Wood Mackenzie: Russia Must Refocus In Order to Maintain Production

Russia Must Refocus in order to Maintain Production - WoodMac

Research from UK-based energy analyst Wood Mackenzie states that Russia needs to refocus investment from easier, conventional onshore projects to more difficult and expensive tight oil, liquefied natural gas (LNG) and Arctic developments if it is to maintain production in the long term.

WoodMac  said that tight oil, LNG and Arctic projects have a much greater cost and will require a "step change" in investment and involvement by international oil companies to accelerate their development.

Addressing the Exploration, Production and Processing (EPP) conference in Moscow the WoodMac Head of Russian Upstream Research Ian said:

"Russia is looking to make a shift from easier conventional onshore projects to more difficult and expensive tight oil, LNG and Arctic projects, in order to maintain and secure long-term production levels. These resource themes have a much higher cost base and greater technical complexity.

"Russia currently accounts for 15 percent of global oil and gas production but only seven percent of global capex – so a significant increase in international investment is required to promote development and realise the production potential from these areas. Over the next three-to-five years we expect significant growth in offshore exploration, progress with pilot projects in tight-oil activity and improved definition of LNG projects.

"This could result in more than $100 billion of development capex being invested in these resource themes by 2025."
 
Thom also pointed out that the Russian upstream sector is dominated by indigenous companies. 

"Gazprom and Rosneft control the vast majority of Russia's reserves, production, upstream value and net acreage – with International Oil Companies (IOCs) barely registering in the top ten," he said.

"But Russia is looking to attract more foreign investment and we believe that it will seek more foreign investment to help exploit its high cost and high risk reserves. Sizeable tax breaks have been introduced, to help balance the huge costs involved in LNG, tight oil and Arctic offshore developments. We see this as a key step in attracting greater levels of investment and involvement from the majors”.
 
Recent years have, in fact, seen a few forays by international companies into Russia in order to work with indigenous firms to develop the kinds of oil and gas projects mentioned by WoodMac. 

In May 2012 Statoil signed a deal with Rosneft to develop fields in the Russian Arctic. Then in December 2012, Rigzone reported that ExxonMobil and Rosneft got together to form a joint venture to develop tight oil reserves in Western Siberia. And more recently still, in mid-November, Rosneft announced that it would develop an engineering cluster in the Russian Far East involving South Korean firms.



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