In 2022, Russian companies drilled more wells in their oil fields than in a decade. This suggests that international sanctions or the withdrawal of some major Western firms have done little to directly harm production, and explains how the countryʼs oil production recovered in the second half of 2022, even with additional restrictions on its exports.
This is reported by Bloomberg.
Since Putinʼs decision to invade Ukraine almost a year ago, the Russian oil industry has undergone the most dramatic political changes since the collapse of the Soviet Union. Major Western companies, including BP Plc, Shell Plc and Exxon Mobil Corporation, have abandoned multi-billion dollar investments in the country. They were followed by some large international service providers. Europe also introduced a "comprehensive restriction on the export of equipment, technologies and services for the energy industry to the Russian Federation."
However, according to industry data obtained by Bloomberg, Russian oil rigs drilled a total depth of more than 28 000 kilometers last year, the highest in more than a decade. The data showed that the total number of wells started rose nearly 7% to more than 7 800, with most key oil companies outperforming the previous year.
"In many respects, the industry continues to work as before. Russia was able to retain most of the competencies, assets and technologies in the field of oil service," said Vitaliy Mikhalchuk, head of the research center of the company "Business Solutions and Technologies", which was previously part of the Russian division of the consulting company Deloitte & Touche.
Currently, the main problem for the Russian oil industry is the acquisition of high-tech Western equipment. However, this problem is solved by importing through intermediaries in "friendly countries" or by finding alternative suppliers in China.
Bloomberg writes that several factors have helped Russia keep its oil industry afloat. First, in 2021, leading international suppliers accounted for only 15% of Russiaʼs entire oil service segment. The main part of the market consists of own divisions of domestic producers, such as Rosneft, Surgutnaftogaz, and Gazprom. Russian companies bring in foreign contractors if they need high-tech services, equipment, and advanced software, but these things are not needed to keep oil flowing from operating fields.
Second, some of the largest Western oil service providers have not left the country. SLB and Weatherford International Plc continue their activities in Russia, albeit with some restrictions.
- On December 5, 2022, EU oil sanctions against Russia entered into force. The limit price for oil, oil products and oils originating from or exported from Russia is set at $60 per barrel. The price will be reviewed every two months to respond to market conditions. During the review, the price will be set 5% lower than the average market price for Russian oil and oil products, calculated on the basis of data from the International Energy Agency.
- At the same time, President Volodymyr Zelensky is dissatisfied with the maximum price of Russian oil set by the EU and the G7 countries. According to him, the price of $60 per barrel instead of $30 will give the Russian budget approximately $100 billion a year.