Lukoil: Russia could produce over 12 million bpd in 2035

Russian oil producer Lukoil forecasts that Russian annual oil production could rise to 12 million bpd by 2035 in case of a significant increase in global access to energy, says S&P Global Platts. On 17 December, Russia’s largest private oil producer released a report on major trends in the global liquid hydrocarbon market to 2035. The company sees three scenarios for the sector’s development, the worse of which is a decrease in Russia’s production below 8 million bpd/year if aggressive climate policies are introduced. The country can increase output primarily through higher oil recovery rates and the development of tight oil reserves, Lukoil considers. In 2019, Russian oil production is expected to amount to 11,25 million bpd.

According to the report, Russia’s low oil recovery factor (ORF) is an area for potential development. The company believes that the indicator should amount to 38% under the current taxation framework, which is much higher than the country’s current result of 22%. “Were the government to provide extra tax incentives, the ORF may increase to 45%, which is comparable to that of the US and Norway,” the report reads. Besides, hard-to-extract reserves should play an increasing role in Russian output, particularly at the Bazhenov formation after 2025.

Russian producers had to re-evaluate their plans for production of hard-to-extract reserves and oilfields in the Arctic offshore due to Western sanctions that limited their access to modern technologies. However, Russian companies are prioritising developing domestic technology as well as increasing cooperation with Asian partners. Lukoil estimates that “as early as in 2030, Russia will be able to significantly reduce its dependence on imports in all areas critical to the efficient development of the oil industry”. Nonetheless, Arctic offshore development is likely to be stagnating at least until 2030, as local producers currently have more attractive investment opportunities.

The producer expects that taxation may have a significant impact on production prospects over the next decade. At the moment, the country is testing a pilot excess profit tax, which may be expanded to the whole of West Siberia next year. In 2022, the government will decide whether this taxation system can be applied to the whole industry. Lukoil welcomes the pilot saying that “transferring the main tax burden to the later stages of field development allows us to significantly increase production by developing previously unprofitable areas, and to thus increase public revenues”.

Lukoil believes that Russia’s cooperation with other major oil producers under the OPEC+ agreement will be long-lasting pointing out that it produces virtually no impact on the country’s production opportunities but supports market stability and reduces the amplitude of price fluctuations. The producer expects oil prices to stay between $50 and $90 in 2025-2035 with the US dollar continuing to dominate oil transactions.