Expectations about oil supply from Russia may need to be adjusted. Downward.
The country’s production, surging since 1998, has sputtered in recent months. In a world with rising demand and a shrinking number of places able to increase production, that’s something to worry about.
The International Energy Agency sketches the picture in its February Monthly Oil Market Report. Year-on-year monthly production growth, it says, peaked in the summer of 2003 at 12%, nearly 1 million b/d.
Through early 2004 growth remained at 10% but fell to 6% by the end of the year.
Extrapolation of the slowdown indicates the production increase for all of 2005 will be less than 350,000 b/d.
In January, IEA had projected the gain at 430,000 b/d.
The slower growth would amount to 3.8%-bringing production for all of 2005 to an average 9.58 million b/d-following an 8.7% increase last year.
How important is this to global supply? IEA notes that Russia’s share of worldwide production growth amounted to 65% in 2001, 50% in 2002, 95% in 2003, and 75% in 2004. Very important, in other words.
IEA says 2005 might be a “year of consolidation for the Russian upstream, born of a still-uncertain regulatory and fiscal environment.”
Following increases in production taxes and a series of moves tightening the Kremlin’s grip on Russia’s oil industry, and with movement slow on a petroleum law, investors are chilled.
IEA says the government acknowledges the slowdown in a draft economic program for 2005-08 that projects production increases of 2.1-5% and cites the need for exploration in new areas.
“Stronger production growth could return when the shape of Russia’s upstream investment [and] operating environment becomes clearer,” IEA says.
Russia’s annual average production has been as high as 12.5 million b/d (in 1988) and as low in recent years as 6-6.1 million b/d (in 1996-98).
The geologic potential for Russian output to push well past current levels is not in doubt.
But Russian production in 2005 is likely to be a reminder that it’s never safe to expect future conditions in the oil market to represent extensions of present trends.
(Online Feb. 18, 2005; author’s e-mail: [email protected])
