A. Reserves and production
Most of Russia’s crude oil resources are located between the Ural Mountains and the Central Siberian Highlands, as well as in areas extending southwest to the Caspian Sea. According to the data of BP World Energy Statistics Yearbook in 2017, Russian crude oil reserves are about 110 billion barrels, ranking sixth in the world. With the continuous development and production of oil fields in the early exploration period, Russian crude oil reserves showed a downward trend as a whole. In 2007 and 2016, as new crude oil resources were discovered, Russian crude oil reserves increased significantly. In 2016, the reserves increased by 6.96% year on year. According to the same period of production, the ratio of Russian crude oil reserves to production was 27.4.
Russia is one of the largest countries in the world in crude oil production. Since 2009, it has been stable at more than 10 million barrels per day, showing a steady growth trend.
According to the regional division, the most abundant area of Russian crude oil production is located in Siberia. According to the latest data, Russian crude oil production reached 10.87 million barrels per day in 2016, of which 6.29 million barrels were produced in Siberia, accounting for nearly 58%. The next is the Ural-Volga region, which produces 2.5 million barrels per day, accounting for about 23%. Russia’s oil production reached a record 11.16 million barrels per day in 2018.
Siberia is a relatively late development area, but with the increase of development activities, the crude oil production in this area has increased rapidly, surpassing the Ural-Volga region with the largest production before. Khanty-Mansiysk Autonomous Prefecture, located in the south of Siberia, is the largest production area in the region and even in the whole country, accounting for about 77% of the total output of the region and about 45% of the total output of the country. Samotler oilfield is the largest oil field in the Autonomous Prefecture and also the largest oil field in Russia. The field began production in 1969, but production began to decline gradually after reaching a high of 635,000 barrels per day in 2006. With the improvement of production technology, the attenuation rate of the oilfield remains at about 3%, far below the natural attenuation rate of 15%.
Yamal-Nenets Autonomous Prefecture is located in the Arctic Ocean coast of Siberia, with U-shaped distribution. In the early period of the autonomous region, natural gas production was dominant, and the history of crude oil development was relatively short, accounting for about 15% of the total output of Siberia. In the future, the problem it faces is the bottleneck of crude oil outward transportation, so the infrastructure construction such as pipeline needs to be improved urgently.
Until the late 1970s, Ural-Volga was still Russia’s largest oil producer. But with the rise of Siberian crude oil production, the region now ranks second in Russia. The famous Urals Blend oil is named after this place. Romashkinskoye, discovered in 1948, is a large oil field in Ural-Volga, with an average daily output of about 300,000 barrels. The Ural-Volga region represented by this oilfield is characterized by the general aging of the oilfield. But recently, due to the innovation of drilling and completion technology, the production efficiency of the oilfield has been improved to a certain extent, so the crude oil production has not decreased significantly.
With the aging of oil fields in the western Ural-Volga region and the West Siberia region, and the increasing degree of development, the center of crude oil exploration and development gradually moves eastward, and East Siberia may become the main source of Russian crude oil increment in the future. Vankorskoye Oilfield, located in the northwest of the region and along the Arctic Ocean, has a significant proportion of Russian crude oil increment in recent years, with an average daily output of about 440,000 barrels. It is the largest oil field discovered in the country in the past 25 years. In addition, the completion of the East Siberian-Pacific Coastal Pipeline (ESPO) has also expanded the oil and gas development space here.
Further eastward, Sakhalin Island is located off the eastern coast of Russia, with an average daily output of about 340,000 barrels, and unlike other Russian production areas, foreign oil and gas companies are more involved here. Most of Sakhalin’s oil fields are invested through the Sharing of Interests Agreement (PSA), which includes two major projects, Sakhalin-1 and Sakhalin-2. Among them, Sakhalin-1 mainly includes Chayvo, Odoptu, Arkutun-Dagi and other three oil and gas fields, which are operated by ExxonMobil, which accounts for 30% of the equity. Other stakeholders include Rosneft of Russia, ONGC of Indian state-owned oil company and Japanese consortium. Sahhalin-2 mainly includes Piltun-Astokhskoye Oilfield, Lunskoye Gas Field and two natural gas and oil pipelines responsible for North-to-South transmission within the island; the Gazprom equity of the project accounts for 50% plus one share, Shell equity accounts for 27.5%, Mitsubishi Group accounts for 12.5%, Mitsubishi Group accounts for 10%.
The North Caucasus is located in the southwest of Russia, and its topography is relatively complex. The region is surrounded by Kazakhstan and the Caspian Sea in the east, Ukraine, Crimea and the Black Sea in the west, Georgia, Azerbaijani and Turkey in the south. In addition to offshore oil fields, offshore oil fields in the Caspian Sea are also rich in oil resources. Russian oil company Lukoil is very active in offshore oilfield development in the Caspian Sea. Yurii Korchagin oilfield was put into production in 2010 with an average daily output of about 30,000 barrels, and Filanovsky oilfield was put into production in 2016 with an average daily output of about 120,000 barrels. The unique geographical location of the North Caucasus has led to the export-oriented production of crude oil, so tax policy has a greater impact on the production of the region.
Russia’s crude oil exports have undergone two stages of evolution since 2000: from 2000 to 2007, the export volume increased at a high speed, with an annual growth rate of up to 15%. After the financial crisis in 2008, the export volume declined sharply, and it did not turn to positive growth until after 2010. In recent years, with the improvement of infrastructure, Russian crude oil exports have maintained steady growth. In 2017, Russia’s crude oil exports to China gradually increased, even surpassing Saudi Arabia, becoming China’s largest crude oil supplier.
By region, Europe and China are the biggest buyers of Russian crude oil. According to BP data, Russia exported 8.634 million barrels of crude oil per day in 2016, of which nearly 5.6 million barrels per day were exported to Europe, accounting for nearly 65%, of which Germany, the Netherlands, Poland and other countries accounted for a significant proportion. China is the second largest destination for Russian crude oil exports. In 2016, Russia exported about 1.65 million barrels of crude oil per capita to China, accounting for nearly 20% of its total exports. It is noteworthy that Russia’s exports to China are higher than the total exports of all regions and countries except Europe. With the ESPO pipeline connecting Daqing put into use, Russia’s crude oil exports to China are expected to continue to increase in the future.
Russia produces three different types of crude oil, namely Urals Blend, Sokol and ESPO.
Ural crude oil is Russia’s main export oil, most of which is supplied to Europe. It is composed of heavy high-sulfur crude oil from Ural-Volga region and light low-sulfur crude oil from Siberia. Multiple blending means that the specification parameters of Ural crude oil vary greatly, but generally it belongs to medium sulfur crude oil with API of about 31 and sulfur content of about 1.4%. Therefore, the market price of Ural crude oil will be lower than that of Brent in the North Sea. Sweet light oil from Siberia has a higher value because of its relatively good quality. However, Siberia is located in the inland central region of Russia, so there are transport bottlenecks, leading to the increase of the threshold for direct export of the oil species, some of which will be exported in the form of Ural crude oil after blending.
ESPO crude oil is mainly produced in Siberia. It is blended with crude oil produced in the oilfields in this area. It belongs to light and low sulfur crude oil, so its quality is higher than Ural crude oil. ESPO crude oil is mainly exported to China through the pipeline of the same name. In addition, it is also exported to other Asia-Pacific countries by sea through Kozmino Port on the eastern Pacific coast of Russia.
Sokol crude oil is the highest quality crude oil among the three main types of oil. It is produced in Sakhalin Island. Its API is about 36 and its sulfur content is about 0.3%. It belongs to light and low-sulfur crude oil. Sakhalin Blend is also produced on the island. Its quality is higher than that of Sokol. Its API is about 45.5 and its sulfur content is about 0.16%. It is mainly exported by sea through the port of Prigorodnoye in the southern part of Sakhalin Island.
In addition to the above three main oils, Arco crude oil and Novy crude oil from the Arctic Ocean coast have relatively small output and large quality differences. Arco crude oil belongs to medium-quality high-sulfur crude oil with API of about 24 and sulfur content of about 2.3%. Novy crude oil belongs to medium and low sulphur crude oil with API of about 32 and sulphur content of about 0.1%.
C. Refining Industry
Russia’s crude oil consumption has undergone two stages of evolution in the past 30 years. From 1985 to 1990, although consumption demand remained low, crude oil consumption reached 5 million barrels per day. After 1991, crude oil consumption showed a cliff-like decline, and began a period of gentle rise in 1998. By 2016, the average daily crude oil consumption in Russia was about 3.2 million barrels.
Compared with Russia’s huge crude oil production scale, its domestic demand volume is very small. Russia’s crude oil consumption accounts for less than one-third of its output, and its oversupply means that Russia is an export-oriented country in terms of crude oil resources. According to BP data, Russia’s excess crude oil supply reached 8.24 million barrels per day in 2016, and inadequate demand led to the need for additional supplies to be externally digested through exports.
On the import side, Russia generally does not need to import crude oil from abroad, because domestic supply is sufficient and surplus. Russia imported 800,000 tons of crude oil in 2016, almost all of which came from CIS member states, while the imports from other countries were negligible. The import volume of this part is due to the lack of infrastructure and transportation bottlenecks.
At present, there are 37 refineries in Russia, with an average daily refining capacity of about 5.1 million barrels. Most of the refining capacity is concentrated in the western part of Russia, starting from the Yamal Peninsula, bounded south to Kazakhstan and west to the Russian refining capacity concentration belt. Among them, the offshore area north of Caspian Sea has the most concentrated refining capacity. In addition, there are some refining facilities in the south-central region bordering Mongolia and in the southeastern region bordering China.
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Rosneft is Russia’s largest oil and gas refinery with 10 refineries in the country, accounting for about 35% of the country’s oil refining capacity. According to Rosneft’s annual report, the total available refining capacity in 2016 is 118 million tons (8.6 billion barrels), the practical capacity is 101 million tons (74 million barrels), the average daily refining output is 2.03 million barrels, and the utilization rate is about 86%. Lukoil ranks second in refining capacity, with refinery output of 62.3 million tons, or 15 percent, in 2016, according to its annual report.
Russia’s refining capacity has basically met domestic consumption demand, so the import volume of refined oil is relatively small. According to BP data, Russia imported 35,000 barrels of petroleum products and exported 3.15 million barrels per day in 2016, compared with nearly one percent of its exports.
Generally speaking, Russia’s crude oil industry is characterized by more resources, less consumption, double steps and export-oriented. Therefore, without a major turning point in the domestic economy and relatively stable domestic demand, Russia’s crude oil supply has become a key factor affecting the fundamentals of the oil market.
D. Infrastructure Construction
The crude oil pipeline in Russia presents a two-way pattern in design characteristics, aiming at the two largest demand markets in Europe and the Asia-Pacific region respectively.
According to transport capacity design, Druzhba is Russia’s largest crude oil pipeline and one of the largest crude oil pipelines in the world. It can transport up to 2 million barrels of crude oil per day, and is the main artery of the main crude oil producing areas to Europe.
Druzhba pipeline is located in Almetyevsk, Ural-Volga, the second largest crude oil producing area. Through the connection of subdivided pipelines, the crude oil produced in Siberia can be transported to the west. Because of the huge production in the above two areas, the transportation pressure of Druzhba pipeline is higher.
BPS-1 and BPS-2 are two branches of Druzhba. They are transported to Primorsk and Ust-Luga ports respectively. They are important throats for maritime exports.
CPC is a crude oil pipeline connecting the Caspian Sea and the Black Sea, starting from the Caspian Sea coast of Kazakhstan and ending at Novoorossiysk in Russia and along the Black Sea coast. The designed maximum capacity is 1.3 million barrels per day.
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B-K is a relatively small pipeline in the vicinity of the Caspian Sea, starting in Baku, the Caspian coastal city of Azerbaijani, and transporting northwest to Novoorossiysk, Russia’s Black Sea coast, with a maximum capacity of 100,000 barrels per day. Baku is an important crude oil hub in the Caspian Sea region. There are three crude oil pipelines originating in the city, one of which is the B-T-C pipeline with a maximum capacity of 1.2 million barrels per day, and the end point is at C eyhan Port, Turkey.
ESPO is an important pipeline located in the eastern part of Russia. The main pipeline connects Taishet and Kovorodino, and then forms two branches ESPO-2 and ESPO China Section, connecting Kozmino Port and Daqing of Heilongjiang Province, with capacity of 600,000 barrels per day and 400,000 barrels per day, respectively. Kozmino is an important port in the eastern part of Russia and along the Pacific Ocean. It is Russia’s fourth largest crude oil export port and an important channel for transporting crude oil to the Asia-Pacific region.
Based on the above data, it is estimated that the external transportation capacity of Russia’s main crude oil pipelines is about 7.1 million barrels per day, plus the capacity of some subdivided pipelines and maritime transportation, which can basically meet the demand of Russia’s export. In addition, ESPO-1 and ESPO-2 have corresponding expansion projects. By 2020, an additional 800,000 barrels/day capacity will be released to cope with the growing demand in the Asia-Pacific market.
Russia’s four major crude oil export ports cover 84% of its maritime exports. Primorsk Port and Ust-Luga Port are located in the northwest corner of Russia, near St. Petersburg, and are the two largest crude oil export ports in the Finnish Gulf Port Group. The Port of Priorsk on the north coast of the Gulf of Finland and the Port of Ust-Luga on the South Coast connect BPS-1 and BPS-2 pipelines, respectively.
Novorossiysk Port is Russia’s largest crude oil export port, located in the southwestern corner of Russia along the Black Sea. The relatively convenient geographical location has led to the port being mainly responsible for the export of crude oil from the surrounding areas of the Caspian Sea and from Central Asia.
Kozmino Port is located in the Far East, along the Pacific coast, and is the end point of ESPO-2 pipeline. The port began operation in 2009 with an initial export volume of about 300,000 barrels per day. Export volume increased by nearly 100% to 600,000 barrels per day in 2016. The port is an offshore hub for exporting crude oil to Korea and Japan.
In addition, as the eastern offshore Sakhalin Island is an important crude oil producing area in Russia, the port of Prigorodnoye, located at the southernmost end of the island, exports about 110,000 barrels of crude oil per day.
Russia has huge reserves of crude oil resources. According to the current production schedule of the country, the proven resources can also maintain supply for nearly 30 years. At the same time, the structure of large supply and small demand for crude oil and refined oil has led to a double-step export-oriented crude oil industry in Russia. Without major changes in domestic demand, changes in the supply side have far-reaching impact on the global crude oil market pattern. Russia produces mainly medium crude oil, followed by light crude oil. Europe and China are Russia’s two largest export markets.
With the increasing friction between the United States and Russia, the U.S. Treasury Department has introduced new measures to sanction Russia’s crude oil industry, which has a certain impact on Russia’s industry and exports. Therefore, we need to continue to pay attention to the development of bilateral relations in the future.