Story By Andreas Exarheas|RigZone|If Russia’s government were to collapse, we would likely see substantial oil and gas upstream production declines.
That’s what Joseph Gatdula, the Head of Oil and Gas at BMI, a Fitch Solutions company, told Rigzone, adding that the reformation of a new government, whether peaceful or violent, would influence the extent of those declines.
“When the Soviet Union dissolved relatively peacefully in 1991, crude production fell by 10 percent that year and 13 percent in the year after, with declines peaking five years later at 40 percent below 1990 levels,” Gatdula said.
“State control of the oil and gas industry was much higher during Soviet times, so these declines are not likely to be repeated if the transition is orderly,” he added.
“Because the majority of upstream production is now controlled via publicly traded firms, such as Rosneft and Gazprom, the oil and gas industry is likely to be more resilient and focused on maintaining exports and revenue,” he continued.
If the transition to a new government were to be marred with violence and conflict, the impacts on crude production could be greater as disruptions to labor and goods movement would see crude output and exports fall, Gatdula noted.
“The desire to control oil and gas production, as means to control state revenue, could see key infrastructure targeted which would limit upstream production further impacting output,” he said.
Looking at the potential global fallout of a Russian government collapse, Gatdula told Rigzone that oil and gas prices would be expected to increase “as an interruption to trade flows would be likely and the risk premia associated with uncertain supply (both immediate and medium-term) would become a semi-permanent fixture until the political situation stabilized and upstream investment returned”.
“Crude production and exports would be most positive if the transition were peaceful and seamless with Russian fiscal and regulatory changes kept intact with no surprises,” Gatdula said.
“So, dependent on the type of government transition, the impacts to the global oil and gas industry could be highly varied with risks tilted to the upside for oil and gas prices as uncertainty would dominate immediate aftermath,” he added.
When asked what would happen to Russia’s oil and gas industry if the government fell and if there would be any effects on the global oil and gas sector if the Russian government collapsed, Al Salazar, a Senior Vice President at Enverus Intelligence Research, told Rigzone, “using the collapse of the Soviet Union as a comparable example, we think oil prices would rise as Russian production would fall”.
“Specifically, Russian supply fell by 4.1 million barrels per day between 1990-1995,” Salazar said.
“Lost volumes were offset by increases from Venezuela, U.K./Norway and OPEC. If history repeated itself, we are unsure where to find barrels – aside from outside OPEC’s existing spare capacity (2.0 – 3.0 million barrels per day) – to replace Russian output and supply today’s demand growth,” he added.
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Russian Oil and Gas Production
According to the Energy Institute’s 2023 statistical review of world energy, the Russian Federation produced 11.202 million barrels of oil per day last year.
This figure represented a 1.8 percent year-on-year increase and 11.9 percent of the total oil production in 2022, the review showed. Russia produced 11.000 million barrels per day in 2021, 10.666 million barrels per day in 2020, 11.679 million barrels per day in 2019, 11.562 million barrels per day in 2018, 11.374 million barrels per day in 2017, 11.342 million barrels per day in 2016, 11.087 million barrels per day in 2015, 10.927 million barrels per day in 2014, 10.807 million barrels per day in 2013, and 10.656 million barrels per day in 2012, according to the review.
In a statement posted on its website last month, OPEC noted that Russian crude oil production in May 2023 stood at 9.533 million barrels per day, “according to secondary sources”.
Russia produced 618.4 billion cubic meters of natural gas last year, the EI review highlighted. This marked an 11.9 percent drop year on year and 15.3 percent of the total natural gas production in 2022, the review outlined. The country’s gas output came in at 702.1 billion cubic meters in 2021, 638.4 billion cubic meters in 2020, 679.0 billion cubic meters in 2019, 669.1 billion cubic meters in 2018, 635.6 billion cubic meters in 2017, 589.3 billion cubic meters in 2016, 584.4 billion cubic meters in 2015, 591.2 billion cubic meters in 2014, 614.5 billion cubic meters in 2013, and 601.9 billion cubic meters in 2012, the review showed.
The EI review’s oil production figures include crude oil, shale oil, oil sands, condensates (lease condensate or gas condensates that require further refining), and NGLs (natural gas liquids – ethane, LPG and naphtha separated from the production of natural gas). It excludes liquid fuels from other sources such as biofuels and synthetic derivatives of coal and natural gas and liquid fuel adjustment factors such as refinery processing gain. It also excludes oil shales/kerogen extracted in solid form.
The review’s gas production data excludes gas flared or recycled and includes natural gas produced for gas to liquids transformation.
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