Is Putin's Russia Ready to Let Go of Political Peak Oil?

While Russia is rich in oil and gas resources, the Russian government in 2008 had to introduce a US$4.2 billion tax cut at mid-year to reverse declining production after a period of growth from 1998 through 2004. "From the oil company's perspective, the government was taking all the revenue from high oil prices, leaving them will little to invest in new production, so there was nothing to offset declining production from aging fields in Western Siberia," Neff said.

"It's amazing how quickly the industry turned things around," said Neff, noting that Russian oil production passed the 10 million b/d mark in 2010. However, "there's still a sense that Russian production could come to a cliff if they don't make changes." _Rigzone

Russia has barely begun to tap its vast energy and mineral resources. Corruption, incompetence, and bureaucratic wrangling at all levels have combined to hold Russian production far below what it could be. In the past, many international partners and investors have been burned by the arbitrary nationalisation of assets by a corrupt Russian government. But now, Russia says it wants to change all that. Are they truly serious this time?

Russia is seeking to develop its oil and natural gas resources, particularly in untapped areas like its offshore Arctic region, as well as diversify the number of oil and gas export markets available to Russia, and needs companies with deep financial pockets and a willingness to share risk. However, laws restricting exploration and production (E&P) activity by foreign companies and a sector structured to favor domestic firms must be addressed to encourage E&P activity and maintain production growth.

While the Russian government has welcomed foreign investment, it has limited companies to partnering in projects with Russian companies as operator. "It's hard for companies not to want to be in Russia because it has such vast resources, but the investment climate has not been favorable to foreign companies. The most they can hope for is an equal stake in a project with a state company, and that it ambitious," Andrew Neff, senior energy analyst at IHS.

BP's recent share swap with Rosneft, which will allow BP access to explore for oil and gas in Russia's Arctic, was made possible by BP's exceptional circumstances and its unique position in Russia via its TNK-BP venture, Neff said. However, it could set off a new frenzy of international oil companies (IOCs) looking to partner with national oil companies, if not in Russia, perhaps elsewhere.

...The Russian government is expected to push towards private companies investing in exploring for and producing oil and gas in eastern Siberia as part of a plan to diversify its supply market to include China and other Asian countries, where crude oil demand has surged. "The thinking is that if Europe can diversify its gas suppliers, the Russia should be able to find alternative markets for its supply," said Neff.

These efforts include the first pipeline linking Russia and China, the 3,018-mile Eastern Siberia Pacific Pipeline, which is now operational and will transport 300,000 b/d of oil over a 20-year period. The project's second phase will see pipeline laid that will allow for oil shipments to Japan and Korea.... _Rigzone

Prospective partners and investors must think long and hard about getting involved with the corrupt Putin dictatorship. The recent re-conviction of former Yukos head Khodorkovsky provides abundant evidence that the laws in Russia are simply whatever Putin says they are.

And yet, Siberia is stuffed full of mineral and energy wealth. Everyone wants a piece of it. Of course, if Russia does not do something about its incredible shrinking population, Siberia will belong to China before anyone expects it.