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Page added on April 9, 2012
Smart Russia protects its oil resources
When the transformation of the Soviet Union began in the late ’80s and early ’90s, the Russian oil industry in terms of production was at its peak. However, the collapse of the Soviet Union and the chaos that followed later impacted the industry hard.
According to Daniel Yergin in his new book The Quest, the privatisation attempted in 1992 brought with it, “violence at every level, as Russian mafias … ran protection rackets, stole crude oil and refined products and sought to steal assets from local distribution terminals.”
Although the state eventually reasserted its authority. large portions of the industry ended up in the wrong hands.
Oil production fell from almost 11.5 million barrels a day (bpd) in 1988 to as low as 6.1 million in 1996 and stayed near that level until 2000. Even cooperation with western oil companies was not enough to salvage the industry.
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In 1999, Vladimir Putin began the process of bringing the oil industry under the auspices of the state, if not direct control, thereby successfully beginning to wrest control from the oligarchs.
The recovery of the oil industry began with the rationalisation of the companies and agreements that were made with western oil companies that not only brought technical expertise, but management methods and ability to move quickly.
Production began to leapfrog from 7.1 million bpd in 2001 to 10.3 million in 2010. Exports rose just as fast, helped by the rationalisation and reduction of domestic demand from 5 million bpd in 1988 to 2.7 million in 2002 and then rising slowly to 3.2 million bpd in 2010.
Recently, Sergey Lukianov from the Business Development Department of TNK-BP. said that oil and condensate production rose by 56 per cent between 2000 and 2010.
Oil export capacity rose by 126 million tonnes per annum or 119 per cent and is expected to rise to 302 million tonnes by 2015 with surplus capacity to give the system flexibility in directing exports to various outlets.
Mega projects
In this period, some mega projects were completed, including the first pipeline to the Baltic (BPS-1) and the East Siberia pipeline (ESPO) of 1.5 million bpd, which is currently a combination of pipeline and rail tankers transportation system.
Eventually, the pipeline will stretch 4,500km to the port of Kozmino in the east with a 900km branch to Daqin in China.
The system even connected western Siberia. Major oil field developments were also undertaken not only in eastern Siberia, but also in the Caspian, Sakhalin and Timano-Pechora. Proven oil reserves increased from 55.2 billion barrels in 1998 to 77.4 billion barrels in 2010 and gas reserves increased from 43.5 trillion cubic metres (tcm) to 44.8 tcm.
Progress in the refining industry was slower. In the same period, refinery throughput rose from 174 to 250 million tonnes annually though the industry remained relatively simple with a large surplus of fuel oil that had to be exported.
In 2011, fuel oil production was 75.5 million tonnes annually and exports were 60.6 million tonnes. The sophistication of Russian refineries as measured by Nelson Complexity Index rose from 4.2 in 1991 to only 4.4 in 2011 while the world average is 6.7. However, this situation will change as many conversion units are projected to be added.
Up to 2020, fluid catalytic cracking units of a combined capacity of 11.5 million tonnes annually and 34.2 million tonnes of hydrocracking units will also be added in addition to some residue desulphurisation and coking.
The objective of equalising taxes on light and heavy products will force investment in the direction of reducing fuel oil. Refining quality changes are also reflected in domestic product specifications where they have been progressively improved and they are now close to ¤4 and are likely to reach ¤5 by 2015 with 10 parts per million sulphur.
This progress has vindicated the government’s policy in the last 10 years where a resource so important for the wellbeing of the people should not be left entirely to the vagaries of privatisation. Some government control by legislation or structuring of companies or both must be exercised.
5 Comments on "Smart Russia protects its oil resources"
sparky on Mon, 9th Apr 2012 11:33 pm
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fascinating article the rise of Russian refineries is sure to have an impact on European refineries profitability ,
Putin is a notorious Easterner , if more oil goes to the Eastern markets , the whole world networks will be affected
Arthur on Tue, 10th Apr 2012 12:06 am
What do you mean, ‘Putin is a notorious Easterner’? Maybe you should read this first:
http://www.ceps.be/ceps/download/6700
(PDF)
Putin said recently (27th February):
“Russia is an inalienable and organic part of Greater Europe and European
civilisation. Our citizens think of themselves as Europeans. We are by no means indifferent to developments in united Europe… I propose again that we work toward creating a harmonious community of economies from Lisbon to Vladivostok, which will, in the future, evolve into a free trade zone and even more advanced forms of economic integration.”
Putin in reality has Armenian roots and knows precisely with what he is dealing with. He knows very well who was behind the Armenian genocide (“Young Turks”) and that the same people are a mortal threat again for mother Russia. He did put the most dangerous man in Russia, Khodorkovski, there where he belongs, namely behind bars, much to the fury of the american political class, who would have loved to see an olicharch at the helm of the Russian state. Russia at the moment has an uneasy alliance with China (SCO), but Putin in reality is working towards an alliance with the EU and Germany in particular. The way France, Germany and Russia said no to participation in the Iraq adventure in 2003 can be seen as the beginning of the formation of such an alliance. A war between the US and China will see a shift of the geopolitical center of gravity from the Americas to Eurasia. 750 million Europeans from Lissabon to Wladiwostok, in an understanding with China, will reverse the results of WW2 and put the US out of business as an aspiring global hegemon. What is happening now in Europe is the nightmare of geostrategists like Brezinski as described in his book ‘the grand chessboard’.
BillT on Tue, 10th Apr 2012 1:14 am
Russia is back in the “grand Game” only this time, playing from a hand of strength. Yes, they have ties to Europe, but Europe is going down for the count, including Germany.
I think Russia is hedging it’s bets by playing BOTH sides, Europe (Western) and China (Asian) to it’s own advantage. It cannot ignore either one because they are both trading partners and potential enemies.
The fact that it is now one of the leading oil exporting countries gives it clout and resources to further it’s goals. What they are can only be guessed at, but I am sure they will not have to worry about the Us outspending them again. The Us is a beggar in the streets of the world today, unlike 20+ years ago, when the USSR collapsed.
Arthur on Tue, 10th Apr 2012 11:02 am
Most here seem to agree that resource depletion is a hard reality and that the best days of industrial society are over and that the days of standard 2% economic growth per year are over for ever. Most here agree on decline on all fronts: economy, trade, energy use, resource extraction, population, military might, etc. Hardship will be the norm.
Having said that, it does not mean that history is over. Far from it. Mighty empires have existed for millenia without them using fossil fuel. Instead you might argue that history will be back from a luxury vacation, a vacation that coincided with the American lead globalist era that is now coming to an end. The geopolitical cards are going to be redealt. Old entities will come down, new ones will emerge. Here are my speculations:
– EU is going to replaced by a Europe of the fatherlands in the spirit of the de Gaulle, including Russia, the core of which will be a Berlin-Moscow axis. Berlin for the economy and production, Moscow for the nukes, energy and other resources. Russia will seek this alliance to keep China away from Siberia. The idea of ‘the West’ will disappear and be replaced by ‘the North’.
– USA. Pat Buchanan is right, the US will balkanize before 2025 along racial lines. The Republican party, the Tea Party and the libertarians are all lily white movements, the members know it but the respective leaderships do not want to ackowledge it, because they know if they do, it will be the beginning of the end of the US. With the continuation of the demographic shift however it will happen anyway. Expect northern states to secede from the union, a process that could be accelerated after military defeats and severe economic depressions. Btw it is legal to secede from Washington.
– Turkey is going to be the leader of a reemerging Islam. Erdogan is to be considered a neo-Ottoman, who seeks to undermine the secularist leadership and rollback the work of Ataturk. Expect an expansion southwards of Turkey into Mesopotamia under the pretext of fighting ‘Kurdish terrorism’ when US-power will recede and the EU-membership bid has been rejected by Europe.
– Japan is going to be a Chinese satellite rather than an American one.
– Taiwan is going back to China.
– There is a very realistic possibility that China will turn fascist/nationalist and will set it sights on ’empty’ Australia for resources, just like Japan set it sights on the Dutch East-Indies in 1941 after the US imposed oil-sanctions, as soon as the US will no longer be around or willing/able to defend Australia as part of the West.
– Israel will disappear. Jews will move en masse to America.
BillT on Tue, 10th Apr 2012 4:05 pm
Arthur, I pretty much agree with your prognostication. Not sure about Russia/Germany, but the rest sounds likely. The Empire cannot last much longer in it’s present form. Too much debt, and a dying economy. ou are correct about Australia. Too far from the Us to be practical or possible as oil to get there costs more and more. It may be close to China, but only if you live there. Not if you have to ship everything 12,000 miles to get there. The ASEAN countries will be satellites of China and Asia will be the dominant area for most of the next century.