Russian Oil And Gas: A Realistic Assessment

in Peak Oil by

Abstract for
Uppsala, Sweden, May 23-25, 2002
Organized by Uppsala University and ASPO, the Association for the Study of Peak Oil

Russian Oil And Gas: A Realistic Assessment
by Ray Leonard
VP Exploration and New Ventures
YUKOS Exploration and Production

An open evaluation of Russian Oil and Gas Reserves has not been possible until recently for several reasons. In the Soviet Union, hydrocarbon resources were a strategic asset and as such, a state secret that could only be guessed at from the outside. Other organizations, such as the CIA and IEA made educated guesses but from an ideological point of view; Soviet reserves were a threat from a security and market supply standpoint and were perhaps minimized. The only firm evidence came from the Soviet production of oil, reaching 12 MMBO/D in late 1980,s or about 20% of the world production. Either the reserve numbers were wrong, or the Soviet Union was depleting its reserve base at an accelerated rate of about 8% per year. The accelerated rate was the view of the CIA and seemed to be supported by the collapse in production from 1990-1995 to 6 MMBO/D. However, in the late 1990’s production began to rise again, reaching 8 MMBO/D in 2001. YUKOS has predicted that production will continue to rise to 14 MMBO/D by 2010, 75% in Russia and the rest of the Caspian region. What is the basis for this prediction? This presentation will focus on Russia, as the projected rise in Caspian production is well documented and will happen based on projects already planned without the necessity of any new exploration success. The Russian evaluation is based on three factors; the current booked reserves, the production level of the reserves and oil remaining to be found.

Russian Reserves: In the Soviet Union (and now Russia) after discovery and delineation, each oilfield was analyzed by the State Reserves Committee to calculate geological and recoverable reserves. The Categories A, B, and C1 represented proven reserves. It was based on a proposed and approved development plan. The plan was based on existing technology, but with no economic “filter.” In recent years, Russian oil firms offering market shares have used internationally recognized auditing firms to estimate their reserves. In the case of the four largest oil companies, the audited amount averaged about 80% of the State Reserves Committee approved number. Including Russian majors, independents, condensate from Gazprom, state reserves and reserves of foreign companies operating in Russia, proven reserves are 100-110 billion barrels, or 80-90 billion if the 80% factor is taken into account. International convention usually takes a 50% reduction factor in counting probable (C2) reserves. Therefore, the Russian total of 30-40 Billion probably would add 10-15 billion. More detailed calculations are being made to refine the number, but 90-105 billion barrels is a reasonable estimate of Russian reserves.

Production Level: The production levels before the 1990’s were not based on economic factors. As such, they probably do not conform to many models developed for production in the rest of the world. The production of 12 MMBO/D in the late 1980’s was based upon centralized planning, utilizing development programs with inefficient technology. The precipitous drop in production from 1990-1994 was due to a complete lack of investment but with a continuation of the old technology. The recent increases are a result of investment and application of modern technology. YUKOS provides an example; utilizing efficient drilling and production techniques, new wells produce three times the Russian industry average. Production has increased from 850,000 BOPD in 1999 to 1.3 MMBOPD at present. YUKOS reserves (audited by Miller-Lents) are 12 billion barrels. It indicates a reserve/production ratio of 25 years. Usual RP ratios for western companies are 10-15 years. By continuing to utilize western technology, YUKOS can increase production to 2.5 MMBO/D. Given that 53% of YUKOS reserves are undeveloped, this is an achievable number. Other Russian companies are discovering the same thing; utilization of modern technology will dramatically increase production. Predicted production of 10.5 MMBO/D with existing proven reserves in 2010 is a conservative estimate.

Future Potential: Large portions of Russian sedimentary basins are unexplored. Lack of technology to explore offshore, limited investment in the past ten years and poor infrastructure in frontier basins are factors. Reviewing discovery curves for productive basins, a range of 30-40 billion barrels of future discoveries can be supported. Several offshore basins, such as the Kara Sea and the Pechora Sea are extensions of existing producing trends, increasing that range. YUKOS is currently making a systematic analysis of discovery curves. It is likely that this study will result in a prediction of 40-50 billion barrels to be found by exploration in Russia.

Up to this point, only on Russian oil reserves have been discussed. However, it is accepted that Russian gas reserves are approximately equivalent to the total gas reserves of the Middle East. Furthermore, the Kara and Barents Seas are largely unexplored and predicted to contain several hundreds of trillion cubic feet of gas. With the predicted peaking of oil production in the 2010-2020 period, the shift to natural gas will necessitate significant production increases from Russian fields in East Siberia, Northwest Siberia and the offshore. While the inefficiency in exploring for and producing oil in Russia is disappearing, gas is several years behind as the breakup of the monopoly Gazprom is only starting. With open competition and adequate investment, current production of 20 TCF/Year can be doubled, with a particular increase in shipments by pipeline to the Far East. While Russian oil and gas reserves do not solve the essential problem of oil depletion, they will push back the “day of reckoning” giving the world more time to develop alternate sources of energy.

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