Now Available: Russia Oil & Gas Report Q3 2013

From: Fast Market Research, Inc.
Published: Wed Jun 12 2013

Russia may be pumping post-Soviet record levels of oil and is likely to continue to see a shortterm increase in both oil and gas production; however, we warn that a high level of investment will be required to maintain this. It also faces pressure to diversify its gas markets, in view of slower demand growth expected from its core market in Europe and growing competition from other global gas suppliers. There have been promises made to reform Russia's tax and regulatory system, upon which further development of the oil and gas sector hinges. The realisation of Russia's oil and gas potential lies in unlocking the political gridlock that is standing in the way of much needed tax and licensing reforms which would maximise the country's full oil and gas potential.

The main trends and developments we highlight for Russia's oil & gas sector are:

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* Russian oil production reached a post-soviet high of 10.4mn barrels per day (b/d) in 2012, exceeding the 10.34mn b/d targeted by the economy ministry for 2012. In the short-term, BMI expects oil production to trend slightly upwards as it ramps up production capacity from the remaining Soviet-era fields, while new projects manage to just replace production lost from ageing fields. Between 2013 and 2017, we forecast Russian production to remain relatively flat at around 10.4-10.5mn b/d. However, unless changes to its existing tax regime takes place that will encourage brownfield investments in the near future, Russia's oil fortunes could be set for a slow decline in the long term. We believe output will begin to decline from 2017 and fall to 10.1mn b/d by 2022. That said, any positive fiscal and regulatory changes that allow for greater market access could have a significantly positive effect on its long-term production outlook, given Russia's large below-ground potential.
* On the back of economic growth and demand from the transport sector, oil consumption, which was 3.11mn b/d in 2011, should edge towards 3.80mn b/d by 2017 - providing export potential of 6.66mn b/d. We project oil consumption to further increase to 4.51mn b/d, leaving the country with net export capacity of about 5.61mn b/d.
* In 2012, official data from Russia put the country's gas production at 657.6bn cubic metres (bcm). This is 0.85% lower year-on-year than the EIA's estimate of 662bcm for 2011. This drop is mainly attributable to a weakening in demand for Russian gas, especially in its core European market as customers begin to resist Gazprom's high gas prices.

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