Oil production industry is approaching its maximum production capacity

In January-February 2013, crude oil production reduced by 0.7% year on year. It is an evidence of that the Russian oil production industry is approaching its maximum production capacity.

However, in 2012, amidst high world prices of oil, crude oil production reached 518.0 million tons in Russia, a maximum over the period elapsed since 1990. A substantial commissioning of a few of new large oil fields in the Eastern Siberia and the North- European area of the country over the last few years, as well as changes in taxation aimed at relaxing tax burden on the oil production industry, stimulating deep development of explored oil fields and development of new areas for crude oil production, had a positive effect on the dynamics of crude oil production. 

Today, the reduction in oil production growth rates can be explained first of all by an objective degradation factor in oil production. Most of the producing oil fields have reached the stage of declining production, whereas in most cases new oil fields have worse mining characteristics, geological and geographical parameters, and their development requires higher investment, operating and transportation costs.

In March 2013, Rosneft, a state-owned oil company, finally purchased TNK-ВР oil company. It was the largest transaction in the Russian oil and gas sector. Having purchased TNK-ВР, which, given its interest in Slavneft, accounts for 15.7% of all-Russian crude oil production, Rosneft strengthened its position in the Russian oil production industry and became one of the largest world oil companies. Given the data on 2012, given the foregoing transaction, Rosneft is expected to produce more than 200 million tons annually, or 38.7% of all-Russian crude oil production.

The state sector has expanded substantially. In general, after Rosneft purchased TNK-ВР, state-owned companies increased their share to 48.1% in all-Russia crude-oil production. It should be noted that in 2003 state-owned companies accounted for mere 7.3% of all-Russian crude oil production, i.e. before Rosneft and Gazprom acquired assets of private oil companies YUKOS and Sibneft, and Gazprom joined the Sakhalin-2 project.

Bobylev Y.N. – Ph.D. in Economics, Head of Mineral Sector Economics Department