Oil and gas industry

2018 was marked by the growing importance of the energy sector in the Russian economy. The oil and gas share in the total income of the Federal Budget of Russia, which increased from 36% in 2016 to 40% in 2017, reached 46% in 2018. One of the factors for this tendency was a rise in Urals oil prices from US$ 53 per barrel in average in 2017 to US$ 70 per barrel in 2018. Exports of natural gas, crude oil and oil products reached US$ 262 billion (52% of total Russian exports), compared to US$ 193 billion (47% of total exports) the year before. Crude oil exports only brought Russian companies US$ 129 billion (+38%). Total natural gas exports amounted to US$ 49.1 billion (+27%). In 2018, Russia remained the second largest producer of crude oil (12.4% of the global production) and gas (18.5% of the global production).

Upstream

The Russian Government is currently taking steps to increase investments in depleted and non-conventional oilfields (one of the objectives is to support production in the West Siberia which has declined since 2005). In particular, a number of changes in the tax system were adopted in 2018.

Russia increased its production of oil by ca. 0.5 million barrels per day, accounting for a total of 555.9 million tons produced in 2018 (+1.7%). During the year, the Russian well stock slightly increased from 175.3 thousand units to 177.5 thousand units (+1.3%). The total measured drilling depth remained at the same level.

Investments in extraction of crude petroleum and natural gas reached Rub 1.6 trillion. 54 new oil fields were put into operation, which include several large fields such as Russkoe, Tagulskoe and Kuyumbinskoe (Phase 2).

Natural gas production in Russia hit the 18-year record – 725.4 bcm were produced (+4.9%). The volume of gas exports (including LNG) grew from 224.2 bcm in 2017 to 248.1 bcm (+10.7%), and domestic sales increased from 468.0 bcm to 480.5 bcm (+2.7%).

Crude oil production in Russia (including gas condensate) and Urals oil price dynamics

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Source: Ministry of Energy of the Russian Federation, Ministry of Finance of the Russian Federation

Natural and petroleum associated gas production in Russia and average export gas price

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Source: Ministry of Energy of the Russian Federation, Ministry of Finance of the Russian Federation, stock data

Midstream

As Russian oil and gas fields are widespread across the country, Russia has the largest oil and gas pipeline networks in the world.

Transneft is the major operator of the Russian oil trunk pipeline system (51,600 km) and oil-product trunk pipeline system (16,700 km). The annual CAPEX in the oil transportation system exceeded Rub 258 billion in 2018. The company expanded a number of important main pipelines, including the further expansion of the ESPO pipeline.

The total length of the Russian gas transportation system is ~172,100 km, the major operator of gas pipelines is Gazprom. In 2018, Gazprom continued various large gas transportation system projects, including expansion of export pipelines, such as the Nord Stream 2, the Turk Stream, the Power of Siberia.

Downstream

There are 39 large oil refineries in Russia with total crude oil distillation capacity of 0.8 million tons per day. The leading Russian oil company Rosneft is the largest refinery operator, owning nine major refineries. LUKOIL, with four major ones, is the second-largest refinery operator.

Primary oil processing in Russia reached 287 million tons in 2018 (+2.5%).

Capital investments in the production of refined petroleum products and coke slightly fell to Rub 443.6 billion in 2018 (-0.8%). The average processing depth grew to reach 83.4% (a significant increase in comparison with 71.4% in 2013) thanks to a refineries modernization program.

Primary oil processing volume and processing depth in Russia

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Source: Ministry of Energy of the Russian Federation, Federal State Statistics Service of the Russian Federation

A number of further large projects on the modernisations of oil refineries, as well as new construction are planned on the horizon until 2025. Examples of recent and ongoing projects include the construction of new units at the Moscow and Omsk refineries (Gazprom neft), Stavrolen Plant and Kstovo refineries (Lukoil).

Russian gas processing capacities consist of 31 plants, which processed 79.7 bcm in 2018. The main trend in gas processing is the steadily increasing share of petroleum associated gas processed, which reached ~49% in 2018 (35% in 2007). Another important trend is an increasing volume of LNG production. The volume of LNG produced in Russia reached 26.9 bcm compared to 15.7 bcm in the previous year (+71.6%), also due to the launch of the second and the third lines of Yamal LNG (NOVATEK).

Gas processing structure and share of associated gas processed in Russia

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Source: Ministry of Energy of the Russian Federation, HMS Group estimate (for 2018)