.217.0-1.3%Krasnoyarkiy krai23.920.219.819.4-2.2%Far Eastern Federal District34.134.533.528.2-15.9%Sakha repu

189、blic14.416.217.519.1249.3%Sakhalin19.718.3169.049-43.4%16 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.1.8 Vostok Oil:Russias flagship new oil project The key area of future

190、 oil production growth for Russia is in the north of Krasnoyarsk kray,where Rosneft has been active for many years.The Vostok Oil project,promoted by Rosneft,is based on the production potential of 13 oil and gas fields on the Taimyr peninsula and in the northern part of Krasnoyarsk kray,some of the

191、m already producing,like the fields in the Vankor cluster,and some being new developments in the Payakha cluster(See Figure 11).Figure 11:Vostok Oil Project Source:Rosneft According to Rosneft,the Vostok Oil project represents a massive undertaking that is going to lead to significant job creation(t

192、he total number of people involved in the work on the project is estimated at 400,000,including 130,000 Rosneft personnel and contractors)and a significant increase in Russias GDP as a result of both direct and indirect economic effects.This is a flagship project for Rosneft with confirmed oil reser

193、ves of 6 billion tonnes(c.45 billion barrels)and expected combined hydrocarbons production from the project of 50 million tonnes(c.1 million barrels per day)by the mid-2020s during phase one based on the Vankor and Payakha clusters and at up to 100 million tonnes(2 million barrels per day)during pha

194、se two,based on East-Taymyr fields development which is planned by the early 2030s26.26 https:/www.rosneft.ru/upload/site1/document_publication/Rosneft_Gazeta2020_RUS.pdf 17 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Insti

195、tute for Energy Studies or any of its Members.Crude from the Vostok Oil fields has a very low sulphur content of 0.01-0.04%,making it more valuable and more environmentally friendly due to lower SOx emissions when it is refined27.To protect the value of this crude quality,which should command a pric

196、e premium in the market28,Rosneft intends to build a dedicated 770-km pipeline from Vankor to a new seaport in Sever(North)near the existing port of Dixon.Rosneft has pledged to deliver up to 30 million tonnes of oil to the Northern Sea Route by 2024,and much more in the longer term29.The Vostok Oil

197、 project could become a game-changer for the Northern Sea Route,ensuring extremely high levels of shipments in the 2030s and beyond.However,the project also involves construction of new ships on a grand scale.In total,50 vessels of different types,including oil tankers,LNG carriers as well as variou

198、s support ships are expected to work on the project.The orders for 10 Arc-7 ice-class tankers have been placed at the Zvezda shipyard.This could cause delays as sanctions could undermine the ability of Russia to import key equipment from external sources,as has already been seen with the issues surr

199、ounding the construction of Arc-7 LNG tankers for Novatek.30 Furthermore,shipping oil through the Northern Sea Route involves significant environmental risks,especially in the event of an oil spill,combined with the costs of operating in a very harsh northern climate.As such,although Rosneft has maj

200、or ambitions for this project,some caution is required when forecasting future output.1.9 Estimates of Russian oil output to 2030 Taking all the above factors into consideration,it would appear that Russias oil industry performance in 2022 and into 2023 has exceeded some earlier pessimistic expectat

201、ions.In January 2023 Rosstat reported combined crude oil and condensate output of 46 million tonnes,or just below 11 mmbpd.In February 2024 daily production edged up 2 percent over January,to 11.05 mmbpd31 and following the cuts agreed with OPEC+in March Russia has maintained stable output at around

202、 10.5mmbpd(See Figure 12).Figure 12:Monthly output of Russian liquid hydrocarbons Source:Author,data from IEA,OPEC 27 https:/ https:/ 29 Minutes of the meeting of Russias President Vladimir Putin with Rosnefts CEO Igor Sechin on 25 November 2020 http:/kremlin.ru/events/president/news/64493 30 https:

203、/ https:/tass.ru/ekonomika/17205695 and https:/tass.ru/ekonomika/17260773.Note that OPEC revised Russias February output and used the 9.949 mmbpd figure for February 2023 on the basis of secondary sources,apparently accounting for condensate that is excluded from Russias OPEC+quota.96009800100001020

204、01040010600108001100011200mmbpd 18 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.The data is taken from the IEA and OPEC estimates because the Russian government decided to s

205、uspend releasing oil and gas statistics starting from March 2023 and Q1 2023 until April 1,202432.Regarding the available Russian numbers,crude oil production amounted to 9.8 mmbpd and condensate to about 1.1 mmbpd in the first two months of 2023.Russia then announced a 500 kbpd voluntary output cut

206、 for crude oil from March 202333,to be measured against the output in February 2023,and overall production fell to just above 10.5 mmbpd in March,as confirmed by Deputy Prime Minister Novak.34 However,this is clearly just a short-term measure to help balance the oil market and to keep prices higher.

207、Over the long-term,the production potential for the Russian oil sector remains driven by the fundamentals of its oil asset base,the availability of funds for investment,management of the fiscal system and the availability of appropriate technology,all of which have been discussed above.Unfortunately

208、,a reduction in the availability of data since the start of the war in Ukraine means that the longer-term outlook for Russian oil production is extremely uncertain.The IEAs World Energy Outlook 2022 postulates a 2 mmbpd drop for Russias oil production by 2030 in their STEPs scenario.There is no supp

209、orting analysis for this assumption in WEO 2022 other than a short paragraph that states:“Russia has been under sanctions since 2014 but the financial and technology restrictions bite much harder now.As access to technologies,oil field service expertise,equipment and assets is removed,Russia struggl

210、es to maintain production in existing fields and to develop large new fields in the Arctic,tight oil,and other offshore areas”35.However,as has been discussed earlier,this would seem to ignore some important considerations.Firstly,that in the past twenty years Russian oil companies have achieved ver

211、y good results in managing the decline rates of so-called“old”oil in Russia,and secondly,that during the past decade most“new”oil additions to output were not from offshore or from tight oil formations but from onshore fields on the northern and north-eastern periphery of the developed oil provinces

212、 in Western Siberia.Russia may be running out of low-cost oil,but it will be many years until it would have to tap into high-cost oil.Presently,the cost structure for the bulk of Russias oil output can be described as a combination of low lifting costs(with the rouble devaluation significantly reduc

213、ing upstream costs),moderate and price-sensitive tax take,and relatively high logistical costs,resulting in the overall level of costs that are in the middle of the global supply cost curve.So long as general economic conditions remain favourable,it is possible that Russian oil production will rebou

214、nd from the declines imposed in 2023 and could continue growing in the medium term,to 2030,as new fields that are ramping up and expected to come onstream more than compensate for the ongoing overall decline from production at existing fields.The important signpost to watch is the progress of Rosnef

215、ts Vostok Oil flagship project,the sheer size of which could ensure future liquids production growth in Russia even if the rate of decline in production from current fields increases.As a result,while a sharp decline of Russias oil output by 2 mmbpd cannot be ruled out,alternative scenarios should a

216、lso be considered,including a managed output reduction by 0.5-0.7 mmbpd and/or the possibility of stabilization in the near term with subsequent steady growth in the medium term once new giant onshore projects in Russias northeast take off the ground is entirely plausible.We have created three scena

217、rios,shown in Figure 13,based on expectations of the performance of the Russian oil sector.In the base case total liquids output averages 10.5mmbpd in 2023(implying oil production of around 9.2mmbpd)as compliance with the OPEC+agreement curtails output into 2024.Output then gradually increases back

218、to 10.6mmbpd by the end of the decade as the OPEC+agreement is unwound,but output fails to fully recover to previous levels above 11mmbpd due to decline in older fields not being matched by new developments.32 https:/ 33 https:/ https:/www.rbc.ru/business/21/03/2023/6419c07c9a7947949f0386ac?from=fro

219、m_main_12 35 IEA WEO 2022,p.338 19 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.In the high case,this rebound in production is enhanced by a successful development of Vostok

220、 Oil as well as by the addition of a number of smaller satellite fields in existing production regions.It also assumes a slightly slower decline in existing brownfield assets.Total production in 2030 reaches 11.5mmbpd,just marginally above the historic high seen in 2019.In contrast the low case envi

221、sages a continued decline in production from 2023 as the Vostok Oil development takes longer to advance due to financial and technical constraints and is unable to match a slightly faster decline in other brownfield assets.In this case liquids production falls to just over 9mmbpd by 2030,implying cr

222、ude oil output of around 8mmbpd.This is not quite as dramatic as the IEA forecast in WEO 2022 but does see a more than 2mmbpd fall in production compared with the highs seen in 2019.Figure 13:Russian oil production scenarios to 2030 Source:Yermakov(2023)36 1.10 Russian Oil Exports:Current Developmen

223、ts and Outlook While the future of Russian oil production is clearly an important issue,the critical question for the Russian economy and the wider global oil market is the level of Russian crude oil and oil product exports.Over the past decade Russia has exported 7.4-9.1 million barrels per day(mmb

224、pd)of oil combined(see Figure 14),with 5-6 mmbpd of this being crude oil and the remainder being oil products,in particular gasoline,diesel and fuel oil.The revenues generated from the sale of these hydrocarbons across the world have fluctuated with the oil price but have provided a very significant

225、 contribution both to Russian budget revenues and to the countrys GDP.36 Yermakov,V.,(2023),“Russian oil output increases in 2022 amid western sanctions:what next?”Oxford Energy Insight 132,Oxford Institute for Energy Studies 0.02.04.06.08.010.012.014.02019 2020 2021 2022 2023 2024 2025 2026 2027 20

226、28 2029 2030million barrels per dayBaseHighLowBaseHighLow 20 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Figure 14:Russia crude oil and oil product exports Source:BP Statis

227、tical Review of World Energy,Argus,IEA,OIES As a result,when Russia invaded Ukraine in February 2022 there was a political consensus among leaders of those countries opposed to Russias actions that this major source of revenues should be targeted with sanctions.However,it was also seen as important

228、to do this without undermining the global oil market.As can be seen from Figure 15 below,since the mid-2000s Russia has accounted for around 12-14%of all oil traded across borders in the global oil market,and its production of 10-11mmbpd accounts for approximately 10%of total global oil consumption.

229、Clearly,any sanctions which sought to completely remove this oil from sale on world markets would have caused a dramatic shock to the global oil supply-demand balance and would have led to a sharp increase in the oil price,almost certainly to historic highs.As a result,although there was enthusiasm

230、for action to reduce oil revenues that could fund Russias war efforts there was also concern about the wider impact on the global economy.Figure 15:Oil export trade flows by country,and Russias share Source:Energy Institute Statistical Review of World Energy,2023 010002000300040005000600070008000900

231、0100002014201520162017201820192020202120222023000bpdCrudeProducts0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%0100002000030000400005000060000700008000020002001200220032004200520062007200820092010201120122013201420152016201720182019202020212022Oil exports(kbpd)RussiaUSSaudiOther Middle EastOther N.America

232、Asia PacificAfricaRoWRussia%21 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.The importance of oil exports to Russias economy can be seen in Figure 16,which shows oil export

233、revenues in US$and also their share of the income for Russias Federal Budget.As can be seen,even in 2020,when the oil price collapsed during the COVID pandemic,oil exports provided around 30%of budget revenues,and this figure recovered to over 40%in 2022.It should also be noted that while the US$fig

234、ures provide a good reference point for international comparison,Russias budget is actually managed in roubles and therefore the RUR-US$exchange rate is of enormous relevance to the debate about the income which the Russian government has available for critical expenditures.With the rouble having we

235、akened significantly in 2023,reaching RUR102=US$1 in August before recovering to RUR94=US$1,37 the rouble revenues generated for US$sales of Russian oil have increased sharply.This has helped not only the Russian government but also the profitability of the Russian oil producing companies.Although t

236、he wider economic impacts are likely to be negative over time,in the short term at least this means that the Russian budget is more secure than the US$figures would suggest.Figure 16:Russias oil export revenues and their share of Russias Federal Budget Source:Authors,data from Russias Ministry of Fi

237、nance With this context in mind,countries and companies have taken various actions to limit Russias access to oil revenues while trying to avoid a sharp rise in global oil prices.Initially,in March 2022,US President Joe Biden announced that the US would embargo imports of Russian crude oil and oil p

238、roducts.38 However,while this was an important political statement it had no real physical impact as the US is largely oil independent and only imports small quantities of Russian oil products.More important was the decision of the EU to embargo the import of Russian crude and oil products.This was

239、adopted in June 2022 but took effect from December 5th(for crude oil)and February 5th 2023(for oil products)in order to allow time for the global market to adjust.39 The sanctions ban the import of seaborne Russia oil to EU ports,but pipeline imports via the Druzhba pipeline to countries such as Hun

240、gary,Slovakia and the Czech Republic are exempt,although re-sale to other EU countries is banned.Previously 37 Financial Times,15 Aug 2023,“Russia raises interest rates to halt collapse of rouble”38 White House Press Release,8 March 2022 at https:/www.whitehouse.gov/briefing-room/statements-releases

241、/2022/03/08/fact-sheet-united-states-bans-imports-of-russian-oil-liquefied-natural-gas-and-coal/39 Cahill,B.,8 June 2022,“European Union imposes partial ban on Russian oil”0102030405060050100150200250200020022004200620082010201220142016201820202022PercentBillion US$Oil&gas revenues of Russias Federa

242、l Budget%of total,right-hand scale 22 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Russia had exported around 3.1mmbpd of crude oil to Europe(0.75mmbpd of that via pipeline)

243、plus around 1.3mmbpd of oil products,and the embargo implied a 90%reduction in oil imports to the EU from that source.The EU and the UK also imposed a ban on the provision of shipping insurance for tankers moving Russian crude in a further attempt to interrupt flows.Although the EU embargo only came

244、 into effect from December 2022,many producing companies,traders,shipping companies and other oil industry players started to self-sanction months in advance in preparation.40 However,although this had some impact,in reality it just accelerated the Russian search for alternative markets for its oil

245、and oil products.The graphs in Figure 17 show this process in action.Pipeline crude exports remain stable until the start of 2023,when Germany and Poland cease their purchases,while seaborne exports remain remarkably flat in total,although the mix of destinations changes.The EU-27 is clearly dominan

246、t as a destination for Russian crude from 2019 through 2021,but is then replaced by China,Turkey and,most significantly,by India as tankers are re-routed towards the East.Figure 17:Russia crude oil exports by destination via seaborne and pipeline routes Seaborne Exports(mmbpd)Pipeline exports(mmbpd)

247、Source:Kpler data The story for product exports is slightly more diverse,as shown in Figure 18,but again the main decline is in the EU-27,as well as the US,with the replacement markets being China,Turkey,India(albeit to a lesser extent than for crude oil)and other Asian,Middle Eastern and Latin Amer

248、ican countries.Once again,though,the overall level of exports hardly moves,demonstrating that the sanctions and embargoes failed to reduce the volume of Russian oil exports in a significant way.40 Reuters,3 March 2022,“Oil self-sanctioning is unstable weapon for West”012345Jan-19Jan-20Jan-21Jan-22Ja

249、n-23MB/DChinaIndiaTurkeyEU-27Rest0.00.20.40.60.81.01.21.41.61.82.0Jan-19Jan-20Jan-21Jan-22Jan-23MB/DEU(Druzhba)China(ESPO)China(via Kazakhstan)23 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or a

250、ny of its Members.Figure 18:Russian product exports by tanker by destination Source:Kpler data To an extent this outcome did not represent a failure of western sanctions policy because it was always the intention to avoid disruption to the global oil market.However,in order to undermine revenues arr

251、iving in Russia that could be used to finance the war effort it therefore became necessary to limit the price paid for Russian oil.The G7 group of countries,plus a coalition of countries such as Australia and EU member states,resolved to address this issue by imposing a price cap of$60 per barrel on

252、 Russian crude oil and$100 on Russian oil products based on the FOB price in the Baltic or Black Seas.The cap was introduced to coincide with the EU embargoes,namely 5th December 2022 for crude and 5th February 2023 for oil products.41 As can be seen in Figure 19,the price of the Russian Urals blend

253、 that is assessed on an FOB basis at Primorsk in the Baltic Sea was below the price cap when it was introduced in December 2022.This was because a large differential had opened up between the price quotations of Urals by Argus and the globally traded Brent benchmark price,due to the method of calcul

254、ating the cost of freight and insurance in the absence of actual sales of Urals crude in Northwestern Europe.As can be seen from Figure 19,in late 2022 and early 2023 this differential between Brent and Urals quotations reached as much as$40 per barrel due to the extremely high risk premia assumed i

255、n the calculation,although it has now fallen back to around$10-15 per barrel.Clearly,Russia was forced to offer price discounts in order to find new buyers of its oil,but it seems unlikely that the actual price discount that the buyers of the Russian crude could obtain was as high as$40/bbl.Neverthe

256、less,while the information about the price of Urals in the actual sales that had migrated to Asia was not readily available,the synthetic calculation of the Urals price by Argus at a level below the price cap allowed for the continued purchase of Russian crude.This is because anyone involved in the

257、trade of Russian oil is mandated to ensure that the hydrocarbons have been sold at below$60 per barrel,and as long as they have been assured that this is the case then they can still be involved in the trading and delivery process.Once the price assessment is above$60 per barrel,anyone involved with

258、 the purchase,transport,insurance or financing of the trade in Russian crude can only continue to facilitate delivery to ports in countries without a specific embargo on physical volumes(for example trade to China but not to the EU-27)and can make a significant margin on the provision of the service

259、.41 Ribakova,E.,Hilgenstock,B.,Guntram,W.(July 2023),“The oil price cap and embargo on Russia work imperfectly,and defects must be fixed”,Bruegel 0.00.51.01.52.02.53.03.5Jan-19Jan-20Jan-21Jan-22Jan-23Jan-24MB/DChinaIndiaTurkeyUAESE AsiaLatin AmericaN AfricaEU-27Rest 24 The contents of this paper are

260、 the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Figure 19:Price of Russian crude oil blends and discount to Brent Source:Platts data As noted above,the biggest beneficiary of this new trade at discounted pr

261、ices has been India.As the countrys foreign minister noted in November 2022 in reference to the increased purchase of oil from Russia,“Russia has been a steady and time-tested partnerif it works to my advantage,I would like to keep that going.”42 As can be seen in Figure 20,this strategy has led to

262、a marked shift in Indias oil import geography,with Russia accounting for as much as 40%of total imports in some months in 2023,while other suppliers such as the UAE,Iraq and Saudi Arabia have seen their shares decline.According to some commentators India may now have reached a limit of its exposure

263、to Russian crude,43 but there is no immediate sign of a return to previous low levels.42 Reuters,8 Nov 2022,“India says Russia oil deals advantageous as Yellen visits Delhi”43 CNBC,17 July 2023,“”Indias reliance on Russian oil may be approaching a limit”at https:/ -20.000.0020.0040.0060.0080.00100.0

264、0120.00140.0004 Jan202104Mar202104May202104 Jul202104Sep202104Nov202104 Jan202204Mar202204May202204 Jul202204Sep202204Nov202204 Jan202304Mar202304May202304 Jul202304Sep202304Nov2023US$/bblBrentUralsDiffPrice Cap 25 The contents of this paper are the authors sole responsibility.They do not necessaril

265、y represent the views of the Oxford Institute for Energy Studies or any of its Members.Figure 20:Indian oil imports by source(2021-2023)Source:Platts data While the obvious logic for increased Indian purchases of Russian oil is shown in Figure 19 by the large discount or Urals Blend to Brent,it need

266、s to be remembered that this is based on the FOB price in the Baltic Sea.The discount has not only offered cheap oil to India but has also opened a huge margin to be made in the provision of transport and ancillary services to deliver the oil from northern Europe to Southern Asia.Figure 21 compares

267、the delivered price of Russian oil to the west coast of India with the FOB price at Primorsk during 2023 and shows that although the differential has narrowed significantly over the last eight months the margin has ranged from a high of around$23 per barrel to the current$8 per barrel.This has tempt

268、ed traders and tanker owners to get involved with the trade in Russian crude not only to India but also to other Asian destinations where similar margins have been on offer and has helped to facilitate the liquidity of the global oil market.This has underpinned the decline in the oil price from its

269、high of over$122 per barrel in May 2022 to the current level of around$84 per barrel.44 44 Price from Bloomberg as of 5th October 2023 01000200030004000500060007000000bpdRussiaIraqSaudiUAEUSANigeriaOther 26 The contents of this paper are the authors sole responsibility.They do not necessarily repres

270、ent the views of the Oxford Institute for Energy Studies or any of its Members.Figure 21:Price of Russian oil delivered to India compared to Urals FOB Primorsk Source:Platts data The flow of Russian oil has not only been made possible by price discounts and trading opportunities though.A number of c

271、ompanies have allegedly been involved in sanctions-busting activities,with the development of a“shadow”tanker fleet registered in non-sanctioning countries and insured by a variety of obscure financial entities the most well-reported.45 Other options,such as the re-labelling of cargoes,trans-shipmen

272、t and re-sale of oil,refining of Russian oil and re-delivery as oil products and the use of tankers that leave port without a destination have all been highlighted as means of avoiding embargoes and profiting from the large margins on offer.46 Although many countries are now clamping down on the use

273、 of ageing and unregistered vessels,with a number now being refused entry to ports on safety grounds,47 it would still appear that even some countries that continue to sanction Russia are prepared to see its crude and oil products retain a place in the world oil market in order to maintain the stabi

274、lity of the oil price.48 One final point is worth noting on the price for Russian crude exports.The price cap only applies to oil traded out of European Russia,primarily in the Baltic Sea,and so it does not affect the price of Russian oil exported from the east of the country at Kozmino,where oil fr

275、om the ESPO(East Siberia Pacific Ocean)pipeline is delivered for onward delivery via tanker to Asian markets.Figure 22 shows the spread between Urals Blend and the ESPO Blend sold into Asia,and again the differential has closed over the course of 2023 from a high of over$30 at the start of the year

276、to around$6.50 in August 2023.This narrowing of discounts highlights the fact that the price of Urals Blend has risen sharply over the past few months and is now trading above the G7$60 per barrel cap.This has caused potential issues for banks,oil traders,insurance companies and tanker owners who ar

277、e understandably nervous about angering the US authorities by breaking the price cap rules.However,in another demonstration of the double-edged nature of the sanctions,the US government has indicated that it will be applying“soft touch”enforcement of the rules via conversations with service provider

278、s rather than harsh implementation of the sanctions,in order to avoid“creating ripples in a market that could send rising global oil prices higher.”49 45 Energy Intelligence,4 Aug 2023,“Russias shadow fleet retains access to G&insurance”46 Bloomberg,11 April 2023,“Russias murky measures keep its oil

279、 flowing despite sanctions”47 Bloomberg,1 July 2023,“Russias rusty oil tanker fleet sets sail with newer ships”48 Wall Street Journal,23 Feb 2023,“Russian oil is flowing,and that is what the West wants”49 Reuters,27 July 2023,“As Russian oil crosses G7s price cap,US eyes soft enforcement”01020304050

280、60708090US$/bblIndia PremiumUrals DAP West Coast IndiaUrals FOB Primorsk 27 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Figure 22:Urals and ESPO oil prices and differential

281、 1.11 The Outlook Given all the issues discussed above,and in particular the balance which countries sanctioning Russia are trying to make between limiting Russias oil revenues while keeping its oil on the global market to avoid any sharp price spikes,it would seem reasonable to assume that the volu

282、mes of oil and oil products leaving Russia will remain relatively stable for the foreseeable future.Some gradual decline might be expected in the medium term if and when oil production goes into gradual decline,as discussed earlier in this paper,and over the longer term the impact of the energy tran

283、sition on global oil demand could also see Russian exports decline as the economics deteriorate.In the short-term though(to 2030)it would seem likely that exports will remain around current levels.The one caveat to this outlook in the short term is the impact of agreements made with the OPEC+group t

284、o constrain production,which could have a knock-on impact on exports.The agreement to cut production by 500 kbpd in March and to reduce exports of crude oil and oil products by a similar amount from September has caused exports to slow,and indeed on 21st September Russia banned all gasoline and dies

285、el exports in order to re-balance its domestic market and keep prices down.50 However,this is likely to be a short-term phenomenon and should not change the longer-term outlook for overall exports.Control of Russian revenues will therefore come via the price cap,which has been reasonably effective t

286、o date but where cracks already seem to be appearing.As seen in figure 19,Urals Blend has been trading above$60,and although the US has stepped in to caution market participants not to deal in Russian oil above this level,it would seem reasonable to surmise that,as with many sanctions programmes,enf

287、orcement will weaken over time.In addition,it would also appear that Russian companies and other“shadow”organisations are making money in the margin between the capped FOB price at Primorsk and the delivered price in non-sanctioning countries such as India.In addition,Russian oil not delivered out o

288、f non-European regions(especially in the East)can avoid the cap and any embargoes altogether.As such,while it would seem reasonable to assume a continued discount for Russian crude and product exports over the rest of this decade,it is likely that the discount will narrow(as we have already seen in

289、2023)and may disappear altogether.50 Reuters,21 Sept 2023,“Russia temporarily bans fuel exports to most countries in response to shortages”0102030405060708090US$/bblESPOUralsDiff 28 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxfo

290、rd Institute for Energy Studies or any of its Members.2.Outlook for Russian gas 2.1 Gas production and exports As noted in the Introduction,Russias national gas output in 2022 amounted to 672.6 bcm,down 11.8 percent year-on-year,or by 90.2 bcm.This represented the largest year-on-year production dec

291、line since 1990 at a national level.It is also worth noting that Gazproms output in 2022 was affected disproportionately,ending up at only 412.6 bcm,20 percent less than in 2021,an annual decline of about 103 bcm,the largest in Gazproms history51.Gazprom has traditionally undertaken a balancing role

292、 in order to deal with seasonal swings in demand,using its very flexible,super-giant Cenomanian gas fields.However,the situation in 2022 was extreme,requiring immediate adjustments to the production side of the balance on a scale that could only be managed by Gazprom due to the characteristics of it

293、s assets(super-giant Cenomanian fields)and customer base(significant share of residential users with very seasonal demand patterns).The trend continued in 2023,with total Russian gas production of 638bcm,52 and a Gazprom contribution of 404bcm.53 There were several specific reasons why Gazprom has h

294、ad to assume the burden of market balancing and sharply reduce output.Firstly,it has a monopoly on all pipeline gas exports,so it had to absorb all the decline in European nominations for Russian gas.Secondly,the associated gas production by Russian oil companies is a function of oil output,which in

295、 2022 increased by about 2 percent year-on-year,to about 535 million tonnes(against initial expectations of a significant decline)and which has only declined by 2%in 2023.Since 2014,as part of the regulatory effort to reduce flaring,the Russian government has introduced measures that give priority a

296、ccess to the national gas pipeline network(owned and operated by Gazprom)to the dry stripped gas derived from processed associated gas,thus providing producers with an attractive alternative to flaring.As a result,oil companies associated gas production has moved up to the top of the domestic sales

297、merit order,ahead of any of Gazproms domestic sales.Russian gas independents expanded their market share in the early 2010s on the back of the improved economics of the domestic gas market,due to a series of hikes in Russian regulated prices.To explain the last point,the independents do not have to

298、sell their gas at regulated prices in Russia,but an increase in the levels of the regulated prices charged by Gazprom gave the independents a chance to offer consumers discounts to prices being offered by Gazprom while still making a profit.Following the massive depreciation of the Russian rouble af

299、ter 2014,however,the dollar value of domestic gas prices has shrunk,worsening the economics of many new gas developments which the independents were targeting at Russias domestic market and resulting in project delays.However,the key reason why the Russian independent gas producers managed to increa

300、se their share of the Russian domestic gas market in 2022 was the launch of a number of long-delayed upstream projects,which had been approved several years ago and which were secured by the portfolios of long-term contracts which Russian oil companies and independent gas producers had signed with e

301、nd-users.Rosneft,the largest Russian oil producer,has been targeting the expansion of natural gas production in its overall hydrocarbon portfolio for some time.In 2014 Rosneft released its gas strategy that stipulated the ambition to produce 100 bcma of natural gas by 2020,underpinned by several lar

302、ge new gas projects such as Rospan and Kharampur54.The actual gas production in 2020 was only 63 bcm as the target was moved forward to 2022,due to oil production restrictions55 introduced by the OPEC+deal,and then further into the future.The companys latest corporate strategy,Rosneft-2030,released

303、51 https:/ Rosstat data 53 https:/ https:/ Rosnefts new projects are not pure gas but complex of reserves of oil,condensate,associated and free gas.29 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies

304、 or any of its Members.in 2021,aims at a 25 percent share of total hydrocarbons production by Rosneft for natural gas by 203056.By 2022 the delayed Rosneft projects had gained new momentum.Output started to ramp up at the Rospan project launched in the first quarter of 202157.In 2022 it grew by over

305、 58 percent year-on-year,to 17.4 bcm.In September 2022 Rosneft started gas production at the Kharampur project,in spite of the exit of BP,which had 49 percent in the joint venture.By the end of December 2022 cumulative gas production at Kharampur in 2022 amounted to 4.7 bcm.Rosnefts overall gas outp

306、ut grew by 10.5 bcm(17.8 percent)year-on-year in 2022 to 69.1 bcm.58 Another contribution to the growth of Russias gas output in 2022 came from Novatek.Russias largest gas independent increased its output in 2022 by 1.4 bcm(1.7 percent)year-on-year to 83.6 bcm.Some decline in production at the older

307、 Yurkharovskoye field which was earmarked for Novateks deliveries to the domestic market was more than compensated by robust growth of output at the Tarkosaleneftegaz production subsidiary.At Yamal LNG the three original trains(each with 5.5 mt nameplate capacity)and train four(with 0.94 mt nameplat

308、e capacity)have been operating well above their nominal maximum output,utilizing the advantage of the cold Arctic climate,and pushing the limits of the projects equipment and personnel.It is expected that from 2022 Yamal LNG will be able produce about 21 mt of LNG,utilizing about 32 bcm of natural g

309、as.The most noteworthy development for the project has been,undoubtedly,the apparent resolution of the initial production problems with the“Arctic Cascade”liquefaction technology.This is potentially important for ensuring Russias continued progress with achieving its LNG ambitions,in spite of Wester

310、n sanctions on large-scale liquefaction technology and equipment.Although Arctic Cascade is a medium-scale liquefaction technology and using it in place of the Western alternatives means losing efficiencies of scale,the combination of the extremely low cost of feed gas for Russian LNG projects,techn

311、ological self-sufficiency(even with higher unit costs of liquefaction)and strong state support(via significant tax breaks)still gives Russias LNG projects a strong competitive position in the global LNG market.Finally,another big contributor to output growth for Russian gas in 2022 was Gazpromneft(p

312、art of the Gazprom group),which completed the construction of the pipeline link from its Novyi Port field to the UGSS(the Russia trunk pipeline system),unlocking the opportunity to increase gas output at the field.Production by Gazpromneft Yamal,a subsidiary which is developing Novyi Port and a numb

313、er of other fields,reached 15.2 bcm,up 5.5 bcm(57.4 percent)year-on-year.Gazpromnefts overall production(including JVs Arcticgas and Northgas)in 2022 amounted to 50.6 bcm,up 6.6 bcm(14.9 percent).As a result of these increases and the decline in export sales,Gazprom now has significant spare product

314、ion capacity.It is possible to estimate the amount of Gazproms total spare productive capacity in 2022,drawing on the incremental decline in Gazproms output and previous research on the subject59.We estimate that Gazprom had 117 bcm of spare gas productive capacity in 2022,although this is not a pre

315、cise number.We do not have the data on the decline in production by individual Gazprom fields in 2022,in particular the older super-giants in Nadym-Pur-Taz,where natural decline due to diminishing pressure in the reservoir can be either allowed to take its toll or reduced/offset via a series of tech

316、nical measures introduced by the operating company(e.g.by deploying booster compressor stations at the fields and tapping new productive zones).According to our estimates,in 2022 Gazprom had about 38 bcm of free productive capacity at Zapolyarnoye,about 30 bcm at Urengoy,15 bcm at Bovanenkovo,and 15

317、 bcm at Urengoy,with smaller amounts of capacity available at other fields(see Figure 23).56 https:/ We use Argus data for Russian gas production along with publications in Russian business newspapers that refer to leaked information from CDU that has been classified and not publicly available since

318、 2022.58 https:/ See the OIES Energy Insight Shrinking surplus:The Outlook for Russias spare gas productive capacity https:/www.oxfordenergy.org/publications/shrinking-surplus-outlook-russias-spare-gas-productive-capacity/and the OIES Energy Insight It Dont Mean a Thing if It Aint Got That Swing:Why

319、 Gas Flexibility is High on the Agenda for Russia and for Europe https:/www.oxfordenergy.org/publications/dont-mean-thing-aint-got-swing-gas-flexibility-high-agenda-russia-europe/30 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxfo

320、rd Institute for Energy Studies or any of its Members.Figure 23:Gazproms spare gas productive capacity Source:OIES estimates It is worth noting that the 2022 crisis,which has led to the emergence of very significant spare productive capacity for Gazprom,followed a tight year in 2021 when its capacit

321、y was reduced to a bare minimum available only during the summer.The low 2021 base has meant that despite a record year-on-year increase,the absolute levels of spare productive capacity for Gazprom in 2022 were below the levels of around 150 bcm registered in 2015 and 2016.By implication,it meant th

322、at Gazprom management knew how to address the problems of balancing output in 2022 since it had dealt with similar and even larger challenges only a few years before.In spite of all the negative consequences of a shrinking European export market for Russia,the emergence of a safety cushion of massiv

323、e spare gas productive capacity has some silver linings for Gazprom in the form of enhanced domestic energy security and flexibility of supply.Firstly,Gazprom is now in a very comfortable position with regard to meeting winter demand peaks in Russia.It is going to have no problem conducting very tho

324、rough maintenance at its fields during summer time and will therefore be well prepared for winter.At the beginning of January 2023 most of the territory of European Russia,Urals,and Siberia experiened extreme cold weather,with temperatures 10-15 degrees C lower than the ten-year average.As a result,

325、Russian domestic gas demand spiked,but Gazprom apparently has been able to meet all nominations without any extraordinary measures.Secondly,Gazprom can optimize its upstream investment program by expanding the most profitable parts of its upstream portfolio and retiring marginal assets with inferior

326、 economics.This most likely means steeper decline rates for“old gas”fields in Nadym-Pur-Taz,and delayed development of new fields on Yamal.It is not clear at this point whether future productive capacity in NPT could be negatively affected if the shut-in period lasts many years.The recent evidence s

327、uggests that after shutting down a significant number of gas wells during 2015-16 at its balancing fields(in particular Zapolyarnoye),Gazprom was able to revive the wells and return output to maximum levels in 2018-2019.A longer hiatus might be more harmful,but there is no clear-cut evidence that th

328、is is going to be the case.Thirdly,Gazprom can re-allocate investments from upstream to midstream(in particular to the projects that help unlock new Asian gas markets).For example,with regard to the additional export supply to China Gazprom can focus on the midstream investment(Power of Siberia 2 pi

329、peline)and worry less about developing new upstream fields since the available spare productive capacity is mostly sufficient.Fourthly,easily available gas supply for users of gas at home might foster the creation of new demand,in particular for expanding domestic gas-intensive industries,for exampl

330、e,nitrogenous fertilizers,which could be considered as an alternative gas-embedded export commodity.Russia is the worlds second largest producer of fertilizers with plans to expand the industry and increase its export share60.60 https:/delprof.ru/press-center/open-analytics/rynok-mineralnykh-udobren

331、iy-v-rossii-2020-uverennyy-rost-vopreki-krizisu/0204060801001201401601802010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022bcm 31 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any

332、of its Members.The geopolitical events of 2021-22 have highlighted conflicts between security and commercial issues in gas trade.For over 50 years,the Russia-Europe gas relationship has been underpinned by the concept of cooperatively managed interdependence producing mutual benefits.However,it coul

333、d not remain immune to increasing geopolitical animosity and even before the war in Ukraine,the tensions in the Russia-Europe gas relationship were escalating.This is not surprising given that for Russia the infrastructure and major production investment decisions are very difficult to justify against sales into a market in transition to decarbonized energy with an uncertain outlook for unabated g