Russian Ministry considers crude scenarios

Russia’s Energy Ministry has drafted a new plan for the long-term development of the oil industry, including scenarios envisaging drastic declines in output by 2035, reports Argus FSU Energy.

The Ministry says the document, sent for consideration by other ministries, is not final and will be discussed after the Russian government adopts a new energy strategy for the next 20 years. The ability to minimise production decline will depend on how the oil price develops, the duration of sanctions and on how successful firms are in finding new reserves.

The Energy Ministry has come up with a base scenario that envisages the continuation of sanctions and a partial rebound of oil prices, and another scenario based on oil firms’ production plans. There is also a pessimistic scenario, based on relatively low oil prices and continuing sanctions, and a favourable one, envisaging a rebound in oil prices, dropping of sanctions this year and optimal oil taxation.

The Ministry warns that unfavourable tax changes could lead to a production decline. The government upped the oil sector’s tax burden this year in a bid to secure an additional Rbs200bn ($2.84bn) in revenue, and the Finance Ministry wants further increases.

Arctic opening

To prevent a production decline, the Energy Ministry proposes opening Russia’s Arctic offshore to firms other than Rosneft and Gazprom, softening oil industry taxation and offering support to mid-size and small producers, which now pay the same tax rates as top oil firms. It also proposes incentives for refining high-sulphur and high-viscosity crude by cutting excise taxes on the resulting products.

The Ministry’s previous oil sector outlook to 2020, drafted in 2010 and released in 2011, also envisaged a decline in output from fields that are currently in production and development, and a reduction of the overall production base after 2020. But it was drafted at a time when oil prices were higher and there was no obvious risk of a higher tax burden for oil firms.

According to Russian newspaper Vedomosti, which cites the Ministry’s draft, condensate production will rise by 37–74% by 2035, taking it to at least 33.6mn tonnes and possibly as much as 42.6mn tonnes, partly offsetting any crude production decline. Independent gas producer Novatek and its Arktikgaz joint venture with Gazpromneft are Russia’s main producers of condensate, with smaller volumes coming from Gazprom, Rosneft and others.