Fears that Russia has hit Peak Oil

[Hillary]

From the FT

Here

Russian oil production has peaked and may never return to current levels, one of the country’s top energy executives has warned, fuelling concerns that the world’s biggest oil producers cannot keep up with rampant Asian demand.

The warning helped on Tuesday to push crude oil prices to a fresh all-time high above $112 a barrel, threatening to stoke inflation in many countries.

Leonid Fedun, the 52-year-old vice-president of Lukoil, Russia’s largest independent oil company, told the Financial Times he believed last year’s Russian oil production of about 10m barrels a day was the highest he would see “in his lifetime”. Russia is the world’s second biggest oil producer.

Mr Fedun compared Russia with the North Sea and Mexico, where oil production is declining dramatically, saying that in the oil-rich region of western Siberia, the mainstay of Russian output, “the period of intense oil production [growth] is over”.

The Russian government has so far admitted that production growth has stagnated, but has shied away from admitting that post-Soviet output has peaked.

Viktor Khristenko, Russia’s energy minister who is pushing for tax cuts that could stimulate investment, said last week: “The output level we have today is a plateau, stagnation.”

Russia was until recently considered as the most promising oil region outside the Middle East. Its rapid output growth in the early 2000s helped to meet booming Chinese demand and limited the rise in oil prices.

The trend, however, has turned, with supply dropping below year-ago levels for the first time this decade, according to the International Energy Agency, the energy watchdog.

Oil futures on Monday rose to $111.79 a barrel, just below last week’s record of $112.21 a barrel.

Oh dear.

[Shroom Man 777]

Fuck me (or Goddamn Libertopians).

Can't the Russians ever get a break? At least Global Warming will kick General Winter's ass. Hopefully.

[Vympel]

Fuck me (or Goddamn Libertopians).

Can't the Russians ever get a break? At least Global Warming will kick General Winter's ass. Hopefully.

Simply because production has peaked doesn't mean the petrodollar gravy train has left. They'll be living large for quite a while. It's the rapacious oil consuming countries that need to be more worried about this.

BBC article, more detailed:-

'Threat' to future of Russia oil

The future supply of Russian oil is threatened by a likely decline in production levels, one of the country's top oil executives has warned.

Lukoil's Leonid Fedun said $1 trillion would have to be spent on developing new reserves if current output levels were to be maintained.

Recent figures show Russian output fell 1% in the first quarter of 2008.

The possibility of less oil from one of the world's key suppliers will add more pressure to prices now at record highs.

The surprise fall in Russian oil output in the first part of the year has raised fears about the ability of global supply to keep pace with demand over the next decade.

Russian production averaged 10 million barrels a day in the first three months of 2008, according to the International Energy Agency, down 1% on the same period last year.

Blamed on supply problems in western Siberia and weather conditions making it harder to move drilling equipment, the fall contrasts with substantial output rises in recent years.

In an interview with the Wall Street Journal, Lukoil vice president Leonid Fedun cast doubt on whether output could continue to increase.

Once highly-productive fields in Siberia are slowly being exhausted and the huge cost of searching for oil in the untapped but remote region of eastern Siberia has deterred firms.

"When the well's productivity falls, you have to keep drilling more and more," Mr Fedun said, referring to the steady depletion of older fields.

"You have seen it in Alaska and the Gulf of Mexico and now you are seeing it in Siberia."

Analysts at Citigroup recently said annual increases in Russian output could "no longer be taken for granted" but argued that production was expected to rise until 2012.

One energy expert said the Russian industry was now acknowledging a crisis which had been evident to independent observers for several years.

"We now see production peaked last year," Mikhail Kroutikhin, editor in chief of the Russian Petroleum Investor told the BBC.

"I believe the decline will continue for quite a number of years."

The problems have been caused by high tax levels and a shortage of financial incentives to invest in exploration, he added.

Russian worries underline longstanding concerns about whether there is enough oil to meet the needs of the global economy, particularly fast-growing China and India.

They are also a particular cause of concern for several of Europe's largest economies, such as Germany, which buy a large share of their oil from Russia.

"Russia is not going to be a very reliable supplier of energy in a few years," Mr Kroutikhin warned.

[Chris OFarrell]

Conserve Oil? Sacrifice for the greater good? Give up the SUV?

These concepts do not compute Sir, I'm sure you meant 'RARRR, offshore drilling, RARRRR, ANWAR, RAARRRRR, Nuke China into the stone age so they stop sucking up all the Oil that the West has a pact with God for or something...'

[atg]

Conserve Oil? Sacrifice for the greater good? Give up the SUV?

These concepts do not compute Sir, I'm sure you meant 'RARRR, offshore drilling, RARRRR, ANWAR, RAARRRRR, Nuke China into the stone age so they stop sucking up all the Oil that the West has a pact with God for or something...'

Why do any of that good sir? Don't you know that Eastern Siberia is positively teaming with oil? Why, all one needs to do is tap a rock there and oil positively comes gushing out. Good times for all. [/sarcasm]

[Lancer]

Why of course Siberia is teaming with oil. In fact, there are lakes of oil so vast that if you could find a way to airdrop it all at once, the sheer volume could drown the Middle East before the oil had a chance to flow away, but it's so god-forsaken cold that the oil itself is frozen solid! So, you would in fact have to mine for oil like it was a mineral.

[Kane Starkiller]

According to CIA world factbook Russia's oil exports were 7 million bbl/day in 2005 and 5 million bbl/day in 2007.
It is also interesting to look at the production and domestic consumption of natural gas:

2001
Production:580.8 billion cu m
Consumption: 408.1 billion cu m

2005
Production: 614 billion cu m
Consumption: 438.7 billion cu m

2007
Production: 656.2 billion cu m
Consumption: 610 billion cu m

As you can see Russian economy is gobbling up all the natural gas production and the only way it can remain an exporter is to keep the monopoly on Central Asian gas which it buys on the cheap and resells to Europe. Hence all the Russian screaming about Georgia. It could provide means for Europe to bypass Russia and reach the Central Asian gas directly.

[Patrick Degan]

Why of course Siberia is teaming with oil. In fact, there are lakes of oil so vast that if you could find a way to airdrop it all at once, the sheer volume could drown the Middle East before the oil had a chance to flow away, but it's so god-forsaken cold that the oil itself is frozen solid! So, you would in fact have to mine for oil like it was a mineral.

"Welcome to the oil mining gulag of Rura Penthe, comrades."

[Admiral Valdemar]

This is pretty major news, a lot of our predicted oil growth was meant to come from there. Looks like that prediction is dead and having a nation actually admit it is even weirder (Saudi will deny peaking until the Apocalypse).

Oil has gone up three dollars already. And the dollar is strengthening these part few weeks.

Still, least this piece didn't have any bullshit excuses like weak dollar or bad weather. China increasing diesel imports by 49% this past month is bad ju-ju.

[K. A. Pital]

I've already posted an article from a top Russian oil analytics institute that detailed Russian peak. I guess it's only new to oil "hopefuls" - idiots who hoped for some cornucopia sprining out of Russia.

Well, if you lived under a fucking rock, welcome to reality.

[Illuminatus Primus]

Wait, where's Stuart? I thought they had more oil than the KSA under Siberia? I thought we had hundreds of years of oil yet? I thought Peak Oil was a New Earth creationist level scam?

[Illuminatus Primus]

Simply because production has peaked doesn't mean the petrodollar gravy train has left. They'll be living large for quite a while. It's the rapacious oil consuming countries that need to be more worried about this.

As Russian growth picks up as production stagnates, more oil will have to diverted from exports to domestic consumption. This will lower revenues. As quality and reserves decline, more and more revenue will have to reinvested merely to maintain current reserves; this lowers revenues which are available to invest at will.

[HemlockGrey]

Simply because production has peaked doesn't mean the petrodollar gravy train has left. They'll be living large for quite a while. It's the rapacious oil consuming countries that need to be more worried about this.

Even if they do keep riding the moneytrain, does that translate into a stronger Russia (aside from the fact that they'll be able to strongarm an energy-hungry Europe)? What's to keep them from sinking into the same pit of corruption, poverty and waste that's consumed virtually every other commodity-centered economy? I'm sure the government and their cronies will be living large, but, especially given the curent state of the Russian state, I'd be dubious that they'll be able to put the wealth to good use.

[Guardsman Bass]

Simply because production has peaked doesn't mean the petrodollar gravy train has left. They'll be living large for quite a while. It's the rapacious oil consuming countries that need to be more worried about this.

Even if they do keep riding the moneytrain, does that translate into a stronger Russia (aside from the fact that they'll be able to strongarm an energy-hungry Europe)? What's to keep them from sinking into the same pit of corruption, poverty and waste that's consumed virtually every other commodity-centered economy? I'm sure the government and their cronies will be living large, but, especially given the curent state of the Russian state, I'd be dubious that they'll be able to put the wealth to good use.

Aren't they already at something like this?

[Vympel]

As Russian growth picks up as production stagnates, more oil will have to diverted from exports to domestic consumption. This will lower revenues. As quality and reserves decline, more and more revenue will have to reinvested merely to maintain current reserves; this lowers revenues which are available to invest at will.

The flipside is that the inevitable increase of the price of oil will offset loss of revenue somewhat (to what degree I'm unsure).

In any event, as a general observation, it's commonly assumed that Russia is living large off of massive windfall profits of ~$100 per barrel oil. It's not. All government revenue from oil selling over a pathetic $27 a barrel goes into two seperate reserve funds for a rainy day, which before January of this year (IIRC) was simply the "Russia Stabilization Fund", which was last I checked up to some $140 billion in cold hard cash.

(IIRC the two funds which were created from that are one to cover pension payment shortfalls, and the other to serve as the stabilization fund).

The shock to the Russian economy of massive amounts of government spending of all this revenue is not desireable, so it's kept in the stabilization funds (the cash breakup is something along the lines of USD/EUR/Pounds on a 40/40/20 basis or something, I don't recall) and IIRC invested.

[K. A. Pital]

The shock to the Russian economy of massive amounts of government spending of all this revenue is not desireable, so it's kept in the stabilization funds (the cash breakup is something along the lines of USD/EUR/Pounds on a 40/40/20 basis or something, I don't recall) and IIRC invested.

That's the bullshit Kudrin has been peddling. The money is essentially fucking frozen, when it could massively help the economy. His fears of capital flight are pathetic - there are means of investment that will avoid capital flight, examples from highly capital-consuming sectors that could be reinvigorated include defense, space, fundamental science, government medicine network.

Kudrin is a liar and a thief, and I hope he and Zurabov are booted the way Gref was, into leading some state bank or something.

Fuck them.

[Vympel]

That's the bullshit Kudrin has been peddling. The money is essentially fucking frozen, when it could massively help the economy.

I thought it was being invested abroad, had been used for early foreign debt repayment, and had been used to top-up the pension fund (whatever it's called)?

His fears of capital flight are pathetic - there are means of investment that will avoid capital flight, examples from highly capital-consuming sectors that could be reinvigorated include defense, space, fundamental science, government medicine network.

Kudrin is a liar and a thief, and I hope he and Zurabov are booted the way Gref was, into leading some state bank or something.

Fuck them.

I thought the primary fear was inflation, rather than capital flight.

[K. A. Pital]

I thought it was being invested abroad

You mean placed in foreign currency and foreign banks, so that it helps foreign economies with investment? One hell of a policy to rebuild a ruined domestic economy...

had been used for early foreign debt repayment, and had been used to top-up the Pension Fund?

The debt issue is long past. As for pension fund, this is ridiculous, if it were seriously invested into pensions, they could've been at average salary by now. Which means old people will no longer earn for such basic stuff as food at least. But no. Pension rises have been several times less than the price rise in foods, transport and housing costs. That's not enough by any means.

I thought the primary fear was inflation

No, in fact Kudrin himself said that a stronger rouble will stifle domestic industries as things stand now; and when questioned about the Stab Fund he said the main fear is "capital flight", putting the following allegory: you give a person 50 bucks, he moves them out of the country and places into a foreign bank...

Which is the same as what he and his fucktard ministry are doing, except on a far larger scale; and their accountability is really dubious (hell, his vice-minister has been fucking jailed on massive fund missing charges).

So he well knows that it's not inflation that's the problem (and it's pacing very fast anyway); but his utter inability to invest this money in the domestic economy in such a fasion that won't result in capital flight.

And such fashions are many and very necessary; most of our scientific corps in the R.A.S. (russian academy of sciences), including it's economists, have been heavily pounding Kudrin on the issue.

But he's a sleazy corrupt fucker, and his second in command is behind bars now; I hope he joins him soon and someone more capable of fund allocation is placed in the position.

[Vympel]

The Reserve Fund has on its books, as of 1 April 2008, $130 billion (US).

The National Wealth Fund has $32.90 billion (US).

In other words, if the Stabilization Fund still existed, there would've been $162.9 billion in there. I can imagine how tempting such a huge chunk of cash would be, but I'm no economist, so I have no idea as to whether that $162.9 billion's effect would be if it (and all the other profits from oil + gas windfall) were pumped into the economy, specifically defence/space/science etc.

[K. A. Pital]

If your main problem is a lack of investment into Russia, due to bad investment climate, overall bad economic conditions and even natural climate raising CoEs for a business, serious ones I mean like industry or construction, it makes sense to invest.

It doesn't make sense to invest into other nations.

Hell, even the OIL INDUSTRY - our investment bonanaza - say they're suffering from underinvestment and need billions to continue oil extraction at these levels, and fund new plants in Siberia which is very expensive and possibly even intoleable costs for a corporation - and Kudrin doesn't do shit.

[HemlockGrey]

Aren't they already at something like this?

Well, I meant more so. Judging from what Stas said it doesn't look like they're putting the money to good use.

[K. A. Pital]

Judging from what Stas said it doesn't look like they're putting the money to good use.

If you visit Moscow, and Moscow alone, you might come to a different conclusion