RUSSIAN OIL AND GAS: A REALISTIC ASSESSMENT
Ray Leonard
YUKOS Exploration and Production
Paper presented at the International Workshop on Oil Depletion,
Uppsala University, Sweden, May 23-24th, 2002.
An open evaluation of Russian Oil and Gas reserves has not been possible until recently for
several reasons. In the Soviet Union, hydrocarbon resources were a strategic asset and as
such, a state secret that could only be guessed at from the outside. Other organizations, such
as the CIA and International Energy Association made educated guesses but from an
ideological point of view; Soviet reserves were a threat from a security and market supply
standpoint and were perhaps minimized. The only firm evidence came from Soviet
production of oil, reaching 12 MMBO/D in the late 1980’s or about 20% of the world
production. Either the reserve numbers were wrong or the Soviet Union was depleting its
reserve base at an accelerated rate of about 8% per year. The accelerated rate was the view
of the CIA and seemed to be supported by the collapse in production from 1990-1995 to 6
MMBO/D. However, in the late 1990’s production began to rise again, reaching 8 MMBO/D
in 2001. YUKOS predicts that production will continue to rise to 14 MMBO/D by 2010,
75% in Russia and the rest in the Caspian region. This presentation will focus on Russia, as
the projected rise in Caspian production is well documented (largely based on four projects;
Tenghiz, Karachaganak, Kashagan and Azeri-Chirag-Gunashli) and will happen without the
necessity of any new developments. The Russian evaluation is based on four factors; the
current booked reserves, the production level of the reserves, oil and gas remaining to be
found and export capacity.
Russian Reserves: In the Soviet Union, (now Russia) after discovery and delineation, each
oilfield was analyzed by the State Reserves Committee to calculate geological and
recoverable reserves. The Categories A, B and C1 represented proven reserves. This was
based on a proposed and approved development plan. The plan was based on existing
technology, but with no economic “filter.” In recent years, Russian oil firms offering market
shares have used internationally recognized engineering/audit firms to estimate their
reserves. In the case of the four largest oil firms, the audited amount averages about 80% of
the State Reserves Committee approved number. Including Russian majors, independents,
condensate from Gasprom, state reserves and reserves of foreign companies operating in
Russia, proven reserves are 100-110 billion barrels, or 80-88 billion if the 80% factor is taken
into account. International convention usually takes a 50% reduction factor in counting
probable (C2) reserves. Therefore, the Russian total of 30-40 billion probable would add an
additional 10-15 billion. More detailed calculations are being made to refine the number, but
90-103 billion barrels is a reasonable estimate of Russian reserves. A comparison of outside
estimates, audited reserves and state reserves for the ten largest oil companies is shown in
Figure 1. Proven reserves of the Caspian states Azerbaijan, Kazakhstan and Turkmenistan
are about 30 billion barrels, not including the Kashagan discovery, reportedly containing 1020 billion barrels recoverable.
100
93
bn bbl
90
81.8
80
70
60
50
46.5
40.2
40
30
20
10
0
World Energy
Council (1998)
Proved (internat. Proved (A+B+C1) Proved (A+B+C1)
audited 99- 00 )
reserves of Top
and 50% of C2
reserves of Top 4*
10**
reserves of Top
10**
Figure 1. Russia reserve estimates; speculation and fact
Production Level: The production levels prior to the 1990’s were not based upon economic
factors. As such, they probably do not conform to many models developed for production in
the rest of the world. The production of 12 MMBO/D in the late 1980’s was based upon
centralized planning, utilizing development programs with inefficient technology. The
precipitous drop in production from 1990-1995 was due to a complete lack of investment but
with a continuation of the old technology. The recent increases are a result of investment and
application of modern technology. YUKOS provides an example; utilizing efficient drilling
and production techniques, new wells produce three times the Russian industry average.
Production has increased from 890,000 BOPD in 1999 to 1.3 MMBOPD at present.
(Figure2). With current development of only 53% of proven reserves, this rate of increase
can continue for many years.
Figure 2. Upstream: Sustainable Growth
Other Russian companies are discovering the same thing; utilization of modern technology
will dramatically increase production. Predicted production of 10.5 MMBO/D in 2010 with
existing proven reserves is actually a conservative estimate. The distribution of production
from 1980-2000 and prediction of 2010-2020 in Russia and Central Asia is shown in Figure
3. It is important to note that the increase in Russian production will take place from fields
already discovered. Significant exploration success should increase the predicted 10.5
MMBO/D rate.
RUSSIA CURRENT PRODUCTION AREAS
16
CENTRAL ASIA
EAST SIBERIA
RUSSIAN OFFSHORE
MMBO/D OIL
14
0,8
0,6
12
0,94
10
1,4
0,9
0,88
3,5
3
8
6
0,96
0,9
11,04
10,28
4
9
8,5
2010*
2020*
6,4
5,7
2
0
1970
1980
1990
2000
* Source: YUKOS expert estimates
Figure 3. FSU oil production increase
Future Potential: Large portions of Russian sedimentary basins are unexplored. Lack of
technology to explore offshore, limited investment in the past ten years and poor
infrastructure in frontier basins are factors. Reviewing discovery curves for productive
basins, a range of 30-40 billion barrels for future discoveries can be supported. Several
offshore basins, such as the Kara Sea and Pechora Sea are extensions of existing producing
trends, increasing that range. YUKOS is currently making a systematic analysis of discovery
curves. It is likely that this study will result in a prediction of 40-50 billion barrels to be
found by exploration in Russia.
Export Capacity: Increase of production by 6 MMBO/D by 2010 requires expansion of
export capacity in Russia and the Caspian by an equivalent amount. To a large extent,
pipeline routes have already been identified. (Figure 4) Project planning, and in some cases
pipeline construction has already begun. In the Caspian region, the Caspian Pipeline
Consortium (CPC) has completed a pipeline with eventual 1.3 MMBO/D capacity. The
Baku-Tblisi-Ceyhan project will add another 1 MMBO/D by 2005. To the north, a pipeline
carrying oil from the Timan-Pechora Basin will add up to 600,000 BOPD capacity to the
Baltic Sea and Northern Europe. The YUKOS-led China Pipeline will add 600,000 BOPD
capacity, also by 2005. Sakhalin production, forecast at more than 500,000 BOPD will be
carried by tanker to Asian and North American markets. Future routes will probably include
a third new export pipeline from the Caspian Basin, marine transport from the Pechora and
Barents Seas and an additional pipeline to China or the Pacific.
Figure 4. Oil export routes.
Up to this point, only Russian oil reserves have been discussed. However, it is accepted that
Russian gas reserves are approximately equivalent to the total gas reserves of the Middle
East. Furthermore, the Kara and Barents Seas are largely unexplored and predicted to
contain several hundreds of trillion cubic feet of gas. With the predicted peaking of oil
35
30
2,82
25
2,12
1,41
1,06
4,87
5,82
3,88
20
1,94
15
5
0
22,59
3,74
10
1,69
2,93
9
1970
1980
RUSSIA CURRENT PRODUCTION AREAS
1990
19,06
20,47
20,47
2000
2010
2020
CENTRAL ASIA
EAST SIBERIA
RUSSIAN OFFSHORE
Figure 5. Increasing gas production
production in the 2010-2020 time period the shift to natural gas will necessitate significant
production increases from Russian fields in East Siberia, Northwest Siberia and the offshore.
While the inefficiency in exploring for and producing oil in Russia is disappearing, gas is
several years behind. With open competition and adequate investment, current production of
20 TCF/Year can be significantly increased, with a large portion of the new production
moving by pipeline to the Far East. (Figures 5 and 6) A significant portion of the increase
will come from Caspian fields. While Russian and Caspian oil and gas reserves do not solve
the essential problem of oil depletion, they will push back the “day of reckoning” giving the
world more time to develop alternate sources of energy.
Figure 6. Gas export routes.