Russia has long relied on its enormous oil and gas reserves to not only heat and power its homes, but also to fund its government. But as blessed by resources as it has been, it has also displayed an impressive ability to stay behind the curve of an energy landscape that is changing now faster than ever. Nowhere is this more true than with its handling of the recent shale revolution, which has to this point consisted of denials and dragged feet. Now, as the FT reports, Moscow looks to finally be waking up to our new energy world order:
The lion’s share of those reserves lie in the Bazhenov, a huge geological formation in the heart of Siberia about 2,000 miles east of Moscow. Experts believe that it could be one of the largest accumulations of shale oil on the planet. One estimate suggests that the dense rock could contain as much as 100bn barrels of recoverable oil, making it five-times larger than North Dakota’s Bakken shale, the engine of America’s oil renaissance. […]
“In 20 years, the Bazhenov might be Russia’s main source of oil – even bigger than the Arctic oceans,” says Leonid Fedun, vice-president of Lukoil, the Russian oil major venturing into shale. “It allows us to be a lot more optimistic about the next 50 years of our oil production.”
But as China, the UK, Australia, Mexico—basically every country not named the United States—know well, simply having shale oil or gas does not a shale boom make. Plenty of challenges remain, first among them whether the oil in the Bazhenov is “mature” enough (if the organic material beneath Siberia’s frosty ground hasn’t been heated or pressurized enough, it won’t be much use as a fuel). And Siberia’s remote location and cold climate won’t make drilling any easier.
Unlike China, Russia has been drilling for oil for decades, so much of the requisite infrastructure—the pipelines, the refineries, the roads, the workforce—is already there. Unfortunately for Rosneft, it looks like Siberia’s shale plays lack the clean “wedding cake” geology that America enjoys, that allows for relatively simple and predictable horizontal well drilling.
Russia has so far been extremely slow to change course and recognize the potential new sources of energy fracking has unleashed on the world. Taking the short-term view, this isn’t a huge problem, as it still has enormous conventional sources of oil and gas. But oil and gas output is stagnating, and once hugely productive fields are petering out. Given that, and given the fact that Russia has the world’s largest shale oil reserves and ninth largest shale gas reserves, continuing to sluggishly adapt will have huge opportunity costs for the waning global power.