“Anaconda ring”: when the sanctions will hit the Russian oil industry

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"Кольцо анаконды": когда санкции ударят по российским нефтяникам

The Russian state company “Rosneft” and “Gazprom oil” most will suffer from Western sanctions, the report of the Energy centre SKOLKOVO. Now the effect is almost imperceptible, but in the future production will be significantly reduced due to lack of technology. Budget losses will grow.

Us sanctions impose a ban on large investments in Russian projects in mining, and restrictions on the transfer of technology for exploration and production of Russian oil, for deep water, Arctic offshore and shale.

All major Russian oil fields with reserves of over 200 million tonnes fall under Western financial sanctions, experts write the Energy center business school SKOLKOVO in the report on the prospects of oil production.

Several major projects fall under the sanctions, which prohibit Western companies supply the equipment for oil production in Russia.

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Most of these developing deposits “Rosneft” and “Gazprom Neft”, to the report. Russian service Bi-bi-si has sent requests to these companies, the answer is not received.

At the moment, Russian companies have adapted to the sanctions regime, analysts said. To keep extraction at former level and even to increase it helped the large investments made in previous years, large tax incentives and the devaluation of the ruble.

If you remember, in Soviet times there was such a wording as “Anaconda ring” that gradually shrinks and gradually takes away the future

Tatiana Mitrova, the economist

But the satisfactory condition of the oil business in Russia can be deceiving, says the head of the center Tatiana Mitrova.

“The main message [of the report] – little current effect of sanctions should not mislead, should not create the illusion that all is well and you should not worry. Unfortunately, we have to be worried,” – said the expert.

The shortfall of incomes of the Russian budget due to the reduction of mining under the impact of sanctions and falling oil revenues in 2025 will be only 150 billion, but by 2030, will increase to 270 billion rubles. This is 10% of the revenues from export duties and tax on mineral extraction in 2016.

"Кольцо анаконды": когда санкции ударят по российским нефтяникамThe holder иллюстрацииEGOR ALEYEV/TASS

Image captionДобыча will fall even with a favorable scenario, experts say

“Sanctions rarely affect the current day. They usually affect the day tomorrow, and most unpleasant – they take day after tomorrow. If you remember, in Soviet times there was such a wording as “Anaconda ring” that gradually shrinks and gradually takes away the future”, – said Tatiana Mitrova.

How did you manage to increase production

At first glance, the Russian oil sector has adapted to the sanctions regime. Oil production in Russia from 2012 to 2016 increased by 6% to 548 million tons a year.

In 2014-2017 due to the investments made before the entry of sanctions was launched more than a dozen new fields. They ensured the growth of production by 25 million tons of oil and more than two thirds of this increase occurred in “Rosneft” and “Gazprom Neft”.

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Production growth was achieved at the expense of input of new deposits. This also helped the devaluation of the ruble, which has lowered the cost of Russian oil companies in dollar terms.

In addition, due to the peculiarities of the Russian tax system, the decline in oil prices to a greater extent had an impact on the budget than the Finance companies, the report said.

But the development of most of the existing fields already on the decline, businesses should think about how to at least maintain production at previous levels, experts warn “SKOLKOVO”.

Shelf and shale

The production decline could be offset by the development of unconventional resources onshore and offshore fields. But offshore projects, usually develop with the participation of foreigners.

In this regard, the sanctions effectively froze the development of this segment, experts say the business school “SKOLKOVO”.

Because of the need to comply with US sanctions ExxonMobil have already been forced to withdraw from joint projects with Rosneft in the Kara sea and the Tuapse trough in the Black sea.

"Кольцо анаконды": когда санкции ударят по российским нефтяникамThe holder иллюстрацииSERGEY SAVOSTIANOV/TASS

Image captionРазработка offshore projects is complicated by the lack of technology

The sanctions will affect the development of shale deposits. This is due to the fact that due to sanctions to Russia in the coming years will not be supplied by the equipment used for hydraulic fracturing in the extraction of shale oil.

Russia now has about 80 facilities (fleets) for such works, of which only 3% – domestic. In 2014, when sanctions were imposed, Russia has not fired a single fleet for hydraulic fracturing. And the one that is outdated and requires replacement.

A lack of technology may affect existing traditional field.

The losses will grow

Energy center “SKOLKOVO” predicts decline of production in the long term.

Total oil production in Russia at preservation of present conditions – base scenario will begin to fall in 2021. If sanctions are strengthened, and the price of oil drops to $ 40 per barrel, production will begin to fall in 2019, experts say.

Under the baseline scenario the decline in production is forecast to 580 million tons at peak production to 540 million tons by 2025, and the strengthening of sanctions, up to 505 million tonnes by 2025.

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