Russia could extend the timeline for its oil production growth by at least five to seven years and attract “several hundred billion rubles” in additional investment into its oil industry each year if it adopts a range of incentives for the sector, Deputy Energy Minister Pavel Sorokin told the TASS news agency on Monday.
Russia’s finance and energy ministries are currently discussing how to incentivize the country’s oil industry amid expectations that current fields and regions with benefits will exhaust their growth potential as early as in 2022-2023.
Production growth coming to a halt around that time “will entail an extremely adverse impact on investments with the multiplication effect and will result in dramatic reduction of budget revenues. Therefore, preventive measures should be undertaken,” Sorokin told TASS.
Around 60 percent of Russia’s oil reserves are in West Siberia, Sorokin told TASS, noting that half of those reserves would not be developed under the current fiscal system for Russia’s oil industry.
Last month, Russia’s Energy Minister Alexander Novak was quoted as saying that Russia’s oil production could peak as early as in 2021 due to high taxes and costs, provided there are no benefits for exploration or tax incentives introduced.
Russia’s oil production is expected to average around 553 million tons this year, or 11.105 million bpd, Interfax news agency quoted Novak as saying at a government meeting on incentives to boost Russia’s oil industry.
By 2021, Russia’s oil production will rise to 570 million tons, which, without more benefits and lower taxes, could be the peak oil production, Novak warned.
If current production trends continue, and if Russia doesn’t do anything to further stimulate oil exploration and new field development, after 2021, production may start to fall and reach just 310 million tons by 2035, that is, Russia’s oil production could drop by 44 percent by then, Novak said, as quoted by Interfax.
Exploration and new oil field development are becoming increasingly important for Russia’s oil industry, Prime Minister Dmitry Medvedev said at the meeting, adding that the government needs to first assess reserves, draft measures for the incentives mechanism, and review the current benefit system.
By Tsvetana Paraskova for Oilprice.com
