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Page added on June 30, 2016

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Russia’s Oil Production Won’t Falter

Production

One recent headline from RT had me shaking my head:  “Running on empty: Russia has less than three decades of oil remaining.”

Yogi was right: “It’s deja vu all over again.”

Remember Energy Minister Victor Khristenko’s warning in 2005 that Russian oil production “will reach a certain plateau of production within the time frame of 2010.”

Remember the now defunct Oil Drum‘s headline back in 2008:“Russia’s Oil Production is About to Peak.”?

“We now see production peaked last year,” Mikhail Kroutikhin, editor in chief of the Russian Petroleum Investor, told the BBC in 2008.

Yet, even amid recently falling prices… Russia’s oil production has continued to increase, up 12% since that falsely claimed peak in 2007.

One reason for these continuously false predictions is the obsession with “proven reserves,” which are simply just current, always in flux counts of the much larger resource. And people often forget that as technologies evolve the “unconventional” becomes the “conventional,” as a widening “de-conventionalization” of the global liquids supply continues to take hold. Crude oil actually now accounts for 81% of global liquids supply, when it was 89% in 2000.

Thus, we exhibit a very low capacity to fully appreciate how much oil a country really has.

Russia’s proven oil reserves are now up over 80 billion barrels, compared to 60 billion in 2008 and 50 billion in 2000. The most recent growth in reserves and production are very telling because they’ve occurred in an unusually low price environment, which has the effect of reducing, not increasing, these totals.

The “peak oil” thesis like the RT headline that gives a specific number of years that a country has left to produce oil continues to be proven dramatically very wrong. Since 2000, Russia’s proven oil has INCREASED by 30 billion barrels, despite the extraction of over 56 billion barrels. (Also showing this low level thinking that has become too pervasive in our energy-environment discussion, a 2014 USA Today headline: “The world has 53.3 years of oil left”).

Russia’s Oil Production Continues to Rise

Screen Shot 2016-03-19 at 2.39.05 PM

Source: EIA; JTC; BBC News (April 15, 2008)

Russia now consumes about 3.5 million b/d, and the country has very low incremental needs for more. Already exporting nearly 15% of the world’s oil, Russia’s future oil production is becoming increasingly important.

Russia’s oil sector today does indeed face a variety of problems. Sunken prices that will mean higher taxes, aging infrastructure, and limits to key oil technologies because of the sanctions imposed on Russia over Ukraine are wrecking havoc. The government has been making adjustments (here), but apparently still needs $82 oil to balance its budget. Even better, “Russia sees oil price of $45-$50 per barrel ‘acceptable.”

As perhaps the most hydrocarbon rich country in the world, Russia will remain an oil and gas powerhouse. It simply has to: oil and gas comprise over 60% of Russia’s exports and make up over 30% of the country’s GDP. Oil (25%) and gas (55%) supply 80% of Russia’s total energy. Hydrocarbon revenues account for more than 50% of the federal budget revenues.

The oil sector is the most important branch of the Russian economy, the main pillar on which Russia’s international position is based, and leaders will do whatever they have to do to maintain or increase output. The International Energy Agency expects Russia to invest nearly $35 billion per year in upstream oil supply for the foreseeable future.

Russia clearly has the “oil in the ground” to maintain or even increase oil production. Beyond rising proven reserves, the EIA’s latest estimate has Russia with a whopping 75 billion barrels of “unproved technically recoverable” shale (tight) oil, which is easily 2nd after the U.S. with 78 billion barrels.

And again, most of the oil in a reservoir still remains after primary and secondary operations because it’s too difficult or expensive to extract, leaving huge global potential for tertiary operations, namely CO2-EOR. The technologies are constantly improving, and Russia could have tens of billions of barrels available for CO2-EOR.

The Arctic is a Russian strategic priority for hydrocarbon development, “5 Ways Russia is Positioning to Dominate the Arctic.” The U.S. Geological Survey estimates that the Arctic has nearly 25% of the world’s undiscovered energy resources, including about 15% of the world’s undiscovered oil (90 billion barrels) and 44 billion barrels of natural gas liquids.

Last August, Russia filed an application to expand the boundaries of its continental shelf in the region. “The volumes may reach 5 billion tons of untapped oil and natural gas reserves worth as much as $30 trillion.”

All of these sources will become more available as the inevitable occurs: both global oil demand and prices increase. Russia realizes that latent oil consumption is immense: oil has nowhere near a significant substitute, and, on average, 6.2 billion humans in the undeveloped nations consume just 0.35 gallons of oil products per capita per day, compared to 2.7 gallons in the U.S.

And Russia will be forced to produce oil to meet the rapidly rising needs of its customers. In 2015, Russia became the 2nd largest oil supplier to China, perhaps even looking to form an alliance against the U.S. In December, “Russia moved to strengthen the energy alliance with China by concluding a series of new agreements.”  

“India, Russia oil ties with $4 billion deals,” and “Kremlin-backed Rosneft is looking east where India especially looks attractive, both in terms of market for crude and funds with 6-7% economic growth rate and 7% rise in annual fuel demand.” China and India are strategic new energy partnerships for Russia because long-time main customer Europe is simply not a growth market.

Technology wise, Russia is looking more for “import substitution,” a push to domestically manufacture oilfield equipment and supplies that previously came from the West, particularly with a “lack of technologies for offshore oil production.” “In a few years, the country could reach 100% replacement of foreign technology on the shelf.”

Russia’s ability to continually produce massive volumes of oil is critical: oil is the world’s most important fuel with no significant substitute. Since 2011, yearly global vehicle production has jumped 16% to over 90 million units (here). This all explains why more oil and gas links between the U.S., Mexico, and Canada are fundamental to North American energy security.

Forbes



23 Comments on "Russia’s Oil Production Won’t Falter"

  1. forbin on Thu, 30th Jun 2016 6:28 am 

    “oil is the world’s most important fuel with no significant substitute. ”

    well that bit of the article is true

    and if you look at the graph of production – looks like a curve to a peak around 2020 to me.

    I guess these guys have skin to sell

    forbin

  2. J.F.Kyagulanyi-Kaggwa on Thu, 30th Jun 2016 6:30 am 

    This is the very important News about Russia,s oil production,and it is also good News for players like us who are brokers and marketing Agents in the crude oil industry about the stability of supply of Russia,s crude oil supply-Thanks

  3. J.F.Kyagulanyi-Kaggwa on Thu, 30th Jun 2016 6:38 am 

    This information is the right step in the right direction,as the supply stability in the crude oil industry ,means that there is to be stable economy much as the price of crude oil has gone down, but this is a vet important lesson that in life ,there is always ups and downs.
    The price of crude oil all along has been going up from time to time,so this is a taste of life in every thing we do,that changes in the world economy cannor be avoided, much as the American Economy has taken a slow growth this time,since the second World War

  4. shortonoil on Thu, 30th Jun 2016 8:52 am 

    ““The world has 53.3 years of oil left” “

    The world has 13 years of oil remaining that it can use! After that it will require as much energy to produce the oil as what is contained in the oil. That results in a barrel of black goo that has almost no economic value. That we live in a world that is dominated by the Laws of Physics seems to, as usual, completely escape Forbes. Of course it is easier to sell LA LA Land than reality; who would want to deal with that?

    OH, don’t bother getting back to us when that light in your head comes on; by that time most of the rest of them will have already gone out!

    http://www.thehillsgroup.org/

  5. Plantagenet on Thu, 30th Jun 2016 11:30 am 

    Of course Russia’s oil production is going to falter. At some point Russia’s oil production will peak and then start to decline. The decline will seem inexorable and unstoppable.

    And then they will start fracking shales for oil.

    Cheers!

  6. JuanP on Thu, 30th Jun 2016 11:51 am 

    First I thought that Russia’s oil production would peak in 2014, then I thought it would peak in 2015. After being proved wrong twice by the incredible resilience of Russia’s oil production, I stopped forecasting their peak. I don’t know when their production will peak, but sooner or later it will. Go Russia!

  7. PracticalMaina on Thu, 30th Jun 2016 12:14 pm 

    They just need a couple billion acre tarp to spread over the permafrost, free gas for everybody!!

  8. Patrick on Thu, 30th Jun 2016 1:01 pm 

    Russia has huge untapped fields across Siberia. They have deeper pays that have not been touched. They have the Artic. They have huge basins that have never been explored. They will continue to add huge reserves for centuries to come.

  9. PracticalMaina on Thu, 30th Jun 2016 1:03 pm 

    tough getting a drilling rig over melting permafrost…. who knows maybe it will just seep with the methane, nascar 1, climate and the next generations 0.

  10. PracticalMaina on Thu, 30th Jun 2016 1:14 pm 

    Good time to invest in heavy lift choppers, if they aren’t bringing in equipment to further climate change, they can be fighting fires! and burning thousands of gallons of fuel while doing it! Hovercraft fire fighting craft to put out the bog fires? It is a win win for the oil co, protect wells and gobble up fuel, they will convince nations to subsidize it, because hey they could have just let it burn.

  11. Sickofit on Thu, 30th Jun 2016 3:19 pm 

    When will Russia peak? It did in 1987, it was a bit larger then and stood for the name of USSR, but geology doesn´t give a damned sh** about that.

    What´s yet to come is the second and last peak.

  12. JuanP on Thu, 30th Jun 2016 3:44 pm 

    Practical, The USA’s oil production is collapsing while Russian oil production is still increasing. The USA is an oil importing country while Russia is an oil exporting country. It sounds to me like you are jealous!

  13. JuanP on Thu, 30th Jun 2016 3:46 pm 

    Sick, You must be a typical ignorant American exceptionalist. Russia and the USSR are two different things. Maybe you should research the differences between them before spewing any further ignorant bullshit.

  14. JuanP on Thu, 30th Jun 2016 3:51 pm 

    Patrick on Russia, “They will continue to add huge reserves for centuries to come.”

    Definitely not! Russia’s oil production will most likely peak in this decade, and there is absolutely no chance that their reserves will increase for centuries. I envy people like you who can believe crap that is completely disconnected from reality.

  15. Roger on Thu, 30th Jun 2016 6:54 pm 

    Take a close look at the production graph in the article. Russia increased output by about 1.4 MM bbl/d — over a decade…10 years. And, most of the increase was earlier…about flat during the $100/bbl years.

    For perspective, 1.4 MM bbl/d is about equal to one year’s demand growth worldwide…

    For context, I believe most of the growth was from infill drilling the very old fields in W Siberia (think of it as adding more straws to the coke bottle).

    Russia may hold flat a while longer, but the world peaked in 2015.

    http://russia-insider.com/sites/insider/files/styles/1200xauto/public/saupload_USA-and-Russia.jpg?itok=phKPZ8Ru

  16. Apneaman on Fri, 1st Jul 2016 1:18 am 

    Luckily there’s no major threats to their infrastructure. Pratical already mentioned the thawing and heaving permafrost.

    Wildfires in the Land of Frozen Ground — 1,000 Mile Long Pall of Smoke Blankets Burning Siberia

    “It’s another day in a record hot world. And in a few hours, just below the Arctic Circle in Siberia, the temperature is predicted to hit 33.2 C (or just shy of 92 degrees Fahrenheit). According to climate data reanalysis, that’s about 15-20 C above average for this time of year over a land filled with cold weather adapted boreal forests and covering ground that, just below the first few feet of duff, is supposed to be continuously frozen.”

    “As recently as June 25th, Russian authorities had indicated that around 390 square miles had burned along the southern edge of this zone in Buryatia alone. For other regions, the tally is apparently uncounted. An unreported number of firefighters are now engaged with these blazes and have currently been assisted by an additional 150 Russian Army personnel. The Interfax News Agency also reports that 11,000 personnel from the Russian Army are currently on standby to battle the massive fires, should the need arise.”

    https://robertscribbler.com/2016/07/01/wildfires-in-the-land-of-frozen-ground-1000-mile-long-pall-of-smoke-covers-burning-siberia/

    Takes plenty of energy to fight these AGW jacked fires, rescue folks, repair & rebuild, so factor a big chunk that energy into the EROEI equation. Add up the rapidly rising cost of all the fossil fuel externalities – the ongoing droughts, the new abnormal and more frequent biblical downpours, heatwaves, etc. What’s it costing your society? Anyone you know get hammered by this shit yet? Just a matter of time and it’s coming for you and yours too. Coming for all of us. It don’t matter if the oil keeps flowing and they manage to keep the economy staggering along – we’re fucked and no amount of energy and resources will save us.

  17. Cloud9 on Fri, 1st Jul 2016 6:52 am 

    If Short is right and we are 13 years out from a zero sum game, somewhere between then and now we have systemic collapse. I suspect it will first take the form of an economic implosion followed by a social implosion culminating in a political implosion. The question is when will the cascade begin?

  18. JuanP on Fri, 1st Jul 2016 7:59 am 

    Ap, I am really impressed by the fact that temperatures in Alaska and Siberia have been higher than in Miami Beach for weeks now. I have thermometers and rain meters in the gardens and I log precipipitation and temperature every time I visit them. The highs have only exceeded 83 a few times in the last month and only by a couple of degrees. Being surrounded by water and so close to the sea obviously help. Our trade winds blowing from the ESE help, too.

  19. JuanP on Fri, 1st Jul 2016 8:01 am 

    Cloud, Any day now. Things are obviously hanging by a thread.

  20. PracticalMaina on Fri, 1st Jul 2016 8:30 am 

    Apneaman scary shit.
    JuanP, I am hoping things hold together for a few more years, my prepping could use one more winter of BAU and several more years of a fairly stable climate.

  21. Davy on Fri, 1st Jul 2016 8:41 am 

    The system is primed for a break to a new level of activity much lower and less complexed. This brittleness means a range of disruptions can bring on this break. Either a range of particular events in singular or a mix of several events. We can compare this to an airplane. Often one event will be a cause like a major mechanical failure. Other times we have pilot error, mechanical failure and weather all conspire to bring on a catastrophic failure.

    We have the approach of abrupt climate change and the dead state of oil. We have an ongoing unstable global economy. We have war potential and state failures. The really unfortunate for all of us is the reliance we all have on the global system now coupled with overpopulation. We have a dangerous dependence on a dispersed economy with so many weak points. The carrying capacity of so many people is only maintained from this global system. Without this global system the population carrying capacity would surely be much less. I would speculate ½ is that number. That might sound drastic but that is only a 1960’s population level.

    If I were to speculate again I would say it is not going to be the extremes of any one of these dangerous problems it is more likely will be the approach to and in the vicinity to the extremes of these problems. I would then add the ever present dangers of war and or weather extremes. All these occurrences influence the world’s ability to grow and distribute food.

    We have an approaching brick wall along with an ever present chance of failures to a critical part of the machinery of globalism. We then have the unfolding aspect of this collapse. How quick and the spreading nature of the collapse contagion. How will this play out? Once the status quo breaks then it is how will it spread and how hard will those spreading failures be? This is a fascinating study if it were not so close to home for all of us.

  22. shortonoil on Fri, 1st Jul 2016 9:11 am 

    ” If Short is right and we are 13 years out from a zero sum game, somewhere between then and now we have systemic collapse. I suspect it will first take the form of an economic implosion followed by a social implosion culminating in a political implosion. The question is when will the cascade begin? “

    If you are in Venezuela, Nigeria, Alberta, CA or parts of Texas it has already begun! The Petro States will go first because they have the greatest exposure to the losses generated from oil production. Eventually, it will reach all sectors of the world economy as the debt needed to keep producing oil, and its products accumulates. The impact will be substantial and ongoing. Whether or not modern society has the physiological balance to deal with it in an orderly, and rational manner is doubtful.

    http://www.zerohedge.com/news/2016-07-01/police-called-elementary-school-after-3rd-grader-makes-racist-comment-about-brownie

  23. Dustin Hoffman on Fri, 1st Jul 2016 9:45 am 

    Cloud9, Shortonoil already has addressed your inquiry in a recent comment.
    Stated Sauds are borrowing money, as well as other resource rich oil countries, the EU is falling apart with Spain, Italy and Greece, as well as, France on the ropes financially. Never mind the US and its massive borrowing to cover its budget.
    Some societies have already collapsed. Suppose you wish to known when the SHTF in your neck of the woods….your guess is as good as any…Gail Tveberg of Our Finite World blog is surprised it has lasted this long my the tricks of the Central Bankers….hopefully they have more in their bag

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