Russia running out of easy oil: state study

26th April 2011, Comments 0 comments

An ominous Russian state study warned the government Tuesday that it faced a light crude oil shortage that meant it could only sustain its world-topping production rates for another 15 years.

The annual ministry of natural resources survey painted a bleak Russian energy picture that also pointed to problems in future export rates of natural gas -- the domain of its largest and most important company Gazprom.

But most of the problems focused on oil and its deteriorating and diminishing quality in Russia's Soviet-era wells.

The detailed study said Russia was tapping its existing light crude reserves in western Siberia at alarming rates while failing to replace them with new finds in regions that sit further away from the industrial heartland.

The ministry concluded that oil quality was deteriorating steadily as a result and Russia could only sustain current annual production rates of 500 million tonnes for another 13 to 15 years.

"Russia has less than 30 percent of oil that 'flows' -- the remaining 70 percent is very heavy, viscous and hard-to-recover," said the survey while pointing to some western Siberian fields that stood more than two-thirds empty.

It added that most of the crude being produced now was of the light variety demanded on the world market -- meaning that more and more of what Russia had left over demanded extra amounts of processing.

Top government officials have spent years warning about too little money being invested in the development of untapped reserves in far-flung regions of eastern Siberia.

Oil companies have lobbied in favour of state policies that introduce tax breaks on firms that export from newly discovered locations and invest in geological survey work.

But the latest government findings show investment in new oil exploration declining by 40 percent and actual work going down nearly 50 percent.

The ministry also noted that the work being done in new locations was disappointing and discovering only small traces of oil.

"So far, the expectations are not being fulfilled," the Russian natural resource ministry said.

It further urged the government to introduce a more open licensing system that would offer private companies easier terms for oil exploration and a new tax breaks programme for field development work.

Russia regained the world's top oil production ranking in the past decade and has been the world's top natural gas exporter throughout the post-Soviet era.

But the latest study warned that even this lead was not safe because the world was switching to liquefied natural gas consumption while the United States and Canada were also pushing ahead with the development of shale gas.

Gazprom has been forced to temporarily stall the development of its Shtokman field in the Barents Sea after discovering the United States was no longer willing to import its expected supplies.

The state-run giant also reported a drop in European sales last year and the Russian ministry warned that further complications for Gazprom were likely.

"European consumers are increasing their liquefied gas purchases, seeking to at least partially replace the Russian pipeline supplies," said the survey.

"This trend is irreversible," it starkly noted.

The ministry observed that the new European policy could endanger Russia's planned South Stream and North Stream pipelines -- two projects designed specifically for European markets.

© 2011 AFP

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