Putin Sets Energy Goals to Reflect New Reality

President Vladimir Putin has set Russia's oil and gas sector a number of "key strategic tasks" to support its long-term development in the face of Western sanctions.

The targets include "stable energy supplies to the internal market" at affordable prices, "diversification of exports" from the west to the south and east with the construction of the necessary infrastructure and stimulation of internal demand through the development of petrochemicals and gas processing.

All these priorities will be reflected in Russia's new energy strategy to 2050 that is to be adopted by mid-September, Putin said at the meeting he chaired on Apr. 14 on the current situation in the Russian oil and gas industry.

The new document, which will be another stage in the formalization of Russia's final separation from the West, is to replace the current 2035 energy strategy.

Short-term priorities for the next two years include overcoming the critical problems linked with the breaks in exports logistics, as acknowledged by Putin. How those issues would be resolved hasn't been revealed.

Fast and Loose

Experts point to the necessity to develop the ability to regulate output speedily. Speaking at the Russian National Oil and Gas Forum this week, the managing director of Vygon Consulting, Grigory Vygon, said that "fast cuts and increases of production is a No. 1 issue" for the Russian companies.

To manage output they have to learn to work efficiently with their wells, support pressure in the reservoirs, implement effective geological-technical works and others, as decisions could change several times a year. Russian companies could capitalize on the experience they gathered under the Opec-plus production deals.

In the first 15 days of April, Russia's output of crude oil and gas condensate fell to 10.189 million barrels per day (1.392 million metric tons/day), from a 10.996 million b/d average in March. The decline is expected to become steeper.

According to Igor Shpurov, head of Russia's State Commission for Reserves, roughly 125 million tons (2.5 million b/d) — or almost a quarter of the country's output — is currently being produced using foreign technologies and equipment that can potentially be impacted by sanctions.

Shpurov said at the forum this doesn't mean all those barrels are at risk, but that Russia should focus on its own technologies and competence, while also shifting focus to areas where it already has enough skills, including hard-to-recover reserves.

Such reserves account for roughly 60% of the country's total 30.8 billion tons of proven and estimated reserves, Shpurov says. Russian companies know how to produce that crude, although some developments like the Bazhen, Domanik and Achimov formations require further stimulation, both in terms of taxes and technologies, including for enhanced oil recovery (EOR).

On the technology side, the state should develop so-called testing polygons. Gazprom Neft, which is already testing a set of technologies for the Bazhen formations on its Palyanovskoye field, said it should in 2023 come up with two new polygons — one for testing Russia's chemicals for EOR and one for technologies to develop the pre-Jurassic formations in the Tomsk region.

Russia has made some progress in its import-replacement efforts, Deputy Industry and Trade Minister Mikhail Ivanov told the forum. Over the past eight years, the share of Russian equipment and technologies in oil and gas grew to a total of 60%.

Russia is already testing its first homemade subsea production complexes, while by 2024 it aims to launch serial production of homemade hydraulic fracturing fleet, which is currently being tested in Volgograd, Ivanov said. A localized complex for seismic exploration is being developed together with state exploration holding Rosgeologia, shipping operator Sovcomflot and others.

However, Russian refining and offshore exploration and production are still critically dependent on imports, according to Konstantin Radinsky, president of the Russian union of oil and gas equipment manufacturers. Problems with refining could make it tricky to reach the target of "deeper" oil and gas processing outlined by Putin.

Green or Grey

Russia might also amend the trajectory of its climate policy, although key decarbonization targets will remain unchanged. Putin's climate envoy Ruslan Edelgeriyev told the forum that Moscow remains committed to its climate targets and to international cooperation. "In the current situation ... it would be unjustified if we abandoned these obligations," he said, adding that such a decision could even raise additional criticism from other countries.

But there is an opposite opinion as well. General Director of the National Energy Security Fund Konstantin Simonov says Russia should postpone its green drive until sanctions are lifted.

"We were supposed to become part of the civilized world. But this civilized world has introduced sanctions against us and is trying to erase us from the global map," he told the forum.

A more moderate view calls for Russia to study and adopt the decarbonization and climate regulations in friendly countries with which Moscow plans to expand relations.