Russian Oil And Gas Companies Are Ready to Continue Investing in the Industry, Despite Geopolitical Difficulties
Russia maintains oil and gas production at a high level, despite geopolitical difficulties. The implementation of most major projects continues, which means that we can expect that everything will be in order with investment programs.
Last year, the Russian oil industry managed to increase investment by 22 percent compared to the previous year, to 1.818 trillion rubles. Such figures were given in the presentation to the report of Energy Minister Nikolai Shulginov. Last year proved to be relatively good for oil production, which increased by more than two percent and amounted to 535 million tons. The volume of oil exports from our country increased by 7.6 percent – up to 242 million tons.
In December, Deputy Prime Minister Alexander Novak predicted that investments in the domestic fuel and energy complex in 2023 would not be lower than in 2022, and possibly even more. He noted that a number of large investment projects are being implemented in Russia to develop new fields and to support current production. Oil production is supported, but at the moment there is no need to talk about its possible increase. Russia has decided to voluntarily cut production by 500,000 barrels per day in excess of the previously set quota since March.
This was due, among other things, to the introduction by a number of countries of a price ceiling for Russian oil transported by sea at the level of $60 per barrel. Since February, the price ceiling for petroleum products has also come into effect.
Taking into account the voluntary reduction, it will obviously not work to keep the indicators of last year. The government predicts that oil production together with gas condensate in Russia in 2023 will decrease by 20 million tons – up to 515 million, Alexander Novak said.
Will it affect investments?
“Last year, there was a record increase in investment in production for many years – about 10 percent year on year, according to Rosstat,” Valery Yemelyanov, an expert on the stock market at BCS Mir Investments, told RG. “But here it is important to consider that this there was growth under conditions of severe stress: companies were spending not so much on the development and growth of production, but on the transfer of raw materials and fuel from western routes to southern and eastern ones.
According to the expert, even if oil and gas companies manage to increase investments this year compared to 2022, these will be low value-added expenses: for the repair of logistics, but not for new production.
As for natural gas, its production in Russia in 2022 decreased by 11.7 percent, to 673.8 billion cubic meters. The main reason is the decrease in supplies to Europe by 55 percent. On the other hand, the export of liquefied natural gas (LNG) increased by 20 percent, against which no one imposed sanctions. As a result, its production in the country increased by 8.1 percent – up to 32.5 million tons.
The companies were spending not so much on the development and growth of production, but on the transfer of raw materials and fuel from the western routes to the southern and eastern ones.
Gas companies are ready to continue investing in new projects and existing fields. For example, Gazprom’s investment program for 2023 is a record 2.3 trillion rubles. In 2022 it was 1.98 trillion.
“Gazprom’s investment program for the current year includes investments in the development of new gas fields in Yamal and Eastern Siberia (the Irkutsk region and the Republic of Sakha), the construction of a gas processing complex in Yamal, investments in the construction of the Power of Siberia-2 gas pipeline, the development of gasification in Russian regions,” Natalya Milchakova, a leading analyst at Freedom Finance Global, told RG.
Demand for gas in China remains very high, she said, adding that China will now be the main consumer of Russian pipeline gas, as Germany once was. Gazprom will also reorient export flows, possibly through new LNG production capacities, from West to East, where Russian gas is expected. The construction of the Power of Siberia-2 will most likely begin in 2024, the expert believes.
“In the next few years, it is expedient to carry out in the gas industry the construction of both large pipeline projects, analogues of the Power of Siberia, and gas liquefaction facilities, including small LNG plants,” Natalia Milchakova noted. “For example, China has already built more than 200 gas chemistry is also a promising area, and China is already implementing such projects not only at home, but also in neighboring countries, for example, one project is being implemented in Kazakhstan. not occupied by competitors.
In general, the prospects for the development of the oil and gas sector in Russia in 2023-2024 can be considered positive
Among the largest oil projects currently being implemented in Russia is the development of the Vostok Oil field in the Krasnoyarsk Territory. In April, Rosneft announced that it was starting pilot development of the Ichemmskoye field of the Vostok Oil project.
Great prospects for natural gas liquefaction plants “Arctic LNG-2” and the project in Ust-Luga. It is planned that the first stage of the Arctic LNG-2 will be launched at the end of 2023, the second – in 2024. In April of this year, the second production line of the plant was already more than 80 percent ready.
In addition, Novatek has launched a new large-tonnage Murmansk LNG project. Now design surveys and assessments are underway, the main technical conditions for energy supply are being worked out. The difference of this LNG project is that it will be connected to Gazprom’s Unified Gas Supply System. Therefore, it will be necessary to build a main gas pipeline with a capacity of up to 30 billion cubic meters of gas per year.
New gas processing plants and gas chemical plants are also being built. In early May, the readiness of the Amur GPP construction project was 88.83 percent. Work is underway on six production lines of the plant, which will be able to process up to 42 billion cubic meters of gas per year.
Another enterprise is being built next door – the Amur Gas Chemical Complex (AGCC). This is a joint project of SIBUR and China’s Sinopec. The Russian company said that the plan to receive the first products at the AGCC in 2026 is still in force.
“In general, the prospects for the development of the oil and gas sector in Russia in 2023-2024 can be considered positive, despite the decline in oil and gas production at the beginning of this year,” Associate Professor of the Department of Corporate Governance and Innovation at the Plekhanov Russian University of Economics told RG Evgeny Genkin: “However, in order to maintain leadership in world markets and ensure the energy security of the country, it is necessary to work actively to improve the technological base and investment climate.”
