Hydrocarbon Production Increase in the US: No Immediate Risk for Russia

22.10.2013

The oil and gas production boost in the US may propel the country to the top of the hydrocarbons industry before the year is out. It has already influenced the Russian energy industry because the Shtockman field is basically frozen, as it was intended for exports to the US.

The oil and gas production boost in the US may propel the country to the top of the hydrocarbons industry before the year is out. Leonid Grigoriev, Chief Advisor of the Director of the Government Analytics Center, professor of the Department of Energy and Minerals Markets at the Faculty of World Economy and International Affairs of the Higher School of Economics, analyzes the potential consequences of this change for the balance in the global energy market.

Is it true what the media say about the state budget and that state companies are already affected by the decreasing gas prices? Is there any potential threat of collapse for the Russian economy as a result of the growing shale oil production in the US?

The problem is that there is no problem. The gas production growth has already influenced the Russian energy industry because the Shtockman field is basically frozen, as it was intended for exports to the US. Now it is no longer needed because the crisis left us without any other market. Nothing more is going to happen in the short term. It is very unlikely that the US will begin exporting their gas commercially. However, this opinion is based on the Energy Industry Development Forecast in Russia and the World up until 2040 of the Institute for Energy Research of the Russian Academy of Sciences and the Government Analytics Center. The researchers looked into how the changing situation in the US might affect the energy markets, including Russia. Our American colleagues believe that the analysis in the forecast offers the best evaluation of the current situation. In short, nothing dramatic is going to happen for the time being.

Production of the shale oil will continue. The question is in what quantities. The share of shale gas in the US total gas production is currently some 40%. The amount of shale oil is for now lower, so it is not an immediate problem. There are several scenarios of world events that may affect the growth of shale oil production in the US. A technology breakthrough is a necessary condition for this. In any case, we can only expect a significant increase in the shale oil production in the US and the world within five to ten years. So far, the Americans have not eliminated imports completely, although they are trying to become self-sufficient. They are still importing oil from Mexico, Canada and Venezuela. Angola and Nigeria are experiencing difficulties with oil exports. There are, however, no immediate risks for Russia. We are just starting to develop a new energy strategy that will take into account all the major future risks. For Russia it is very important to reinvest the profit from the oil exports carefully.

Will oil prices remain at over $95 pbl, as quoted in the 2014-2016 Russian budget?

Yes, the price range quoted in the budget would seem to be correct.

Are there any prospects for shale oil production in Russia? 

As far as we know, the Bazhenovskoye oil field is several times larger than the Bakken field.

Are Russian companies ready for a technology competition?

Yes, we really do have large deposits of shale oil. Shell held a conference on Russia as a driving force of a new shale oil revolution. The company is ready to start drilling. The problem is we still have plenty of ‘common’ oil and the production of shale oil is quite expensive. We are still very far from commercially viable production.

Do you think environmental issues may restrict production?

I don’t think that the environmental impact of shale oil production will become an issue. The production of hydrocarbons in the Arctic shelf is much more dangerous for the environment.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.

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