Russia, with its oil assets, has in its possession a key global energy resource. According to BP Statistical Review (2013), proven Russian oil reserves totalled 87.2 billion barrels in 2012, which makes up around 5.2 percent of the world’s total proven oil assets. Russian oil assets are found primarily in Western Siberia, between the Ural Mountains and the Central Siberian Plateau. Other key oil regions are Timan-Pechora in northern Russia, the Volga-Ural region and the island of Sakhalin on the Pacific coast. In addition to these important oil assets, Russia also has very large natural gas reserves. Russia’s total natural gas reserves totalled 32,900 billion cubic metres in 2012, which accounts for 17.6 percent of world natural gas reserves1.
Oil production and consumption
Russia is the world’s second largest oil producer after Saudi Arabia. [BP footnote]In 2012, Russian oil production totalled 10.6 million barrels per day, which accounts for 12.8 percent of the global market . A peak in Russian (Soviet) oil production was reached in 1987 with a daily volume of 11.5 million barrels. Production fell significantly during the first half of the 1990s after the collapse of the Soviet Union and the accompanying privatisations. The lowest daily volume was reached in 1996 with only 6.1 million barrels per day, which is equal to a reduction of over 40 percent from the top levels in 1987. The drop in oil production was mainly due the economic collapse in conjunction with the fall of the Soviet Union combined with the depletion of major oil fields and increased production costs. The daily production level remained relatively unchanged for the rest of the 1990s and increased in 1999 to just 6.2 million barrels per day.
Russian oil production then increased in the beginning of the 21st century up to a daily production level of approximately 10 million barrels in 2007. The underlying factors for the strong growth was the Russian privatisation of the oil industry, increased use of western production technology and higher market prices for oil. The two types of crude oil that characterise the Russian market reflect their geographical sources – Urals Blend and Siberian Light. Of these, Siberian Light has the best quality, with both low sulphur content and lower viscosity, which puts its price and quality at par with Brent oil. Urals Blend is normally traded at a discount of approximately USD [3-5] in comparison to Brent oil.
Domestic oil market
Only a small portion of Russian oil production is currently absorbed by domestic consumption. Daily consumption totalled 3.2 million barrels per day in 2012, which only accounts for 30.2 percent of daily production . Domestic consumption of crude oil was substantially higher during the Soviet period. However, the price of oil was under a state subsidy during that period. In the end of the 1980s, daily Russian oil consumption was stable at over five million barrels per day and accounted for about half of total Russian oil production. In the 1990s, daily consumption was cut in half and totalled 2.6 million barrels per day in 1999. This was due to the state subsidies ending and export quotas being implemented, as well as other factors. Domestic consumption then stabilised around this level. An auction-like process determines the domestic oil price. The agreed price is applicable for one month until the new auction is held. Other factors affect the price besides domestic demand, such as the export price, taxes, pipeline capacity, transport costs and fees.
1. BP Statistical Review, 2013.