More wells and less oil

Honored Economist of Russia Sergei Kalashnikov explained this paradox during a press conference at the DOS by the extensive development of the Russian oil industry and a significant reduction in sales markets.

At the end of 2022, Russian oil companies drilled wells to a record depth over the past 10 years – 28,000 kilometers. The total number of oil wells over the past year increased by 7% and exceeded 7,800. However, at the same time, Deputy Prime Minister Alexander Novak said that Russia plans to reduce the country’s daily oil production by 500,000 barrels in March 2023.

Explaining what is the peculiarity of the extensive development of the domestic oil industry, Sergey Kalashnikov noted:

“It is easier for us to drill a new well than to achieve the full use of the resources of the old one. We have had this problem since Soviet times. All mining technology has not been improved over the past decades. Meanwhile, most other countries are on the path of maximizing the use of well resources.”

The extensive path of economic development, according to Sergey Kalashnikov, has its own psychology:

“When development comes not by improving quality, but by expanding coverage and increasing quantity. The cream was skimmed off, gone, the cream was skimmed off, gone… Besides, it is relatively inexpensive to drill a new well and equip it. But the big problem is the resuscitation of mothballed wells. Now we are reducing oil production, mothballing a certain number of wells, but when the question of their remothballing arises, this, as a rule, is associated with both risks and certain, rather significant costs. And this is connected with risks in this way: we shut down the well, and oil is a liquid, and under pressure it begins to go to other layers, to other points. When we reopen the well (which is very expensive), it may turn out that there is already no oil there. That’s a pretty big problem.”

The recent statement by Deputy Prime Minister Alexander Novak that as early as March 2023 Russia plans to reduce daily oil production in the country by 500,000 barrels, Sergey Kalashnikov connects with the fact that “we simply have no one to sell our oil to”:

“This statement is caused by an objective situation. It is explained by the fact that the oil markets for us have shrunk. Due to sanctions, we are limited in the number of buyers. And even if we dump very heavily, we, unfortunately, cannot sell all the oil we have.”

In this difficult situation, according to the economist, one can only hope for a general increase in oil consumption:

“The economies of China and many other countries are now booming. Everyone is starting to use more oil. Plus, the alarming state of the world is forcing many countries to buy additional resources in reserve.”

Although now, as Sergei Kalashnikov noted, Russia still sells oil somewhere around 30% less than it could. This, of course, will have a negative impact on our economy, but not as critical as it was originally assumed in the West.

Sergei Ishkov.

Photo by Andrey Lyubimov / Moskva agency