Russia economy: Shale oil development in Russia

Russia’s leading oil companies, in league with international majors, are about to embark on large-scale exploratory drilling in the giant Bazhenov shale deposit in western Siberia. They will seek to apply techniques developed at the Bakken shale deposit in the US, which in the space of a decade has revolutionised US oil and gas production and now accounts for 10% of total US output.

Bazhenov’s reserves are potentially huge. To date, Russian companies have reported recoverable reserves of 500m tonnes, but estimates of the total range from 2bn tonnes to a staggering 143bn tonnes. Even at the lower end, that would make Bazhenov significantly larger than Bakken. According to one estimate, output from Bazhenov could amount to 1m-2m barrels/day (b/d) by the end of this decade. That would comfortably sustain Russian output above 10m b/d without the need for breakthroughs in frontier oil territories.

Offsetting decline and sustaining revenue

Russian oil output has shown modest growth in the past few years, after posting huge increases between 1999 and 2007. The government’s aspiration is to keep output steady, at just over 10m b/d. This is essential for Russia’s budget. Taxes from the oil sector, principally in the form of the mineral extraction tax (MET) as well as duties and excises on oil exports contribute up to 40% of federal tax receipts, far outstripping revenue from the gas sector.

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