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Further Reading

Russian Oil Production

Russia has the seventh largest oil reserves in the world (6% of total), after 5 Middle East Countries (totalling 63%) and Venezuela (7%). Russia's oil exports declined 5.2% year-on-year in January-June to 122.5 million metric tons (897 million barrels), the country's top statistics body said on 19 August 2008. According to the Russian State Statistics Service (Rosstat), oil accounted for 36.4% of Russian exports and 52.3% of fuel and energy product exports in January-June 2008. Rosstat reported on Monday that oil output in Russia declined 0.8% year-on-year in January-July to 283 million metric tons (2.07 bln bbls).

Russia's oil production would in any event plateau sometime around 2010, while exports would inevitably fall. The almost effective absence of growth in production was due both to the low level of capital expenditure in the industry and a deliberate Kremlin policy of not opening hydrocarbon deposits for development. Domestic demand for oil products, particularly gasoline, was rising steadily, with more than 2 million new cars sold in Russia each year. By one estimate, from 2007 to 2011 Russia would reduce the volume of oil exports by an annualized 250,000 bbl/day. By 2012, therefore, Russia's export volume of crude and oil products would be between 1.0 and 1.3 million barrels per day lower than 2007 export volume.

Russia is a major world oil producer, sometimes producing even more than Saudi Arabia. According to the Oil and Gas Journal, Russia has "proven" oil reserves of 60 billion barrels, most of which are located in Western Siberia, between the Ural Mountains and the Central Siberian Plateau. The Society of Petroleum Engineers (SPE) and US Securities and Exchange Commission [SEC] have different methods for measuring oil reserves [Cambridge Energy Research Associates (CERA) recommended on 7 February 2006 that the US Securities and Exchange Commission adopt SPE's reserves definitions]. The Russians use a system of measuring reserves that are grossly exaggerated by these international standards, because they are based on a maximum theoretical recovery, rather than economical recovery and oil prices. The Russian government does not release oil reserve estimates, although they do speak of "prognosed reserves" of 44 billion tonnes (322 billion barrels) in their latest version of the Energy strategy for the period up to 2020.

During 2006, Russia produced roughly 9.8 million bbl/d of liquids (not including oil products), consumed roughly 2.8 million bbl/d in liquids, and exported (in net) around 7 million bbl/d. According to official Russian statistics, roughly 4 million of this total is crude oil. Over 70 percent of Russian crude oil production is exported, while the remaining 30 percent is refined locally. Crude oil exports via pipeline fall under the exclusive jurisdiction of Russia's state-owned pipeline monopoly, Transneft. The majority of Russia's oil exports transit via Transneft-controlled pipelines, but around 300,000 bbl/d of oil is transported via other non-Transneft-controlled sea routes or via rail.

During 2006, Russia exported almost 4 million bbl/d of crude oil, and over 2 million bbl/d (102 million tonnes) of oil products. Expanding Russia's capacity to export oil in order to keep pace with the country's growing production is important to both Russian policymakers and oil companies. However, the two sides are sometimes at odds over how best to boost the country's export capacity.

In the 1980s, the Western Siberia region, also known as the "Russian Core," made the Soviet Union a major world oil producer, allowing for peak production of 12.5 million barrels per day in total liquids in 1988. Following the collapse of the Soviet Union in 1991, Russia's oil production fell precipitously, reaching a low of roughly 6 million bbl/d, or around one-half of the Soviet-era peak. According to observers, several other factors are thought to have caused the decline, including the depletion of the country's largest fields due to state-mandated production surges and the lack of investment in field maintenance.

A turnaround in Russian oil output began in 1999. Many analysts attribute the rebound in production to the privatization of the industry following the collapse of the Soviet Union. The privatization clarified incentives and increased less expensive production. Higher world oil prices (oil prices tripled between January 1999 and September 2000), the use of technology that was standard practice in the West, and the rejuvenation of old oil fields also helped raise production levels. Other experts partially attribute the increase to after-effects of the 1998 financial crisis, the fall in oil prices, and the subsequent devaluation of the ruble.

In upcoming years, total Russian oil production was expected to grow at an annual rate of around 1.5-2.5 percent, partially due to growth in output from the Sakhalin projects. Government taxation of production and export revenues along with the continued lack of clarity concerning the ownership of subsoil resources contributed to lower output for 2006.