RPI Research & Consulting forecasts Russia’s offshore oil production to reduce by 34% by 2030
Russia’s foreign policy course will result in reduction of offshore oil production by 2030, by 14% according to the basic scenario, or by 34% according to the currently dominant negative scenario. That forecast was shared by Vadim Kravets, Chief Analyst, RPI Research & Consulting, at the international conference Offshore Upstream Development in Russia and CIS, 2022.
According to the speaker, there are three scenarios but given the events of the last month the negative one with offshore oil production to fall by 34% seems to be the most realistic.
“The situation is changing so rapidly that forecasts should be obviously updated monthly, especially after adoption of the sixth package of sanctions which is to reduce the share of Russian oil in the European market considerably. So far, the time is not clear amid absence of consent on the rates of supply substitution,” said the expert adding that the forecast had been made in April basing on various data including producer companies’ plans that were reviewed “since they are normally overrated twofold”.
Apart from substitution of supplies to Europe, other key factors to cause the reduction of offshore oil production are problems with technologies and investments and problems with transport in the future, the analysts says.
“Redirection of Russian oil from Europe to Asia is associated with enormous logistics challenges: annual capacity of ESPO and railways in that direction is 80 million tonnes and it has been exhausted. If seaborne transport is used to compensate its insufficiency the delivery costs are increased,” says the expert.
According to him, negative trend in domestic offshore market was noticed eight years ago.
“The General Development Plan for the Russian Oil Sector adopted one year ago foresees that offshore oil production will reduce three times by 2035, to 9 million tonnes of oil per year. Over the eight-year period, critical technologies have not changed: software, subsea production facilities, technologies for hard-to-recover reserves, refining, well shut-in, etc. According to Rosnedra (Federal Subsoil Resources Management Agency – Ed.), dependence of offshore production on imports is as high as 85%,” explains the analyst.
“In that context, only the existing projects in the Caspian, Baltic, Black, Pechora and Kara seas as well as on the Sakhalin will stay afloat in the near future. Ayashskoye field and Vostok Oil project on the Taimyr are in question,” he says.
Optimal strategy to ensure the way out of the situation is cooperation with China but it features some specifics.
“China has an extensive experience and capabilities in production of offshore oil which accounts for 19% of Chinese oil. China invests enormously in development of this segment. In 2021, CNOOC alone spent $14 billion for offshore technologies. China could be a good partner for Russia but apart from the risk of secondary sanctions there is a risk of expansion into the service market as the example of Kazakhstan shows”, emphasized the analyst.
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