RUSSIAN PETROLEUM INDUSTRY SAID TO BE STRUGGLING FOR SURVIVAL

Russia's fuel industry is struggling for survival, sector leaders told top government officials at a Moscow conference. High taxes and a continued decline in capital investment are undermining efforts to stem the nation's petroleum production slide, said Viktor Palei, general director of, western Siberia's Nizhnevartovsk Oil & Gas Association. Natural gas flow, which did not follow the sharp decline in Russian oil and coal production and refinery output during 1988-92, has slumped

Sept. 13, 1993

5 min read

Russia's fuel industry is struggling for survival, sector leaders told top government officials at a Moscow conference.

High taxes and a continued decline in capital investment are undermining efforts to stem the nation's petroleum production slide, said Viktor Palei, general director of, western Siberia's Nizhnevartovsk Oil & Gas Association.

Natural gas flow, which did not follow the sharp decline in Russian oil and coal production and refinery output during 1988-92, has slumped in recent months.

Palei said while crude prices during first quarter 1993 rose 25 fold over the same 1992 period, taxes and other payments to the state soared 43 fold.

"These government levies now constitute as much as 70% of our prices," he said. "Payments into the state treasury rose from 33% of an gas production costs in the first 3 months of 1992 to 60% in the in the same 1993 period.

"Only an easing of the heavy tax burden will enable Russia's oil field administrations to modernize their obsolete equipment. At present, 80% of our production assets are worn out.

Meanwhile, capital investment in the petroleum industry continues to fall.

"Investment during first half 1993 was 1.654 trillion rubles, down 11% from the first 6 months of 1992," Palei complained.

PRODUCTION SLIDE

Russia's State Statistical Committee reported the nation's crude and condensate flow during first half 1993 averaged about 7.1 million b/d, down 13% from the same period last year. Joint ventures accounted for 2% of total production.

Forecasts place the nation's crude production at 6.59 million b/d last month vs. 7.51 million b/d in August last year. Gas condensate production is expected to average 166,000 b/d for August 1993, compared with 187,000 b/d in the same month last year.

As much as 30% of the oil production decline is attributable to six large western Siberian producing associations.

Oil production from the Nizhnevartovsk Oil & Gas Association, which includes fast fading supergiant Samotlor field, plunged from 2.5 million b/d in 1988 to about 650,000 b/d last year and is still sliding.

The Moscow publication Business World Weekly (BWW) reported Samotlor's production dropped 29% last year, largely because the field's flow during the past 25 years was forced far above the rate of maximum recovery efficiency.

Samotlor oil wells now yield an an average of only 89 b/d/well. But remaining producible reserves are estimated at 7.3 billion bbl, BWW said.

Falling crude production led to a 13-16% decline in Russian refinery output of automotive gasoline, diesel fuel, and heavy fuel oil.

OIL EXPORTS JUMP

Yuri Shafranik, Russia's minister of fuel and energy reported the nation's overall oil exports during the first 6 months of this year were more than 2.58 million b/d, equal to 37% of his country's production. Oil exports to foreign countries jumped 32% to more than 1.53 million b/d, but deliveries to other republics in the former Soviet Union (F.S.U.) plummeted more than 40% to 1.05 million b/d.

Shafranik noted that Russian energy consumption per unit of production is triple that of western European nations. This, he said sharply reduces Russia's ability to export more fuel and energy, which make up 80% of the country's total exports.

"At the same time," Shafranik said, "because of inadequate government financing of our sector of the economy, it is on the verge of being shut down."

GAS WOES

Meantime, the last remaining stable sector of Russia's energy industry is getting shaky.

The nation's gas production during the first 6 months of this year was down less than 2% from the same 1992 period. But June-August flow skidded about 5% below the comparable 1992 volume.

Flow from western Siberia's supergiant Urengoi field, which is considered to be the world's largest, has started to fall below plan. Urengoi has until recently accounted for as much as 45% of Russia's gas production.

Preliminary estimates show that Urengoi, which straddles the Arctic Circle, likely will provide 273 billion cu m (9.64) tcf) of gas in 1993. By contrast, Moscow planners had called for 280 bcm (9.88 tcf).

Urengoi's 1994 production also is expected to fall short of target by another 5 bcm (176.5 bcf). Officials say the field's reserves are still big enough to maintain peak flow, but reservoir pressures are dropping. Only nine of a required 15 compressor stations have been built.

Moscow had hoped giant Pestsovoye field, just north of Urengoi, would be able to make up for Urengoi's production shortfall. But Pestsovoye development would require 100 billion rubles at today's currency value" and even more when our new round of inflation is taken into consideration," the Moscow newspaper Delovoi Mir warned.

"There is no where to obtain this amount of money either now or in the foreseeable future. This chronic lack of funds is one of the main reasons development and exploitation of Pestsovoye has been postponed from 1995, as originally planned, to 1997 at the earliest."

The newspaper said the delay in placing Pestsovoye on stream means a loss of about 27 bcm (953 bcf)/year in gas flow, along with liquid volumes equal to 30% of Urengoi crude and 10% of its condensate.

Delovoi Mir suggested development of western Siberia's far northern gas fields might be hastened by creating a joint stock company controlled by Russian government agencies buy including foreign investors.