Russia’s oil production is expected to show growth until 2020, while other key CIS countries are expected to produce at stable levels in the medium term. While the region’s discovered oil resources are significant, these will take time and substantial investments to develop. This article assesses the status and outlook for Russia’s and Central Asia’s E&P, illustrated by the three key drivers: production, exploration success and spending.
Figure 1 shows the total oil (crude and condensate) production for the CIS region, covering Russia and other key Central Asian countries, notably Kazakhstan, Azerbaijan, Turkmenistan and Uzbekistan, from 2010 to 2025. Last year, oil production stood at 13.8 million bbl/d, including 10.96 million bbl/d produced in Russia. In November 2016, Russia reached an agreement with OPEC to cut production by 300 thousand bbl/d from its highest level achieved in October 2016. The agreement had thereafter been prolonged until the end of 2018, and a long-term (10-20 year) agreement is being discussed. We expect Russian production to average 10.91 million bbl/d this year, and increase to 11.1 million bbl/d in 2019. Kazakhstan’s oil production is forecasted to stay at around 1.8 million bbl/d over the next five years, supported by the stable output from the mature Tengiz and Karachaganak fields, as well as growing contributions from Kashagan, which started production in October 2016. In the long term, we see the need for discoveries to be actively developed to minimize the decline rate in the region, driven by the mature field decline in Russia. Last year, several important projects came on stream, including Yurubcheno-Tokhomskoe, Kondinskoye, Roman Trebs and Anatoliy Titov. In 2018-2019, we expect the start-up of the Tagulskoye field, the second phase of Novoport and Shah Deniz projects, as well as Russkoye and Messoyakha West in the first half of 2019, with Vladimir Filanovsky Phase 2 having already been brought online in January of this year. Imilorskoye, Kuyumba and Savostyanov in Russia and Kazakhstan’s Tengiz FGP (Future Growth Project) are among the largest projects that are expected to come on stream in the future.
Figure 2 shows the discovered oil volumes in Russia and other key CIS countries from 2005 to 2017, split by life cycle and top unsanctioned projects. The vast majority of discovered resources since 2009 are still unsanctioned, as the time from discovery to regulatory approval and final investment decision in the region is longer than average. Remote location, lack of required technologies, and thus high development costs are the key factors affecting the time from discovery to commercial development. The period from 2009 to 2012 has been the most successful one for the region, as discovered oil volumes stood at around 1.9 billion barrels per year on average. Notable fields discovered in this period include Savostyanov, East Lambeyshorskoye, Lisovskoye, Sanarskoye and Velikoe, in Russia, as well as Azerbaijan’s Umid and Babek gas-condensate fields. Following a disappointing exploration year in 2013, the Universitetskaya field added almost 700 million bbl to the discovered oil volumes in 2014. In 2016, Gazprom Neft made a significant discovery in the West Chatylkinskoye license area, adding around 240 million bbl in oil reserves. Last year, Gazprom Neft discovered the Alexander Zhagrin field in the Khanty-Mansiysk Autonomous Okrug-Yugra in December 2017, and in June, Rosneft made its first oil discovery in the Laptev Sea with the Tsentralno-Olginskaya-1 well.
Figure 3 shows the total spending on oil fields in Russia and CIS from 2010 to 2025. Total expenditures have been continuously increasing since 2010 until 2013, when spending started to decrease and fell sharply to a level of $102 billion in 2014 and further down to $72.5 billion by 2016. The fall in the oil price has had an effect on the devaluation of local currencies; and thus spending in dollar terms has fallen substantially. In Russia, the investments in Ruble terms have remained high even in the periods of very low oil price, since most of the cost in Russia is spent locally. Russia and CIS capital investments in dollar terms increased by 12% in 2017, supported by recovering oil prices and slight appreciation of local currencies. Spending is expected to remain on an increasing trend going forward. The main drivers behind the growth in capital expenditures post 2018 are investments in projects currently under development as well as not yet sanctioned discoveries. Greenfield projects with significant forecasted capital expenditures until the 2020s include the expansion of the Tengiz field in Kazakhstan, Rosneft-operated Russkoye and Tagulskoye fields, followed by Messoyakha West and Kuyumba, projects jointly developed with Gazprom Neft, and Lukoil-operated Rakushechnoye in the Caspian Sea, to name a few. Total spending in the region is currently forecasted to reach $85 billion by 2020 and $95 billion by 2025.
Oil production in Russia and CIS has been steadily growing since 2008 reaching a level of 13.8 million bbl/d in 2017. This year, given the prolonged production cut agreed with OPEC, we expect oil output in Russia and CIS to decrease slightly to 13.7 million bbl/d. In 2019, the growth trend is anticipated to continue if the cut agreement is not prolonged. In the long term, however, developing discovered resources is vital to support supply. Around 24 billion bbl of oil resources has been discovered in Russia and CIS in the past ten years with 50% of the projects still in the pipeline to be sanctioned. It will take time to develop the region’s vast resources, with some uncertainty surrounding both the timing and the commerciality of projects. Significant investments are also required to bring these resources on stream.