Future turns dark for Russia’s oil industry
Categories: FOREIGN COUNTRIES
For the oil companies, three decades of carefully nurturing investments in what was always a difficult political environment is poised to quickly go by the boards. But the high point of Western involvement in Russia passed years ago, pushed along in part by outrage over Moscow’s annexation of Crimea in 2014.The Russian oil industry, though, is likely to experience a wrenching reworking about how it does business in the coming weeks, months and even years. In the short term, this painful reckoning will come not so much because blue-chip oil companies are leaving but because Russian oil and gas have suddenly become toxic to many buyers. The question that the Russian industry immediately faces is whether to throttle back production. Russia has been producing about 10 per cent of the world’s oil supplies.“There is no reason to produce more oil if you cannot sell it,” said Tatiana Mitrova, an expert on the Russian industry and a fellow at the Columbia Center on Global Energy Studies.Russian companies will be shopping for new buyers in Asia and other regions where the outrage over Ukraine is less pronounced. Mitrova said that over time, “there will be a massive orientation of oil and gas flows from European markets, first of all to China.” New fields being developed by Russia around the Arctic are “notable for their harsh operating conditions and higher costs,” according to a recent study by Energy Aspects, a research firm.Of course, when the hundreds of Western technical experts and managers based in Russia leave, they will be missed, and the Russian industry could develop headaches trying to find high-tech spare parts and software updates.Still, ventures involving Western companies account for only about 15% of Russian oil production, Mitrova figures. Russia has a large oil and gas industry with trained personnel who can operate most facilities, analysts say. “It is very easy to find Russian technical people to work on these projects,” said Serkan Sahin, an analyst who follows Russian oil at Energy Aspects.TotalEnergies also owns nearly one-fifth of Novatek, a Russian natural gas producer that is the main owner of the Arctic installations. TotalEnergies said recently that it would not invest in new projects in Russia, but it seems to be digging in on the LNG ventures — one of which is not expected to start producing until 2023.On the other hand, there is little reason to think that they would make announcements involving billions of dollars of investments without carefully considering the consequences. Putin and his associates follow the oil industry closely and are unlikely to look kindly on companies and executives that abandoned him at one of his most difficult moments.