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  • 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.

     

    Sanctions and lower oil prices hardly affected the production figures in 2014

    In 2014 Russia was the largest crude oil producer with the production rate of 10.6 bbl/day (12.65% of the world production). Russian oil production hit the new record-high volume since 1987 and grew 0.6% on y-o-y basis. In 2015 the Russian government plans to keep the production rate at the same level in spite of the oil price volatility.

    On the contrary, gas production shrunk by 4.2% and is expected to contract by 23 bcm in 2015 due to the slowing of EU economy and warm winters in the European continent – Europe continues to be the primary market for Russian natural gas.

     Indicator  2013 2014
    Change
     Oil production  523.3 mil tons  526.8 mil tons  +0.6%
     Gas production  668 bcm  640.2 bcm  -4.3%
    Sources: Stats - Ministry of Energy of the Russian Federation, Federal Customs Service

    Forecast – Minister of Energy of the Russian Federation Alexander Novak’s quote reported by Bloomberg on 11 March 2015

     

    Oil price dynamics and implications for Russia

    Last year global oil prices put the world’s economy in the situation of uncertainty.

    It happened because by late 2014, world oil supply was on track to rise much higher than actual demand, as the chart below shows. As much as ~0.5 mb/d volumes were stockpiled away in the end of 2014. Hence, in September, prices started falling sharply.

    The plunging price of oil has also caused the ruble's value to drop sharply — it leads to the rise in inflation, as imports become drastically more expensive. On the other hand, it helped the exporters of O&G sector to balance the losses with increased ruble revenue.

     

     

     

     

     

     

    Resource: IE Singapore

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