Russia's Unsustainable Business Model: Going All In on Oil and Gas

Revenues from oil and gas production are essential for Russia. Over the last decennium, they accounted for 40 to 50% of the Russian federal budget and about two thirds of Russian exports; percentages that are higher than those for the Soviet Union in the 1980’s.

Russia is, with Saudi Arabia and the United States of America (US), one of the top three global oil producers. Russian oil reserves are only the 7th largest in the world, however. The revival of Western Siberia’s giant oil fields, which had seen major reservoir damage under Soviet times, was a significant achievement under the Putin era but has now run its course. Maintaining production levels in these fields, already for decades the backbone of Russian oil production, is becoming more difficult and costly. Exploration for new oil fields in Eastern Siberia has yielded limited success. Unconventional shale oil is a high-cost oil for which the Russian oil industry lacks the technical expertise. Large parts of the Arctic resources lie offshore, and the Russian oil industry has virtually no offshore operating experience. Sanctions are increasingly limiting the Russian oil industry’s ability to maintain production levels.

Read the full article here.