Fitch: Russian oil production is nearing peak
Azerbaijan, Baku, Jan. 22 / Trend A.Badalova/
Russian oil production will probably peak in the next few years as the gains from new oil fields are offset by falling output from brownfield sites, Fitch Ratings reported on Tuesday.
The agency stressed that Russia posted another post-Soviet oil production record in 2012, but significant new exploration, in particular on the Russian continental shelf, would be required over many years to increase output further.
According to Fitch, the production gains that Russia achieved over the last decade were mainly driven by intensive application of new technology, in particular horizontal drilling and hydraulic fracturing applied to Western Siberian brownfields on a massive scale. "This allowed oil companies to tap previously unreachable reservoirs and dramatically reverse declining production rates at these fields, some of which have been producing oil for several decades. In addition, Russia saw successful launches of several new production areas, including Rosneft's large Eastern Siberian Vankor field in 2009," the report said.
The biggest potential gains from new technology have now been mostly achieved, Fitch believes.
"Existing brownfield sites are depleting rapidly and the Russian oil companies are investing billions of dollars in managing declining rates at these fields. Greenfields are located in inhospitable and remote places and projects therefore require large amounts of capital," the report said.
Fitch believes that oil prices would need to remain above $100 per barrel and the Russian government would need to provide tax incentives for oil companies to invest in additional Eastern Siberian production.
"While some greenfield sites are in development, we believe they will only compensate for the production lost from mature assets. A large-scale development of the Russian continental sea shelf, most of which is off-limits to private oil companies due to legal restrictions, has barely begun. A notable exception is the Caspian Sea shelf where LUKOIL is progressing with its exploration and production programme," Fitch's report said.
The agency sees potential for more joint ventures between Russian and international oil companies in exploring the Russian continental shelf.
According to Russian Ministry of Energy, total oil production in the country increased by 1.3 percent in 2012 to 518 million tons. Russian refinery volumes increased by 4.5 percent to 266 million tons while exports dropped by 1 percent to 239 million tons.