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Wednesday, April 16, 2008

Signs of the Russian Apocalypse: Oil Production Falls

So much for the idea that Russia is a reliable supplier of crude oil to world markets. So much for the idea that oil production can sustain the Russian economy. So much for the idea that Vladimir Putin is an economic genius. The BBC reports:

The future supply of Russian oil is threatened by a likely decline in production levels, one of the country's top oil executives has warned. Lukoil's Leonid Fedun said $1 trillion would have to be spent on developing new reserves if current output levels were to be maintained. Recent figures show Russian output fell 1% in the first quarter of 2008. The possibility of less oil from one of the world's key suppliers will add more pressure to prices now at record highs.

Russian peak?

The surprise fall in Russian oil output in the first part of the year has raised fears about the ability of global supply to keep pace with demand over the next decade. Russian production averaged 10 million barrels a day in the first three months of 2008, according to the International Energy Agency, down 1% on the same period last year. Blamed on supply problems in western Siberia and weather conditions making it harder to move drilling equipment, the fall contrasts with substantial output rises in recent years. In an interview with the Wall Street Journal, Lukoil vice president Leonid Fedun cast doubt on whether output could continue to increase.

Once highly-productive fields in Siberia are slowly being exhausted and the huge cost of searching for oil in the untapped but remote region of eastern Siberia has deterred firms. "When the well's productivity falls, you have to keep drilling more and more," Mr Fedun said, referring to the steady depletion of older fields. "You have seen it in Alaska and the Gulf of Mexico and now you are seeing it in Siberia."

Analysts at Citigroup recently said annual increases in Russian output could "no longer be taken for granted" but argued that production was expected to rise until 2012. One energy expert said the Russian industry was now acknowledging a crisis which had been evident to independent observers for several years. "We now see production peaked last year," Mikhail Kroutikhin, editor in chief of the Russian Petroleum Investor told the BBC. "I believe the decline will continue for quite a number of years."

Knock-on effects

The problems have been caused by high tax levels and a shortage of financial incentives to invest in exploration, he added. Russian worries underline longstanding concerns about whether there is enough oil to meet the needs of the global economy, particularly fast-growing China and India. They are also a particular cause of concern for several of Europe's largest economies, such as Germany, which buy a large share of their oil from Russia. "Russia is not going to be a very reliable supplier of energy in a few years," Mr Kroutikhin warned.


stalker said...

LR have you ever head of a thing called peak oil?

Would this mean that America has failed even more miserably than Russia (its production having peaked in 1973), while Azerbaijan continue to own everyone else by increasing production?

La Russophobe said...

Does it comfort you to know that while Russia will be destroyed, America will also be destroyed? We doubt the people of Russia would find any consolation in that, and wonder why you hate them so much as to think otherwise.

Meanwhile, if you read a little (if indeed you can read) you will learn that oil production is just a wee bit more important to the Russian economy than to America's.

Dimwit. You embarrass us with your ignorance each and every time you post to our blog. Please crawl back under your sordid little rock and play with the dark things you find there.

anonymauser said...

Stalker: The difference is, Russia still has huge reserves, many of then untouched, such as Shtokman and Sakhalin-II. Unfortunately for them, the stoopid roosians don't know how to drill in these places. So they rely on the West for the technology to do it. And Westen oil companies have grown tired of having their investments stolen from them just when they're about to become profitable, so they're telling the Russians to get lost. That's why Russian oil and gas production has "peaked"... just like everything else in that blighted country.