Shale Fail
Russia Wants to Frack Without Western Help

Russia has been setting post-Soviet record after post-Soviet record for oil production in recent months, but it’s hardly made any progress on developing its prolific Bazhenov shale formation. Moscow has access to what is estimated to be the world’s second-largest reserves of tight oil, but Western sanctions have crippled its ability to take advantage of this natural bounty. Those sanctions have prevented Western companies from providing Russia with the technical expertise, practical experience, and equipment necessary to catch up to the U.S. on shale, and now, as the FT reports, some Russian companies are determined to blaze the shale path solo:

Mikhail Cherevko, chief engineer for the Gazprom Neft unit that is drilling at South Priobskoye, says western oilfield services companies — such as Schlumberger and Halliburton — “are afraid to touch the Bazhenov as if it were a fire”.

However, Gazprom Neft — widely regarded by analysts as being the Russian company with the most advanced in-house shale technology — is determined to go it alone. “It’s not a question of will we do it or not: it’s a question of time,” says Alexei Vashkevich, the company’s director of exploration. “It might take a little bit longer but we will get there.” […]

Sanctions are limiting the transfer of both western technology and expertise in fracking, say industry executives and analysts. Mr Cherevko says there is not enough Russian equipment of sufficient quality to replace western supplies in the Bazhenov.

Make no mistake, this is not part of a grand strategy to make Russia more independent of Western energy companies—it is a move born of desperation. The numbers show just how meager Moscow’s shale explorations have been thus far: in seven years—a lifetime relative to the rapid pace of the American shale boom—Gazprom Neft expects to be producing just 40,000 barrels per day (bpd) from the Bazhenov formation. The Kremlin has slightly larger hopes for shale, and has set a production target of 400,000 bpd by 2030. These are tiny numbers for Russia, though, which is currently squeezing more than 11 million bpd out of its massive conventional oil fields.

But what choice do the Russians have? The shale revolution has floundered outside of the United States, where a deep pool of capital and innovative risk taking (along with favorable property rights, abundant water supplies, and evenly layered stratigraphy) have helped completely remake the American energy landscape. Lacking many of these qualities, and more importantly lacking access to the tools of the U.S. shale industry and the knowledge those companies have gained in the field over the past eight years, Russia will struggle to catch up to the fracking bandwagon, despite its prolific reserves.

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