Russia’s energy strategy: Crude oil output to decline by 2035

Russia’s crude oil output will decline by 2.3% by 2020 and by 2.1% by 2025 compared to 2015, according to the baseline scenario of an updated 2035 energy strategy cited by the local Vedomosti daily. The ministry devised three main scenarios for development – a minimal scenario envisaging preservation of low oil prices and sanctions, a baseline scenario under which oil prices recover to USD 80 by 2020 and USD 97.5 by 2030 and moderately optimistic scenario which projects faster rise of oil prices and lifting of Western sanctions by the end of 2016. The fourth development pathway is according to companies’ production plans based of present oil deposits and exploration plans till 2022. The companies’ plans are the most pessimistic, forecasting contraction of oil output by 46% by 2035. In general oil companies overestimate risks to oil production in order to lobby for tax breaks, which can explain the low numbers. The ministry’s pessimistic scenario similarly projects oil output shrinking by 15% by 2020 and 42% by 2035 while the moderately optimistic scenario sees oil output rising in the short-term (4.1% by 2020) but still declining by 1.6% by 2035. Thus, under all four development scenario’s Russia’s oil output will decline by 2035, the ministry believes. Smaller oil companies such as Slavneft and Russneft may register an increase of production, but output of large companies will fall due to depletion of brownfields.

Oil output development scenarios (excluding gas condensate, mn tons per year)
2015 2020 2025 2030 2035
Pessimistic 500.9 425.8 369.3 332.4 292
Companies plans 508.6 511.9 446.7 363.8 276
Baseline 507.7 496 496.9 500.2 496.8
Moderately optimistic 509.8 530.7 523.9 529.5 501.8
Source: Energy Ministry

External demand for Russian oil is expected to remain largely stable over the period. The energy ministry projects growth of oil exports to China (by 1.8-2.2 times to 90-110mn tons per year compared to 2014), but declining demand from other markets will keep total demand at 9-10mn tons. In order to stimulate oil production, the energy ministry proposes allowing private companies to develop the Arctic shelf oil deposits, reduce taxes and support SMEs in the sector. Under the moderate optimistic scenario, Russia’s oil revenue is projected to rise by 35% by 2035 compared to 2014 mainly on the back of higher raw-materials extraction tax revenue. Income from oil export duties should fall in the short-term (by 2020), but return to 2014 levels by 2035.

Budget revenue (under moderately optimistic scenario, RUB tn)
2014 2020 2035
NDPI on oil 2.5 4.6 5.7
Export duty on oil 2.6 1.8 2.6
Export duty on oil products 1.5 0.6 0.6
Total 6.6 7.0 8.9
Source: Energy ministry

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