Russia Waking Up to Shale Realities

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.

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  • Jacksonian_Libertarian

    I think Russia is wise (not that it isn’t incompetence that is stopping them) to wait until shale oil technology (Fracking) matures and becomes more efficient. Russia still has plenty of undiscovered oil and gas in standard fields which is much cheaper to produce, and therefore more profitable to develop.

    • f1b0nacc1

      Actually no.
      1) Fracking is a fairly mature technology already, though certainly more development is always welcome. The problem for Russia is that the opportunity costs associated with waiting are greater than the potential benefits gained from a more mature technological base.
      2) Russia depends almost entirely upon their oil and gas extraction as the backbone of their economy, and their eroding competitiveness here is potentially devastating
      3) Russia’s existing oil and natural gas reserves are in fairly difficult and unpleasant areas, both geographically and politically. Exploiting what they have will not be easy, nor inexpensive
      4) Russia’s existing infrastructure is rapidly decaying for a variety of reasons, and will be extremely expensive to refurbish. Fracking now would give them an opportunity to rehabilitate this infrastructure while adding new inputs to the mix

      • Claythorne

        1) What opportunity costs? Oil isn’t going anywhere. Oil prices will rise over time as the world moves from easiest shale fields to those more difficult. Besides, Russians are using fracking a lot to prolong the lifetime of traditional oil fields of Ob and Pechora, for example. They can count their money and implying otherwise is plain wrong.
        2) Russia does not depend almost entirely upon their oil and gas extraction. Export/import trade balance – yes, depends a lot. Massive budget spendings on arms and projects like Sochi Olympics – yes. But if we speak of GDP, fossil fuels barely make 15% of that.
        3) Same goes for their shale fields. Even the mentioned Bazhenov field is located deep in Siberia. And there are many others further in there.
        4) Not quite true. Infrastructure renovation and extension is one of their main goals nowadays and “decay” is reversed.
        Overall, your opinion on Russia seems to be based on what Russia was like 10 years ago. But it has changed a lot.

        • f1b0nacc1

          1) Opportunity costs are different than expected ROI. Not exploiting their gas reserves now (when they still have a semi-captive market in Western Europe, when they can get good prices absent serious competition on the world markets from the US, etc.) is not the same as as later, when prices are lower due to increased competition. Oil is a bit different, but overall the same sort of dynamic applies.
          2) I take your point regarding trade/export vs GDP as a whole, but I think you underestimate the ‘knock-on’ effect of Russia’s fossil fuel industry. Their economy is a pathetic mess (better than it was, but still awful for a country with such vast natural gifts), and if you remove the income from gas/oil, Russia is little more than a third world country with nukes.
          3) Once again, I am not sure that we seriously disagree here. Yes, their potential fracking sites are not in the most hospitable areas, but given that their existing ones are no better, diversifying their options strikes me as a prudent move at the very least.
          4) When I was last in Russia (far more recently than 10 years ago), my impression was that if anything, things had gotten worse. They are bouyed by a resource bubble, but the deepr problems of corruption, creeping authoritarinism, overall decay of just about everything that is not owned by Putin cronies (and most of that too), and a general sense of supine surrender on the part of the population are simply no better. The demographic mess has improved slightly, but even there the long-term health issues have no receded.

  • Pedro Zozaya

    Why Russia to extract shale oil? For example, a company such as “Rosneft” may be another 100 years to produce normal oil. Why spend big money on shale oil? It is not profitable.

  • profaner vulgar

    When You shale gas comes to an end … We are only begin … Why run ahead of the locomotive?

  • profaner vulgar

    Shale feast is long gone. It was not. There are subsidizing their own economy through the sale of U.S. shale mix – unprofitable for production, but at lower prices.

  • profaner vulgar

    work on propane freking and other shales in the Soviet Union carried out and drilled back in the 50-60 years of the last century

  • profaner vulgar

    Dutch- British oil company Royal Dutch Shell announced the sale of its assets by shale deposits in Texas, Kansas and Colorado. As the newspaper writes Wall Street Journal, Shell plans to sell its land area of ​​106 thousand acres in the Eagle Ford field (Eagle Ford). This is one of the largest operating oil shale deposits in the United States .

    The company said that the 192 wells drilled in the area , ” can not go on the planned volumes of mining .” Shell also wants to find buyers in the area of ​​600 thousand acres in the Mississippi Lime geologic formation in the state of Kansas. In addition, the group wants to get out of the shale project in Colorado, ” which is at an early stage.”

  • profaner vulgar

    And why should this dead-Russia unprofitable, obsolete technology, if more expensive copy-mining of hydrocarbons??

  • profaner vulgar

    Exxon Mobil, drilled two exploration wells in shale gas in Poland, declined last year from plans to extract shale here. The company simply did not find commercial reserves of shale gas, recognizing the project unprofitable.

  • profaner vulgar

    About these shales knew even 60 years ago. Just the technology of their production , especially in Europe ( dotted underground springs ) barbarous towards the environment. Cost of production is much higher , even compared with Yamal while lower calorific gas . In the U.S., it rolls , as territory more and more liberal legislation , and the prey were small companies with a similar point of sale. Batts is a myth artificially inflated in order to influence the formation of hydrocarbon prices . With the Energy Charter did not happen, and that’s launched in the media ” slates ” . It’s like the war in Vietnam . Lost the war , but to sweeten the bitter pill for the PEOPLE made ​​a movie Rambo II, Type is not all bad , there are still heroes .

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