Russia and oil: will it be able to reach production targets?

A worker passes an oil drilling rig in an oilfield near Nizhnevartovsk, Russia. Photographer: Andrey Rudakov / Bloomberg

Russian oil production has recently been an element of deep turmoil in the oil producers' cartel. After the war between producers in 2020, an agreement was reached which, even in the face of an increased price, provided for an increase in production in various countries including Russia. A key point, however, is whether or not Russia can increase its crude oil production as planned and allowed by its OPEC + share, i.e. whether Russia is operating at full capacity or not. By December 2021, Russia, according to the Ministry of Energy , pumped an average of 10.903 million barrels of crude oil and gas condensate per day. That number was slightly less than the 10.906 million barrels produced per day for November 2021, but an impressive 8.4% more than the same period a year earlier.

Government data shows that total annual production of oil and gas condensates during 2021 averaged 10.5 million barrels per day, which is more than 2% higher than the previous year. Russian crude oil production is expected to increase further in 2022. The Energy Ministry expects the average annual daily production of crude oil to rise between 10.84 million and 11.05 million barrels, an increase from 3% to 5. % compared to 2021. Everything okay?

Despite concerns that the Russian oil industry has reached production capacity, Deputy Prime Minister Alexander Novak said in October 2021 that there is ample room for expanding crude oil production. Novak, who is the Kremlin's key negotiator with OPEC, said Russia has enough spare capacity to boost production to over 11 million barrels per day. In support of this claim, the Deputy Prime Minister cited previous production records in which Russia pumped up to 11.4 million barrels per day, in February 2020, before the COVID-19 pandemic struck forcing operational closures. Although some analysts believe this is not achievable, industry consultancy Rystad Energy predicted in a press release in August 2021 that Russia's oil production in July 2022 will hit a new record high. Rystad suggests that the world's third largest oil producer will extract 11.6 million barrels per day during that month which, if reached, represents a substantial 11% increase over the same month in 2021. Production from the largest oil producer will continue. to grow, reaching a peak of 12.2 million barrels per day by mid-2023 .

This major increase is neither simple nor automatic. There are signs that Russia may struggle to increase oil production as planned. The main elements governing Moscow's projected increase in crude oil production are Russia's OPEC + share, external factors such as climatic difficulties and the presence of unused capacity. Factors that can hold back the growth of Russian production are:

  • the extreme limatic factors at which many extraction fields are found , which make them dependent on local meteorology;
  • Covid, which currently sees its sixth basin in Russia, expanding;
  • the technical and technological problems, also linked to the difficult relations with the West, a producer of many components that would be useful to Russia and on which there may be breaks in supplies due to political factors;
  • the availability of new (greenfield) or improvement (brownfield) fields, which may not be adequate. The US Energy Information Administration has gone so far as to say that developing greenfield projects in Russia may not be able to increase production much higher than the 10.9 million barrels pumped in December 2021. This, according to the EIA. , because the additional barrels are what the operations will add, when the operations are operational, they will be offset by the decrease in production from mature oil fields, particularly in Siberia.

If Russia were not able to complete the quotas assigned by the OPEC + agreements, we would have a reduction in the global oil supply and therefore a push for an increase in prices. And this without even evaluating the elements of political uncertainty.

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This is a machine translation of a post published on Scenari Economici at the URL on Mon, 24 Jan 2022 07:00:51 +0000.