Russian oil output can see sharp fall after peak in 2021
According to Minister of Energy Aleksandr Novak, the Russian oil sector needs more tax incentives and benefits for exploration to continue growth after 2021. Otherwise, increased taxes and costs may stall further development and cause a considerable drop in production in the next 15 years.
Russia's oil production could reach its peak as early as in 2021 due to high taxes and costs, says Oilprice.com citing Minister of Energy of Russia Aleksandr Novak. Speaking at a government meeting on incentives to boost the national oil industry, the minister warned that without more benefits and lower taxes, Russia's production could start falling after reaching a record level of 570 million tonnes in 2021.
This year, Russian oil companies are expected to produce around 553 million tonnes of crude (11,105 million bpd). Since the OPEC/non-OPEC production cut deal was abolished in July, Russia has already reversed most of its output limitations and has been keeping production at post-Soviet record levels.
However, if Russia doesn't take any steps to further stimulate oil exploration and new field development, production may start to decrease after 2021 and reach just 310 million tonnes by 2035, which is a 44% drop, estimated Novak. Thus, the country's budget may lose $49 billion (3,3 trillion rubles) in taxes and another $19 billion (1,3 trillion rubles) in investments. ''This is the inevitable result of increased production costs and excessively high taxes in West Siberian oil fields,'' explained the minister.
Novak mentioned several measures that could encourage a boost in oil production, such as introducing benefits for exploration, greenfield developing and increasing production rates, as well as introducing profit-based tax for all West Siberian oilfields. He also characterised current oil prices of between $70 and $80 per barrel as temporary and mainly driven by sanctions. The minister predicted that the long-term price would stand at around $50 per barrel citing estimates by analysts and oil companies.
Prime Minister Dmitry Medvedev agreed that exploration and new oil field development were becoming increasingly important for the domestic oil industry. He urged the government to assess reserves, develop proposals for the incentive mechanisms and review the current benefit system.