Russia’s annual crude oil production volume to exceed 520 million tons

Increase in crude oil prices was determined by key factors such as higher demand for crude oil governed by growth in the global economy, especially in China, India and other Asian countries, OPEC's fairly moderate policy towards increasing crude oil production volumes in the OPEC member-countries, a relatively slow growth in crude oil production outside OPEC, as well as geopolitical risks. In August 2013, crude oil prices increased considerably in response to aggravated tension around Syria and concerns about likely military operations by the United States and other countries against Syria. The price of Brent oil reached $115 to $117 per barrel in the last week of August 2013.

Crude oil production in Russia in January thru July 2013 increased 0.7% year-on-year. Therefore, one may expect that crude oil production in Russia exceed 520 million tons, thereby reaching its highest since 1990. However, crude oil production growth rates have dropped markedly, basically due to objectively deteriorated extraction conditions. Most of the producing fields have entered into the brownfield stage, whereas greenfields have worse geologic and geographic parameters in most cases and can be developed at higher capital, operation and transport costs.

Latest statistics are indicative of that the Russian crude oil production industry has almost reached the limits of its oil production capacity. Crude oil production in mature oil fields has recently been declining due their depletion. Both greenfields in regions which have undeveloped or no infrastructure, including offshore oil fields which have not yet been involved into the development of lower quality reserves in the mature oil fields, should be developed in order to compensate for declining crude oil production volumes at producing oil fields.

 

Therefore, the adoption of the Federal Law dated July 23, 2013 No. 213-FZ which offers a series of serious taxation measures to stimulate development of crude oil reserves which are hard to recover is very important. In particular, the Federal Law established a zero mineral extraction tax rate on the development of oil fields which are similar to shale oil fields. Reserves of such oil in Russia are comparable in volumes with those in the United States. However, unlike the U.S. shale oil fields which have been developed extensively, Russian shale oil fields still remain to be developed, in spite of the fact that most of such fields are situated at the mature oil field regions, above all, in Western Siberia.

 

Considerable volumes of undeveloped crude oil reserves are situated on the continental shelf of the Russian Federation. Furthermore, a draft law has recently been submitted to the State Duma for consideration which provides for introduction of a special, privileged tax regime concerning the development of offshore greenfields. The draft law is expected to be adopted until the end of the current year.

 

The development of hard to recover crude oil reserves and offshore oil fields requires much higher operating expenses and their production can't be cost-efficient under the currently applicable tax regime. It is therefore extremely important to take legislative decisions to ease the tax burden with regard to the development of such crude oil fields. This will allow considerable volumes of currently virgin crude oil reserves to be involved in the development, thereby helping maintain the crude oil production level in the country.

 

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