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  • Overview of Russia’s Oil & Gas sector

    Russia is the world's 3rd biggest oil producer after US and Saudi Arabia and the 2nd largest energy producing nation in the world after US. Russia has almost 103.2 thousand million barrels of proved oil reserves at the end of 2014 (6.1% of the world’s total). 

     

    In March 2015 the new daily record of oil production was reached – 10.71 mil barrels. 50% of federal budget revenues derive directly from hydrocarbon production and exports. Thus, the Russian government aims to maintain oil production at current levels for the foreseeable future. 

     

    In terms of oil exports: Russia’s refined oil exports increased 9.1% (13.7 mil tonnes) to 165.3 mil tonnes from 2013 to 2014, outpacing crude oil exports. Total oil exports to North Asia nearly doubled from 14% to 24% while exports of gas (to EU) declined in near proportion.

    • In 2014, the volume of exports to China, South Korea and spot market (through Netherlands) increased which consequently shrunk the proportion of exports to Europe and CIS.

    • Due to increase in domestic crude oil refining, the export volume of crude oil dropped, while the export volumes of refined oil increased.

      

    In terms of gas exports: Economic and political factors are pushing Russia to seek new, non-EU markets for its gas exports, notably North Asia. EU policies and weather change - Europe is on the lookout for new gas suppliers to relieve its dependence on Gazprom, while warm winters have led to the decreasing gas consumption. The weakness in European demand was further compounded by gas continuing to lose share in the power sector, especially to non-fossil fuels.

      

    As Russia turns to Asia-Pacific markets, it plans to increase its O&G export infrastructure. Russia aims to diversify its O&G export markets and has been aggressively securing new supply contracts with the Asia Pacific and Turkey. By Energy Ministry estimates, Russian gas exports to Asia will rise from 14 bcm in 2014 to 130 bcm in 2035 and oil and coal exports will more than double. 

     

    Yamal LNG project

    • Joint Novatek-Total-CNPC USD 20 bln project to supply LNG to the Asia-Pacific market.

    • Novatek’s and project’s JV company’s subsidiaries operate in SG since 2013 to secure contracts for Yamal LNG.

     

    Eastern Siberia – Pacific Ocean oil pipeline

    Oil:

    • USD 270 billion Rosneft-CNPC contract to supply 360 million tons of oil to China over 25 years through ESPO pipeline (operational for 2 years).

    Natural gas:

    • USD 400 bln Gazprom-CNPC "deal of the century” for gas supplies to China through "Power of Siberia” gas pipeline (60 bcm/year, under construction).

    Downstream construction projects by Rosneft:

    • "Far Eastern Petrochemical Company” in Nakhodka (total capacity 30 million tons) – project frozen due to low oil prices.

    • New LNG plant in Sakhalin (capacity 5 billion tons).

     

    Current oil and gas production is concentrated in Western Siberia. New projects in the Eastern Siberia and Far East region are in exploration stage.

      

    Future of the Russian O&G industry - Russia is going to spend up to USD 400 bln to explore and produce offshore O&G in the Arctic over the next 20-25 years

    • Russia owns 52% of Arctic oil and gas reserves.

    • Arctic sea depth mostly 10 to 400 meters only (compare to 3 km+ in Brazil).

    • Rosneft the key driver of Russia’s Arctic exploration

    • Rosneft estimates proven Arctic reserves as high as 25.5 bln tons of oil and 25 tln cubic m of gas.

    • Rosneft plans to spend up to USD 400 bln on exploration and production in the Arctic over the next 20-25 years in partnership with ExxonMobil, Eni and Statoil.

     

    Implications

    • There will be increasing demand for foreign technologies related to Arctic oil drilling and exploration.

    • Current political situation will push Russia towards actively seeking for Asian partners.

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