Russia Oil Resilience May Fade on Lack of Technology, Yakov Says

Bloomberg News, Bloomberg News

(Bloomberg) -- The current resilience of Russia’s oil production to international sanctions will be tested in the longer term by the lack of high-tech services, according to consultant Yakov and Partners.

The country’s output, which is holding steady today even after a European import ban and G-7 price cap, will fall by 5% to 20% as the departure of international companies degrades the Russian industry’s ability to tap technically challenging resources, the Moscow-based consultant said in a report.

In the latter case, output would drop to 409 million tons, or about 8.2 million barrels a day, by the end of the decade, compared with about 11 million barrels a day last month.

“The absence of domestic high-tech oil services creates risks for 20% of the output by 2030,” said Andrey Streltsov and Gennady Masakov, analysts at Yakov, which includes former partners from the big three consulting firms after they quit Russia following the invasion of Ukraine.

Last year, Russia’s oil industry underwent dramatic changes as many international oil majors and services providers walked away from the country in protest at the invasion of Ukraine. For now, their departure has had no impact on conventional Russian drilling because domestic firms are able to fill the gap.

The absence of international providers is felt more keenly in specific sectors, according to Yakov and Partners. Companies from what Moscow considers to be “unfriendly nations” account for around 52% of hydraulic fracturing, while 90% of floating drilling rigs and 80% of equipment used for offshore production are imported, according to the report.

As Russia’s traditional reserves become depleted, the share of hard-to-recover oil in total output will grow. A greater number of wells will need to be drilled, while more frequently using methods such as horizontal drilling, according to the report. To achieve that Russia would need to upgrade its fleet of about 1,500 drilling rigs, of which 40% is seriously outdated.

“The equipment needs to be significantly updated to maintain and increase drilling rates,” Streltsov and Masakov said.