Russia’s Oil is Drying Up

Last week we reported on how Gazprom’s natural gas production has fallen by a shocking amount, and now the Wall Street Journal picks up on Russia’s equally horrific problem with plummeting oil production:

Is Russian oil production back?

After months of struggling to lift production volumes, Russia says its crude production rose in April by almost 1%. If sustained, that could bode well for global oil supplies in the event demand ever recovers. But take the latest data with a grain of salt. Russia’s Energy Ministry said Monday the country pumped 9.85 million barrels a day on average in April, up slightly from 9.79 million barrels a day in March. (The world’s next biggest producer, Saudi Arabia, currently pumps about 7.9 million barrels a day.)

But analysts at Sanford Bernstein rubbished the data, saying: “Despite perceived strength in March and April Russian oil production data, we do not believe the data supports a theory of returning output growth in the country.” Year-to-date production is still below last year’s, the analysts note.

Juicing oil-field output in the short run isn’t so hard—enhanced oil-recovery techniques like injecting steam or natural gas into reservoirs make it easier to pump additional lingering quantities of crude. The trick is keeping it up. And on that count, Russia still faces plenty of obstacles, not least an onerous tax policy that has stunted upstream investment and which will take years to correct.

Yes, Russia has taken steps to ease the tax burden and encourage investment. But the global recession and lowish oil prices drove many Russian producers to slash capital expenditures, spelling more trouble for the country’s future oil production.

Like many oil forecasters outside Russia, consultants at PFC Energy in Washington think the country’s crude production could drop by at least 300,000 barrels a day in 2009 after sinking by almost 100,000 barrels a day last year, based on PFC calculations.

For all the fanfare in Moscow over April’s oil data, Russia’s real production woes—coupled with even starker output declines in countries such as Mexico—could end up giving OPEC just what it’s been asking for: Tighter oil supplies and rising oil prices.

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2 responses to “Russia’s Oil is Drying Up

  1. I have heard that Russia’s experience is similar to many of the other petro-states where they all had lots of uses for the money when oil prices were high and decided to put off preventative maintenance and investment in developing production capacity. Now that oil prices have been so low this investment is not even possible.

    If this is so, it would make for an interesting situation where oil prices were high yet oil producing nations were not able to substancially benefit. But would oil producing nations, with their many desires to destablize neighbours, project power and supress dissent be able to curb these desires long enough to repair the damage?

  2. Low productions means higher prices. Basic capitalism.

    LA RUSSOPHOBE RESPONDS:

    Zero production means zero income. Basic first-grade intelligence.

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