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Russia’s Geology in Dire Straits

Bojan Soc, Moscow News
The Russian government needs to be more generous when it comes to funding academic institutions that train geologists. Otherwise, already underfunded geology schools will have trouble providing good-quality training for those who will help discover minerals and metals deeply buried in the subsoil of the world’s largest country, a panel of scientists from the Moscow-based Russian State University for Geological Exploration (RGGRU) told a press conference Monday.

…The shortage of qualified geologists, coupled with the trend of the past decade when oil companies pumped as much crude as possible neglecting exploration, have brought about a crisis in oil reserves replenishment, thinks Yevgeny Kozlovsky, head of RGGRU’s Optimization Chair.

Kozlovsky, who formerly served as the Soviet Union’s geology minister, called today’s situation critical, forecasting that Russia’s current oil reserves will be exhausted in 50 years, gas reserves – in 75.

“Over the past 15-17 years oil companies have been producing Soviet-era reserves, but that cannot go on forever,” Kozlovsky said.

According to him, Russia’s “Subsoil Law,” which was passed in 1992, had certain good points, but due to the Soviet oil industry’s dismantling it failed to work as the majority of lucrative oilfields had already been awarded to private companies emerging at the time. These, in turn, put a major stress on production, investing next to nothing into the discovery of new reserves.

The scientist added that new owners bothered only about skimming easily accessible reserves, never bothering to maximize recovery.

“In Soviet times the oil recovery factor used to be 0.35 percent, today it is 0.23 percent. We are losing billions of dollars because of such attitude,” Kozlovsky said.

He also lamented what he called the low level of competence among government officials who have failed so far in putting together a viable policy on geological exploration. As long as Russia doesn’t have one, geology will not drive the oil industry, he thinks.

“Now we have a new government and I am eager to see if it will be more responsive to experts’ advice,” concluded Kozlovsky.
(27 September 2007

Russia Beginning To Feel the Heat

Rebeccah Billing, Moscow News
Sustaining economic growth in Russia cannot be achieved through oil and gas export revenues alone; Russia is currently three to five times less efficient in its energy usage than Western European neighbors, with increasing economic implications.

As a land swamped with natural oil and gas resources it is understandable why energy efficiency has not been high on the agenda for Russia. But it seems that the country’s complacency in this area could soon come back to bite it. Russia’s domestic fuel consumption is steadily increasing in step with the rise in GDP. Thus, in order to meet both its domestic needs and its export obligations, urgent action must be taken in the Russian heat and power sectors.

But although the need for change is great, the incentives remain low; competition between companies involved in energy generation, distribution and consumption is weak and the government strictly regulates pricing. One company trying to make headway on the challenging issue of energy efficiency in Russia is Lighthouse Energy Investments (LEI). The Moscow News talks to its director Jeroen Ketting.

Ketting: I looked around at the situation in Russia and I saw that Russia uses three to four times more energy per produced dollar of GDP than other industrialized countries, and industrial production and thus energy consumption is increasing. But 50 percent of industrial equipment installed is old and inefficient and the energy infrastructure (generation and distribution) is deteriorating. Moreover, Russia has a lot of gas and oil reserves but its capacity to produce and to transport oil and gas are limited. With increasing domestic and international demand and with existing export commitments Russia’s energy household is stretched to its very limits. Plus tariffs are increasing. This means that there is an increasing margin and need for energy efficiency in Russia; increasing demand, stagnating supply, rising tariffs and inefficient generation, distribution and consumption. When you combine that with the rising tariffs the financial argument to save energy becomes stronger and stronger.
(27 September 2007)

Russia to raise oil exports by 50,000 bpd in Q4

The quarterly export scheduled by pipeline monopoly Transneft showed overall seaborne and pipeline exports to countries outside the former Soviet Union will amount to 51.55 million tonnes or 4.11 million barrels per day, versus 4.06 million bpd in the third quarter. . .

. . . “This will be a tough quarter, especially October. People rushed to evacuate as much crude as possible before the introduction of new duties, so stocks are empty now,” said a trader with a Russian major. “But it turned out that exports will continue to remain attractive, which means domestic prices will also skyrocket,” he added.

Despite the expected rise in exports, the fourth quarter schedule is much lower than the all-time high of 4.45 million bpd seen in July-September 2006, as Russian firms increasingly tend to refine crude at home.
(14 September 2007)
Jeffrey Brown (westexas) deconstructs a positive-sounding article, to find “From Q3 2006 to Q3 2007, Russian crude oil exports to countries outside the former Soviet Union declined at -9.7%/year.”

As part of a discussion on The Oil Drum, Jeffrey Brown wrote:

The most recent consumption numbers I have for Russia are for 2005 to 2006, when they showed a +5.6%/year increase in consumption (total liquids). Because of a rapid increase in consumption, their net exports fell slightly from 2005 to 2006, despite an increase in production.

The reason I am paying so much attention to Russia is because the HL plot shows their mature basins to be hugely depleted, which is supported by the recent Alfa Bank report warning of rapidly rising water cuts in Russian production.

The only real question for Russia, and for most of the top net oil exporters, appears to be how fast their net exports are falling. As I noted over on the other thread, our mathematical model, recent case histories and recent production/export data suggest that net export declines tend to accelerate with time.

Russia forging energy dialog with China

Gazeta, RBC Daily via RIA Novosti
Amid its cooling relations with the EU, Russia has so far failed to make China an alternative market for shipping its fuels. Beijing, in turn, is reluctant to meet Moscow half-way and pay a better price for Russian oil, gas and electricity. Without this, Chinese exports would never be as economically efficient for Moscow as the traditional Western routes.

Chinese Prime Minister Wen Jiabao will visit Moscow in November to meet with his Russian counterpart Viktor Zubkov and sign an intergovernmental agreement on the Eastern Siberia-Pacific Ocean (ESPO) pipeline. On Friday, Russian Deputy Prime Minister Alexander Zhukov tried to make it clear to the Chinese partners that an agreement on the Skovorodino-Daqin oil link would not necessarily imply cheap oil shipments.

State-run Rosneft, which is authorized to export hydrocarbon resources to China, said it saw no reason to sell cheap oil when Western partners showed extensive demand and were making much better offers. Beijing, on the contrary, is expecting cheap oil to flow through the proposed pipeline once it is completed. (As of now, oil is shipped to China by railway tanks).

Zubkov has finally achieved a vague compromise: Russia and China sign a pipeline agreement with Beijing shouldering all costs of the Skovorodino-Daqin link construction, but the agreement does not guarantee cheap oil exports. In other words, he arranged for China to take on all the risks and then have to negotiate a pricing policy which would suit Rosneft, making its eastern exports quite as lucrative as western ones. The two prime ministers are expected to make the final decision in Moscow in November, but arrangements are subject to change by then.

“Economics compels us to firmly uphold our position,” said Igor Nikolayev, director of strategic analysis for the auditing consultancy FBK. “Our oil and gas production dynamics is less than impressive, while the domestic market demand is on the rise. Politically, we would be happy to agree to China’s offer, but economically, it is unrealistic for Russia today,” he added.

Sergei Sanakoyev, head of the Russian-Chinese Center of Trade and Economic Cooperation, said he doubted that the November meeting would achieve any progress on oil and gas issues. “The meeting will simply increase awareness because Russia has a new premier, that’s all,” he said.
(1 October 2007)

Russia says it will invest more oil wealth in its economy

Bloomberg News via IHT
The Russian government said Friday that it would invest more of its oil wealth directly into the economy, mainly in infrastructure, as it sought to maintain its longest expansion since the fall of the Soviet Union.

Budget-funded investment will rise to at least 900 billion rubles, or $36 billion, next year, the acting first deputy prime minister, Sergei Ivanov, said at an investment conference in the Black Sea resort of Sochi. State investment will climb to 3.8 percent of gross domestic product in coming years, Ivanov said.

“Russia more than ever before is using oil and gas revenue for financing projects,” the acting finance minister, Alexei Kudrin, said. Budget revenue from taxes on oil and natural gas now equals 5 percent to 6 percent of gross domestic product, versus 2.5 percent a few years ago, Kudrin said.

Analysts have been urging Russia to wean itself from its nearly total dependence on oil and natural gas revenue through diversification measures, from improving transportation to encouraging small businesses. It is an ideal time to act, they say, because of the economy’s remarkable turnaround since the financial crisis of 1998, when the Russian ruble collapsed.
(21 September 2007)