Gloom and Crude
Moscow Puts Brave Face on Grim Oil Outlook

Russia produced more crude last month than at any other time in the post-Soviet era, but its medium- and especially long-term energy outlook borders on terrifying for the Kremlin. In today’s low-price environment, higher-risk explorative projects are among the first to get axed. That’s a major problem for Russia, whose existing fields are already maturing and whose newer projects are already beleaguered by the depressive effects of Western sanctions. But as Bloomberg reports, Russia’s deputy energy minister is hoping to increase output at existing fields to offset the lack of new projects coming online in the coming years:

“We’ve got a safety cushion until 2035,” Deputy Energy Minister Kirill Molodtsov said in an interview in Moscow. “The potential for output growth at oil fields already in operation is higher than in unexplored territories.” […]

Exploration drilling is first in line when companies trim spending, according to Molodtsov. Adding wells at existing fields or using chemicals or fracturing to push out more oil provide a quicker return than tapping new territories, he said, estimating steady annual output of roughly 525 million metric tons (about 10.5 million barrels daily) through 2035 even in a conservative scenario.

But that’s almost certainly an overly sanguine expectation. Alexei Texler, a different Russian deputy energy minister, told reporters that the Kremlin was expecting that a “[p]ossible reduction may come in 2017, with a potential decline of up to 10 million tonnes”, the equivalent of a drop of 200,000 barrels per day. The International Energy Agency doesn’t think Russia can continue to squeeze these recent record-levels of oil from its existing fields for much longer, either.

Russia’s domestic economy and in large part its clout on the global stage depends on its oil and gas sales, which makes any question of flagging oil production an economic, energy, and national security concern all at once. The country’s dim prospects for keeping crude flowing in a bearish market and under Western sanctions are one of Putin’s biggest problems—the sort of thing that would keep one up at night.

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