Date: 28 November 2022 Author: Grzegorz Kuczyński

Will Sanctions Force Russia to Rethink Its Oil Production Model?

Russian oil companies should invest more in developing smaller oil fields, according to Gennady Shmal, head of the Union of Russian Oil and Gas Producers. What might follow is a change in conditions for the benefit of small oil producers. Naturally, the Russian authorities did not become aware of their preferential treatment of large oil conglomerates, including tax breaks. Small companies were brought to the fore as the Russian energy sector is struggling amid sanctions imposed following Moscow’s invasion of Ukraine.


“Our task is to develop small and shallow oil fields. Our oil production now ranges between 45 and 50 million tons each year, while we should and we can produce up to 150 million tons,” Shmal told the conference on current challenges for the oil and gas sectors. He also added that the focus has shifted to small and shallow oilfields as Russia has recently discovered recoverable oil deposits that carry some 1 million tons. Shmal believes it is a task for small oil companies. To a great surprise, he added that the United States has followed the same production scheme. “Some 48 percent of U.S. oil is being produced by small companies. They also tackled the issue of shale gas and oil. No big company has managed to do that,” he said. Russian oil firms are well aware that there are no longer such rich oil deposits as the Samotlor oil field. Indeed, Russia has considerable deposits in the Arctic but Western sanctions are preventing it from extracting oil and gas from that area. Perhaps this is why Shmal urged petty oil producers to develop smaller fields that attract no interest from large companies. Those small oil producers urge the government to improve their conditions by aligning mineral extraction tax to their total output. So far these have been essentially large corporations that reaped benefits. In his address, Shmal expressed what small producers actually think about. Whether this might affect the state’s energy policy remains unknown. In its annual World Oil Outlook report, OPEC said Russian oil and condensate output is likely to fall by 2027, followed by a slight increase by 2030. Russia will see a decrease in its oil output figures amid the Western embargo on oil, fears of possible sanctions, and a weak internal market This is followed by a slight increase amid some Russian investments, including Vostok Oil, Russia’s major energy project in Siberia. But it is not known to what extent Vostok Oil, a brainchild of Rosneft’s Igor Sechin, will face setbacks without Western cash and imported technology as well as amid budget cuts for new infrastructure facilities in Russia’s Far North.

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