A new round of US sanctions, enshrined in the Defending American Security from Kremlin Aggression (DASKA) Act, threatens to cause the outright collapse of the Russian oil sector, which for more than half a century has been the country’s primary source of foreign currency earnings, enabling it to import western technologies, goods and the consumer lifestyle, finanz.ru writes.

As the old, Soviet-era oil fields run dry, if the country is unable to identify large deposits that can be easily and cheaply extracted, Russia’s oil companies will remain critically dependent on foreign equipment suppliers such as Schlumberger and Halliburton.

Already, nearly 60% of all oil extracted in Russia – 6.6 million barrels per day – is either from hard-to-recover reserves or old deposits where the water cut exceeds 80%, analysts from Vygon Consulting estimate.

“Difficult borehole drilling is required to develop them,” said Darya Kozlova, director of state regulation on fuel and energy at Vygon Consulting. “Foreign contractors are often brought in, and foreign technologies and software are used.”

All of this may be obstructed by the sanctions in the DASKA Act, which Democrat Bob Menendez and Republican Lindsey Graham put forward in the US Senate in mid February this year.

The document, which was recently published by US Congress, proposes to place the entire Russian oil sector under technological restrictions, not just the shelf and shale projects affected by the current wording of the sanctions.

In such a scenario, Russian oil companies will not be able to buy, rent or receive in any other way goods, services, and financing in excess of $1 million.

This will endanger not only the ongoing extraction at old fields, but also the development of Eastern Siberia, the Arctic and the shelf, projects which Russian officials are counting on to maintain Russia’s status as a major oil exporter.

Kozlov from Vygon Consulting estimates that 45% to 50% of all the oil which Russia could extract between 2030 and 2035 is threatened by the sanctions. This is effectively the same as the entire amount exported by Russia – roughly half of what it extracts (5.2 out of 11.3 million barrels per day  in December 2018).

In other words, within 10-15 years, sanctions could bring Russia’s oil production level to the point where it is only enough to meet local fuel requirements, and the stream of oil dollars feeding the budget could dry up entirely.

The situation is nearly critical, and this has been acknowledged on the government level. If nothing is done about it, Russia’s oil production will start to decline rapidly in 2022, effectively halving by 2035 (from 553 to 310 million tons per year), Russian Energy Minister Alexander Novak said in September.

A month later, the Security Council held a meeting on the risks facing the fuel and energy complex. At the end of the meeting, President Vladimir Putin said that the extraction of energy resources “brings Russia not only considerable revenue, but also allows it to remain one of the primary guarantors of world energy security,” and that sanctions threaten and challenge this state of affairs.

At the same time, the Security Council adopted the Energy Security Doctrine, which calls for urgent technological breakthroughs in the oil sector. Security Council Secretary Nikolai Patrushev said that this is in order to ensure that Russia has its own equipment, technology and software for this critical part of the country’s economy.

  USA, Russia, Putin

Comments