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Prior to the breakup of the Soviet Union, Soviet oil production equaled that of Saudi Arabia at 11 million b/d. After the Soviet collapse, Russian oil production plummeted, falling to eight million b/d in 1992 and to only six million b/d by 1996. The Russian oil and gas industry has undergone dramatic changes since the collapse of the Soviet empire and the demise of its bureaucratic administrative structure. When the state economic planning system disappeared with the rest of the Soviet state organization, the units of the Russian oil industry were left to flounder, and the monopoly in the Soviet oil industry gave way to a small number of powerful oil companies. Lukoil is the largest Russian oil business group and one of the world’s leading vertically integrated oil and gas companies. In recent years Russian oil production has surged and will likely peak in 2010. Yet, while Russia possesses enormous onshore oil fields, many of these fields have been producing for some time and are becoming depleted. There are, of course, many potential new discoveries to exploit. Deposits in the Arctic and in the Caspian Sea are noteworthy, and reserves in the northwestern Russian Arctic are estimated to hold well over four billion bbl of oil. Russia’s proven natural gas reserves amount to 47 trillion cubic meters, 26% of the world’s total. The bulk of Russian gas production comes from three super-giant fields that are now in decline at a rate of 20 bcm/year. In addition to ageing fields, growth of Russia’s natural gas sector has also been impaired by near monopolistic domination over the industry by Gazprom, state regulation, and insufficient export pipelines. Gazprom, Russia’s state-run natural gas monopoly, holds more than one-fourth of the world’s natural gas reserves, produces nearly 90% of Russia’s natural gas, and operates the country’s natural gas pipeline network. The company’s tax payments account for approximately 25% of Russian federal tax revenues. Gazprom is heavily regulated, and by law it must supply the natural gas used to heat and power Russia’s domestic market at government-regulated below-market prices. The potential growth of both oil and natural gas production in Russia is limited by the lack of modern western technologies for exploration, development, and production as well as government policies. Russia’s ability to maintain and expand its production and export capacity faces daunting challenges. The country’s oil and gas fields are ageing. There is insufficient export capacity in the crude oil pipeline system controlled by Russia’s state-owned pipeline monopoly, Transneft. And, there is insufficient investment capital for improving and expanding Russian oil and gas production and pipeline systems. Potential investors complain that the investment climate in Russia is inhospitable with respect to factors such as poor intellectual property rights protection, burdensome tax laws, and inefficient government bureaucracy. An additional problem inhibiting investment across national boundaries is that some Russian players have a poor reputation for corporate governance, with allegations of corruption and extortion. This report offers a thorough analysis of Russia’s hydrocarbon industry. It examines the industry’s potential and its challenges, the links between Russia’s energy policy and foreign policy, and its use of gas and oil as foreign policy tools. The report also profiles major players in the industry, and explores the state of foreign investment in the Russian industry as well as Russia’s involvement in and influence on the oil and gas industries of the Middle East, Europe, Asia and Africa.
Table of Contents :- Industry Snapshot 7 Industry Definition 7 Historical Background and Restructuring 7 Industry Analysis 8 Industry Valuation and Volume 8 Industry Segmentation 9 Overview of Russian Gas Industry 11 GHG Emissions, Gas Flaring and Russia’s Natural Gas Industry 12 Russian Climate Policy and the Natural Gas Industry 14 Russian Gas Transmission Sector 15 Russian Gas Distribution Sector 15 Reduction in Gas Flaring 16 Conclusion 17 Overview of Russian Oil Industry 19 Production Rebound 19 Present Day Russian Oil Production 20 Macroeconomic Scenario 22 Recent Economic Developments 24 Industry Competitive Scenario 26 Challenges in the Russian Oil and Gas Industry 27 Introduction 27 Oil and Gas Reserves and Production 29 Exports 30 Petroleum 30 Natural Gas 31 Energy Policy 31 Major Proposed New or Expanded Pipelines 32 Implications for the U.S. 37 Barriers to Foreign Investment in Oil Sector 39 Investment Stakes for the Russian Oil Industry 40 Institutional, Environmental and Organizational Model 41 The Russian Oil Oligopoly 41 Non-Completion of Sectoral Institutions 41 The Oil Industry and the State 42 Barriers to Entry 44 The Conflicting Interests of Russian Oil Companies 47 Interference from Regional Interests 47 Conclusion 48 Bottlenecks in Russian Industry 50 Determining the Size of the O&G Industry 52 Introduction 52 Methodology of Goskomstat Rossii 52 Alternative Calculations 54 Comparing the Two Methods 55 Conclusion 55 Impact of Russia’s Natural Gas Cutoff to Ukraine 57 Background 57 Energy and Pipelines 57 Ukrainian Politics and Russian Gas 57 Russian Gas Cutoff 58 Impacts for Russia and Ukraine 58 Russia 58 Impact on the U.S. 61 Russian Interest in Middle East 63 Introduction 63 Lukoil and Iraq 64 Present and Future of the Project 64 Tatneft and Libya 66 Libyan Oil Policy 66 Prospects for Tatneft in Libya 67 Industry Outlook 69 Major Players 71 OAO Lukoil 71 OAO Gazprom 72 Tatneft 73 Appendix 75 Glossary 78