Russian Oil: Flat Like a Siberian Plain

To my knowledge, vast stretches of Siberia are actually quite mountainous, but I won’t dither with another man’s metaphors. Energy Tribune reports on Russia’s stagnating oil production after the jump. russiaoil021408.gif

Russia’s Oil Production: Flat Like Siberian PlainBy Pavel Romanov, Energy TribuneThe oil and gas sector may have been good for Putin, but you can’t say Putin has been good for the industry. In 2007, oil production grew by just 2 percent, a fraction of the growth seen between 2001 and 2004. Since then, the structure and ownership of the industry have devolved back to the state, and as state control has grown, output has fallen.Oil Production in Russia 2000-2007The early 1990s were burdened by the aftermath of the Soviet Union’s collapse. As such, the industry was hamstrung by low oil prices and declining production. But by the end of the 1990s, production in several newly minted private companies started rising. From 1998 to 1999, Yukos, first among Russian companies, started growing its production, thanks to new technologies and leadership styles. Yukos became the pioneer of the Russian oil industry’s resurrection. With more cash flowing and oil prices rising, most Russian oil and gas companies used the opportunity to hone their business efficiency.Private companies were the first to engage foreign service companies and new technologies, which helped them overtake the former leading Russian oil companies. Yukos and Sibneft started drilling horizontal wells and executing large hydraulic fracturing jobs with help from leading international service companies like Schlumberger and Halliburton. Yukos and Sibneft were growing at rates between 12 and 20 percent every year, until 2004 when Yukos was broken up and then sold out to state-owned Rosneft in 2005. Meanwhile, Sibneft was taken over by Gazprom. Other industry leaders like Lukoil, TNK-BP, and Surgutneftegaz saw production growing at about half the rate of Yukos and Sibneft.Between 2005 and 2007, with the state controlling more than half of Russia’s oil production (and with rapidly rising prices), production increases stagnated. Indeed, as the graph shows, between 2000 and 2004, production grew at an average of about 9 percent per year, while in the last three years the trend has been 2.5 percent per year. (Note: As of this writing, there were no official statistics for the last 2 months of 2007, so the final 2 months assumed the average of the prior 10.)