The IEA expects a decline in oil production in Russia until 2028

Daily oil production in Russia will decline until 2028, by which time it will decrease by 710,000 barrels per day. compared to 2022 and will amount to 10.4 million barrels per day. Such a forecast is contained in the report of the International Energy Agency (IEA), published on June 14.

“Moscow’s ability to self-finance its activities in the oil industry and its access to Chinese equipment and services could prevent a much sharper decline in production. But tightening Western financial sanctions on Russia could also lead to a sharper downtrend,” IEA analysts said.

Prior to the start of the JWO in Ukraine, the agency had expected Russian oil production to rise by 100,000 bbl/d to 11.3 mb/d by 2025, before falling to just under 11 mb/d by 2028. Thus, the IEA lowered its forecast for Russia by 600,000 barrels per day.

In order to maintain oil production in Russia at the level of 2023 until 2030, companies will have to increase investments by 62 billion rubles annually, Kasatkin Consulting analysts predicted earlier (Vedomosti wrote about this on June 1). To increase production by 11% by 2030, investments, according to their estimates, should grow at a rate of 90 billion rubles. in year. If investments remain at the 2023 level, oil production will fall by 20.2% to 411 million tons in 2030.

Last year, the IEA notes, Russia’s oil production grew “modestly” by 220,000 barrels per day to 11.1 million barrels per day. “And this year, despite the sanctions, Russian oil supplies are holding up remarkably well. Exports of crude oil and petroleum products have been redirected to new markets as significant discounts attract traders,” the report explains. At the end of 2023, the agency forecasts a decrease in oil production in Russia by only 290,000 bbl/d to 10.8 million bbl/d.

The forecast takes into account a voluntary reduction in oil production in the Russian Federation by 500,000 barrels per day, which will last until the end of 2024, the IEA report says.

After the strengthening of anti-Russian sanctions, the oil industry of the Russian Federation found itself in a difficult situation: large buyers began to refuse supplies of Russian fuel. On December 5, 2022, the European Union (EU) embargo on offshore supplies of Russian oil came into force, as well as a price ceiling of $60/bbl. From February 5, 2023, similar measures also apply to oil products from Russia. The price cap for more expensive types of fuel is $100/bbl, for cheaper ones – $45/bbl.

At the end of April 2023, Deputy Prime Minister of the Russian Federation Alexander Novak, who oversees the fuel and energy complex, reported that last year Russia redirected 40 million tons of 220 million tons of total exports of oil and oil products, which previously went to the west, to the east. In 2023, it is planned to reduce supplies to the western direction by another 100 million tons, he noted. In 2022, the largest buyers of Russian oil were India and China, which imported 33.4 million tons and 86.25 million tons, respectively.

Against the background of the search for new buyers, Russian companies in 2022 significantly increased the discount on Urals to the benchmark Brent brand – at peaks it exceeded $30/bbl. In 2022-2023, a number of laws were passed that limited the size of the discount in order to adjust the taxation of the oil industry. In April 2023, the maximum discount was $34/bbl, in May it was $31/bbl, in June it was $28/bbl, and starting from June it was $25.

The IEA also notes that Russian oil companies are ramping up drilling in western Siberia and developing fields in the Arctic to maintain oil production levels as mature fields are depleted. At the same time, the development of hard-to-recover reserves (TRIZ) will require more significant investments than traditional deposits, the agency recalls.

Vedomosti sent inquiries to the Ministry of Energy and major Russian oil companies.

Partner of Kasatkin Consulting Dmitry Kasatkin does not agree with the IEA forecast and its assessment of the effect of sanctions. “Most likely, in their calculations, colleagues take into account the cases of Iran and Venezuela, which had serious problems due to restrictions, but we believe that the Russian economy and the oil and gas industry are much more stable,” he explains.

According to Kasatkin’s baseline forecast, the average level of oil production in Russia from 2023 to 2028 will be 10.64 million barrels per day, and in 2028 it will reach 11 million barrels per day. In 2023 and 2024 the analyst expects relatively low oil production in the country due to a slowdown in global demand, but in 2025 production will return to growth, as the global economy grows faster, supply chains stabilize, and markets for Russian oil diversify.

Ekaterina Krylova, managing expert of the PSB Analytics and Expertise Center, expects that by the end of 2028, oil production in Russia will decrease to 10-10.2 million barrels per day. To increase production until 2028, it is necessary to increase investments by 30-50 billion rubles. annually, she adds. At the same time, “with an additional tax burden on the industry, it is not necessary to talk about increasing investment,” Krylova believes.

Oil production in Russia is now supported by companies’ investments in greenfield, exploration and infrastructure construction, Kasatkin notes. Now there is even more investment in the industry than is required to extract 515 million tons (according to Novak’s forecast, this is how much oil will be produced in the Russian Federation in 2023 – Vedomosti). “In the long term, companies will continue to invest enough to ensure the target production volume (in the event of a deterioration in the market situation, they traditionally refuse to invest in unprofitable production and exploration),” he explains.