The widespread adaptation of the combustion engine at the start of the 20th century propelled oil into becoming the world’s most important commodity. Resource-rich countries such as Russia were the beneficiaries of the new global energy order. Its predecessors, the Soviet Union and Imperial Russia, were already among the first and most important producers of oil in the late 19th and early 20th century. The country’s oil sector, however, is facing challenges to maintain its current level of production.
Although Russia ranks 8th in terms of proven oil reserves, it is the second-largest producer with 11.2 million barrels per day (mb/d). Only the U.S. produces more with on average 12 mb/d in 2019. While Russia’s proven reserves are almost 70 percent less than Saudi Arabia’s, it is on par when it comes to production. However, a majority of the country’s oil originates from brownfields in Western Siberia that have been in operation for decades. Therefore, Russian energy companies are applying new technologies to reduce decline rates.
The first one is that Russia and not the United States is the world’s largest crude oil producer. Even with the OPEC+ cuts, Russia is currently producing 11.23 million barrels a day (mbd,) down from 11.438 mbd, compared with around 11 mbd for the United States. Still a US production of 11 mbd is still questionable since US production includes gases that neither qualify nor are sold as crude.
The second correction is that Russia ranks sixth (not eight as the author mentioned) in terms of proven oil reserves after Venezuela, Saudi Arabia, Canada, Iran, Iraq.
Nobody should worry or shed crocodile tears about Russia’s oil industry. This is an industry that is going from strength to strength particularly with its huge proven reserves of oil and gas in the Russian Arctic. You can save the worry and the tears for a dying US shale oil industry.
Russia is the world’s superpower of energy by being the world’s largest crude oil producer and the second largest exporter, also it is the world’s largest gas exporter and also the world’s largest exporter of nuclear reactors. Moreover, Russia is wedded to China which is the world’s largest economy based on purchasing power parity (PPP) and also the largest energy market.
Depletion in western Siberian oilfields is being reduced by home-grown state-of-the-art technologies and by increasing production from the Russian Arctic.
Russia is reported to have more than $8 trillion worth of untapped oil and gas in its sector of the Arctic. Russia could in a few years add more than 1.5 mbd to its current production of 11.23 mbd thus consolidating its position as the top oil producer in the world.
Thanks to extensive diversification of the economy and strategic spending programme under the leadership of President Putin, the Russian economy not only can now live with an oil price of $40 a barrel or even less, but it has also been able to withstand the intrusive US sanctions against it.
As a result, Russia’s GDP has expanded at 2.2% during the third quarter this year. Moreover, Russia’s debt-to-GDP ratio is just around 20%, which compares very favourably with the United States’ 106.64%. Given all these positive factors, the Rouble was also the world’s best-performing currency against the US dollar in November.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London