Development
is under way of an ambitious, decade-long oil and gas industry modernization
programme entailing introduction of cutting-edge technologies and boosting of
investment. What is required is better planning and information transparency in
the project’s paperwork, which will attract investors and ensure sustainable
development. Despite the tax preferences currently in effect, the sector faces
technology and personnel shortages, a situation requiring immediate
intervention. Innovative technology development holds pride-of-place in the
strategy as it promises improved oil extraction efficiency and reduced
environmental risks. Such an approach offers hope for new economic prospects
and stabilization of Russia’s oil market. Such was the conclusion of the session
called ‘To Drill or Not to Drill: Development Strategy for
the Oil Industry for the Next 10 Years’ at Russian Energy Week 2024 (REW).
KEY CONCLUSIONS
Developing technologies
requires pooling company efforts to consolidate demand, and for product standardization
and certification
“No individual
company will ever create commercially feasible, commercially viable technologies
or equipment prototypes. Sectoral procurement, standardization and product certification
still require a consolidated market,” Pavel Sorokin, First Deputy Minister of Energy
of the Russian Federation.
The focus must be on infill drilling in Western
Siberia
“Western Siberia
is a unique territory. 76 billion worth not of recoverable, but of geological
reserves. So far, only 14% have been recovered. Each percentage is nearly a billion.
... Today, new sites account for less than 10%
of drilling in Russia. Mostly, drilling is going on at older sites. For some ten
years, this potential will allow us to keep the bar at around 540 while launching
recovery of some new reserves in these parts,” Sergey Kudryashov, General Director
at Zarubezhneft.
PROBLEMS
Shortage of investment in the oil and gas
sector
“In 2023, new
well deliveries dropped by essentially 27%. Of course, we could start nagging at
the Ministry of Finance, saying that drilling should be ramped up by this very
figure to maintain extraction levels. It would take another trillion in tax money,
putting it into investment,” Sergey Kudryashov, General Director at Zarubezhneft.
Tax preferences for the oil sector are not a panacea
“Taxes are an
additional incentive people enjoy but it is not the decisive factor. So we say
‘Don’t get hung up on taxes’, that’s not the right way to think. Taxes and tax incentives
taken independently will never be a panacea. We have tried this in many sectors
and I can confidently say they do not offer a definitive solution,” Alexey Sazanov,
State Secretary – Deputy Minister of Finance of the Russian Federation.
No technological reserve and no talent pool
“Oil is the
kind of sector that competes on the global market, while the global market doesn’t care what happens at our end. There is a
certain price level, and you need to fit in. If we take a 10–15-year deposit
development or project implementation horizon, the difference in rates will be 10%,
that is, roughly speaking, the financing rate is 20%, 22%. At the
15-year-horizon, we end up with approximately 2.5 higher project costs.
Clearly, if your project costs 2.5 as much as your competitors, your
competitive edge shrinks. This factor needs to be taken into account. This is
true even in the rent sector, such as oil and gas, and I won’t even start on
the electric power industry, transportation, etc.,” Pavel Sorokin, First Deputy
Minister of Energy of the Russian Federation.
SOLUTIONS
Developing technologies
“We need to
seek technological solutions. Today, that is what oil companies are doing,” Sergey
Kudryashov, General Director at Zarubezhneft.
Developing the oil sector in the next 10 years
“At current
deposits, recovery is falling by 3–7%, depending on various steps taken there. There
are three principal ways of offsetting the decline. Launching development of hard-to-recover
resources, raising the oil recovery factor at current sites and
working in new provinces and on the ocean shelf. These are the three major
areas that could really help us keep the bar at 540 million tonnes, given the falling
recovery at traditional sites,” Alexey Sazanov, State Secretary – Deputy Minister
of Finance of the Russian Federation.
“The oil
and gas industry was the backbone of the budget and the economy, and so it will
remain until 2030 and 2035, whatever happens globally with the transition to
low-carbon technologies,” Andrey Klepach, Chief Economist at VEB.RF.
By 2050, oil demand will have increased by 10–12%,
offering OPEC+ countries and leading producers opportunities to grow
“We believe
that, within 10 years, the resource rent, the thing that can be split between
investors and the state, will shrink by at least 50% because of growing capital
and investment outlays,” Pavel Sorokin, First Deputy Minister of Energy of the Russian
Federation
“As for oil
demand, we are not really worried. We can say something about a minimal
additional increase of 5% by 2050. That is, we have 10–12%, and given that, in many
countries, recovery either stagnates or drops, OPEC+ countries that have
stand-by capacities and some non-OPEC countries, such as the US, Canada and
Brazil, that have growth potential will have to bear the brunt of meeting this
additional consumption. Nonetheless, this potential is not limitless because recovery
is carried out by many private companies and depends on the costs. In addition to
higher demand that needs to be met, there is also a natural decline of 3–7% at
the principal traditional sites, and that decline also needs to be offset,” Pavel
Sorokin, First Deputy Minister of Energy of the Russian Federation.
* This is a
translation of material that was originally generated in Russian using
artificial intelligence.
For more
information, visit the Roscongress Foundation’s Information and Analytical
System at roscongress.org.
