Comments: Russian Transition

Abstract

With sizable oil reserves and the world's largest gas reserves, Russia undoubtedly will play a critical role in how well the oil and gas industry meets future demand. The country made a significant contribution in the first half of this decade when global demand, primarily from China, put increasing pressure on suppliers, lifting oil prices to nominal record territory. Some estimates credit Russia with supplying up to 40% of the incremental global demand that has occurred since 2000. The Russian oil and gas industry is in transition, technically and politically. For the past decade, emphasis has been placed on activating idle wells and optimization. Workovers and applying advanced technology to existing wells will continue to be important, but attention is now turning to finding and developing new reserves. Many of these are in hostile and remote conditions, such as in eastern Siberia, offshore Sakhalin and the Barents Sea, and Timan Pechora, which has proved reserves estimated at 8 billion bbl. That shift means new investment and new technology. Needed are advanced seismic imaging, platforms that can be used in heavy ice, undersea pipelines, and the latest drilling techniques. SPE's first Russian Oil and Gas Technical Conference and Exhibition, to be held 3–6 October in Moscow, will cover those aspects of industry development and numerous technical disciplines in the 4-day event (see article, p. 38). Particular emphasis will be devoted to technology applications and exchange. Russian oil production slowed last year, following strong growth of 11% and 9% in 2003 and 2004, respectively. The slowdown came from more stringent tax policy and the government's breakup of oil giant Yukos. Both underscore the government's increasingly active oversight of the energy industry, which Russian President Vladimir Putin calls the "holy of holies" of the country's economy. Yukos, once Russia's biggest oil company, was decimated by prosecutions and government orders to repay billions of dollars in back taxes. Yukos' founder Mikhail Khodorkovsky is now serving an 8-year prison sentence in Chita in eastern Siberia for fraud and tax evasion, a conviction some claim was politically motivated. Rosneft acquired Yukos' assets and now has risen to become the second-largest oil company in the country behind Lukoil. In an interview with JPT 3 years ago, Khodorkovsky stressed the importance of a stable tax regime and energy policy in attracting foreign investment and improving Russia's oil industry. Government policy on oil is still in flux but could be decided this summer. In June, the Parliament began discussing a draft law on subsoil resources that would ban companies in which foreigners own more than 49% from securing development rights in "strategic" fields. The new law likely would increase the dominance of state-owned energy firms such as Gazprom and Rosneft and encourage international oil companies to partner with Russian firms. Even with those restrictions, Russian oil policy would be more open than in some large-producing countries. Consuming countries think of energy security in terms of security of supply. But for large-scale producers, such as Russia, energy security means prudent development of state resources, getting a fair return from the exploitation of those resources, and security of demand. Although Russia needs western technology to remain one of the world's major producers and exporters, the question for foreign oil companies is not whether they can afford to be in Russia but whether they can afford not to.