Essay: Russian oil: Lower future production/profits due to future higher extraction costs and other inefficiencies

From Conservapedia
Jump to: navigation, search
Flag of Russia

In 2023, OilPrice.com reported in an article entitled Analysts Predict 42% Decline In Russian Oil Production By 2035:

But Moscow cannot continue defying the odds indefinitely. BP Plc (NYSE: BP) has predicted that the country’s output is likely to take a big hit over the long-term, with production declining 25%-42% by 2035. BP says that Russia's oil output could decrease from 12 million barrels per day in 2019 to 7-9 million bpd in 2035 thanks to the curtailment of new promising projects, limited access to foreign technologies as well as a high rate of reduction in existing operating assets.

In contrast, BP says that OPEC will become even more dominant as the years roll on, with the cartel’s share in global production increasing to 45%-65% by 2050 from just over 30% currently. Bad news for the bulls: BP remains bearish about the long-term prospects for oil, saying demand for oil is likely to plateau over the next 10 years and then decline to 70-80 million bpd by 2050.

That said, Russia might still be able to avoid a sharp decline in production because many of the assets of oil companies that exited the country were abandoned or sold to local management teams who retained critical expertise.[1]

Stratfor, an American strategic intelligence publishing company, reported in their 2020 article The Golden Age of Russian Oil Nears an End:

  • In the next 10-20 years, Russian oil will become more expensive as extraction from less accessible basins becomes necessary to maintain current export levels.
  • Internal inefficiencies within Russia's oil sector, as well as the remote locations of remaining reserves and potential shifts in future oil demand, add up to a murky future for the country's energy-reliant economy.
  • Moscow may adjust its budget to ensure plummeting oil prices don't cut into its government spending, but proper economic diversification away from energy remains a complex and unlikely process.[2]

In 2019, the Moscow Times reported:

Russia is one of the most expensive places in the world to produce oil, new analysis produced for Saudi Arabia’s state-owned oil giant Saudi Aramco has found.

The cost of producing a single barrel of Brent crude oil came in at around $42 for Russian onshore projects, and $44 for offshore projects, IHS Markit estimated. That was more than twice the $17 per barrel production costs in Saudi Arabia — the cheapest in the world.

Brent crude is currently trading at $62.40 a barrel on the world markets.

The analysis, conducted by IHS Markit and published alongside Saudi Aramco’s initial public offering (IPO) prospectus, found offshore projects in Venezuela had the highest break-even price in the world at $63 a barrel, followed by China at $55-60.[3]

2024: Russian crude oil production for the past 5 years

October 2024: Russian crude oil production for the past 5 years[4]

Russia crude oil extraction cost March 2005 to December 2018

For more information, please read: The Golden Age of Russian Oil Nears an End, Stratfor, 2023

"Russia's easily accessible oil reserves have long been the cornerstone of its economy. But these conventional fields are depleting, leading to the need to invest and expand into more untapped sources. This transformation will not be easy or cheap, as various factors have led to a poorly optimized oil sector that's ill-equipped to soften the blow of rising costs... Russia may have little choice but to accept that its glory days of oil dominance and high profit margins are nearing an end." - The Golden Age of Russian Oil Nears an End, Stratfor, 2023

Russia crude oil extraction cost March 2005 to December 2018[5]

Russia's crude oil extraction cost affects how much profit Russia can earn from Russian oil sales. In addition, it can affect the potential amount of Russian oil drilling because if oil is too costly to extract in a given area, the drilling will not occur.

Russia's oil extraction cost are expected to rise in the future. See: The Golden Age of Russian Oil Nears an End, Stratfor, 2023

Other resources on future Russian oil production

Videos:

Russia, the Arctic region and fossil fuels

Video:

2023: In Russia, the shortage of personnel in the oil and gas industry was assessed

Russian demography has long been an existential issue to Vladimir Putin. In 2021, he declared “saving the people of Russia is our top national priority".[6]

See: Russia is dying out. The war in Ukraine is making Russia's demographic crisis even worse

See also: Low labor productivity is one of the most acute and important problems facing Russia and Russia is dying out. The war in Ukraine is making Russia's demographic crisis even worse

The Oreanda-News agency was founded in August 1994 in Moscow, becoming one of the first independent news agencies in contemporary Russia.[7] Since 2007, it has been based in Saint Petersburg, Russia.[8]

In 2023, Oreana-News reported in an article entitled In Russia, the shortage of personnel in the oil and gas industry was assessed:

Currently, the Russian oil and gas industry lacks 25 thousand employees. Elena Kuznetsova, partner of Yakov and Partners, told RIA Novosti about the shortage of staff.

She noted that the need for personnel in the sphere is 90 percent higher than at the beginning of 2021. Companies are particularly in need of welders, locksmiths, machinists, engineers and drillers. Moreover, problems with the lack of workers are fixed not only in the energy sector. In particular, companies are actively looking for sales specialists, IT specialists, builders and managers.

Kuznetsova emphasizes that it is most difficult for employers to find medium- and highly qualified personnel, since they cannot be replaced quickly. Experts attribute the shortage of labor to the relocation of specialists, the low attractiveness of work in remote regions, as well as the aging of existing personnel and low motivation of young people.

Earlier, the head of the Central Bank, Elvira Nabiullina, said that the shortage of personnel is the main problem of the Russian economy. According to the representative of the Bank of Russia, for further economic growth, it is necessary to ensure not the availability of money and loans, but to increase labor productivity.[9]

During his annual phone-in with the public in June this year, President Vladimir Putin described low productivity as “one of the most acute and important” problems facing Russia.[10] See: Low labor productivity is one of the most acute and important problems facing Russia

For more information, please see:

Russia's economy and gas and oil profits will be BADLY damaged when China's economy declines

See: Russia's economy and gas and oil profits will be BADLY damaged when China's economy declines

Countries with diversified economies are more resilient and stable

"Don't put all your eggs in one basket" - Popular saying.

See also: Diversification

Booz & Company was a global strategy consulting team established in the United States in 1914. The firm was acquired by PwC on April 4, 2014.

Below is the executive summary of their report entitled Resilient, stable, sustainable: The benefits of economic diversification

The effects of the recent global economic crisis were allpervasive, and demonstrated that no economy is safe from destabilizing external events. Resource-dependent countries, with their narrow base of economic activity, are particularly vulnerable, but all countries may have vulnerabilities stemming from a lack of diversification in one or more economic dimensions, and they must be more vigilant in managing risks to their economies. Not only must a country’s gross domestic product (GDP) be balanced among sectors, but key elements of its economy must be varied, flexible, and readily applicable to a variety of economic opportunities, and areas of overconcentration must continually be identified and mitigated. Policymakers should work to achieve greater economic diversification, in order to reduce the impact of external events and foster more robust, resilient growth over the long term.

For resource-rich, developing economies, the immediate imperative is to diversify export-oriented sectors, but for the benefit of long-term sustainability, they must also look at the larger picture. A strong institutional and regulatory framework and workforce development initiatives are indispensable to the diversification effort; and proper management of human capital is key, especially in those countries experiencing a “demographic dividend.” Implementing such comprehensive diversification and risk management strategies won’t be easy, but the result—a diverse, stable, and growing economy—is worth the effort.[11]

Related articles:

Why Russia needs to diversify its economy so it's not overly dependent on oil and gas for its overall economy



The Russian economy is too dependent on oil/gas.[12]

Countries and economies that are more diversified in revenue sources are more resilient, stable and sustainable.[13][14][15]

The USA is outproducing Russia and Saudi Arabia in oil production. The best is yet to come

See also: The USA is outproducing Russia and Saudi Arabia in oil production. The best is yet to come

In August of 2023, the USA was outproducing Russia and Saudi Arabia in oil production.[16]. The best is yet to come![17][18]

The U.S. Energy Information System reported in 2023: "Strong continuing international demand for petroleum and other liquids will sustain U.S. production above 2022 levels through 2050, according to most of the cases we examined in our Annual Energy Outlook 2023 (AEO2023). We project that the United States will continue to be an integral part of global oil markets and a significant source of supply in these cases, as increased exports of finished products support U.S. production."[19]

For more information, please see: The USA is outproducing Russia and Saudi Arabia in oil production. The best is yet to come

2024: K.T. McFarland, Deputy National Security Advisor under the Trump Administration: Donald Trump DOESN'T want to abandon Ukraine 'he wants to BANKRUPT Russia' by ramping up oil and gas production

K.T. McFarland served as Deputy National Security Advisor under Michael Flynn in 2017 during the Donald Trump administration.

2024 video: K.T. McFarland, Deputy National Security Advisor under the Trump Administration: Donald Trump DOESN'T want to abandon Ukraine 'he wants to BANKRUPT Russia' by ramping up oil and gas production

See also

External links

References

  1. Analysts Predict 42% Decline In Russian Oil Production By 2035, OilPrice.com
  2. The Golden Age of Russian Oil Nears an End, Stratfor, 2020
  3. Russian Oil Production Among Most Expensive in World, Moscow Times, 2019
  4. October 2024: Russian crude oil production for the past 5 years
  5. Russia Prime Costs: Crude Oil Extraction
  6. Russia’s population is in a historic decline as emigration, war and a plunging birth rate form a ‘perfect storm’, Fortune magazine, 2022
  7. Oreanda-News agency - About page
  8. Oreanda-News agency - About page
  9. In Russia, the shortage of personnel in the oil and gas industry was assessed, Oreana News, 2023
  10. Why Is Russia So Unproductive?, Moscow Times, 2019
  11. Resilient, stable, sustainable: The benefits of economic diversification, Booz & Company, 2011
  12. *Russia’s reliance on energy spells trouble for its economy, The Economist, February 2024
  13. Resilient, stable, sustainable: The benefits of economic diversification, Booz & Company, 2011
  14. The Importance Of A Diversified Economy
  15. Resilient, stable, sustainable: The benefits of economic diversification
  16. US Oil Production Hits Records
  17. Donald Trump promises to drill for oil, close southern border on first day as president
  18. The Oil And Gas Workers’ Association Endorses Trump For 2024 Vote
  19. U.S. production of petroleum and other liquids to be driven by international demand