Reports Of The Death Of Russia’s Oil Sector Have Been Greatly Exaggerated

Certain writers of the anti-declinist school, Dan Drenzer and Walter Russell Mead spring immediately to mind, are dismissive of the prospect of American decline and positively overjoyed at the opportunities afforded to the US by “unconventional” oil. These writers, and other like them, are openly contemptuous of “old” oil powers like Russia and decidedly skeptical of their ability to innovate and keep up with America’s flexible, adaptive, and growing energy sector. Without simplifying too greatly, the narrative preached by Drenzer, Mead, and their supporters is the following: Russia’s enormous, corrupt, and state-owned oil companies represent the past and America and its ever-growing number of small producers using the latest fracking and horizontal drilling techniques represent the future. Good guys win, bad guys loose, oil becomes cheap, and people can once again say “the American century” without sniggering.

I’m under no illusions that such a deep-seated debate, a debate that hinges on basic ideological and political values far more than it does oil production figures, will be solved (or even greatly  impacted) by a single blog post. However, I was recently going through some EIA data on oil production and was struck by Russia’s rather boring and unexceptional performance. While it might very well cripple Russia at some unknown point in the future, so far the fracking revolution just hasn’t had any significant impact

Russia’s share of world oil production has been basically flat since 2007, and is still about 36% greater than it was back in 2000.  That doesn’t exactly strike me as terminal decline or even something that the Kremlin should be particularly worried about. A steady share of a global commodity whose price is still way above it’s long-term average price? That might not be cause for celebration, but it’s not exactly a catastrophe.

But wait, how has Russia been able to maintain its share of world oil production? Hasn’t  US production been soaring? What about the energy revolution that everyone’s been so worked up about?

It is true that  US production has been increasing at a rapid clip. In fact,  in the fall of 2011 the US surpassed Russian oil production for the first time since 2003. However what energy optimists like Drenzer and Mead almost never mention is the fact that oil production in Europe has been plummeting.

That chart shows quite  clearly why Russia’s share of world production has held steady: because all of America’s new “unconventional” oil has been barely enough to offset Europe’s production nosedive. In 2012, the net oil imports of America’s close military and political allies in Western Europe were near an all-time high*, while Russia’s net oil exports were actually at an all-time high. Why exactly that is supposed to be an awful situation for the Russians, or particularly beneficial for the United States, is not clear. The idea that the US is going to retreat from the international scene because it has achieved “energy security” is hard to square with the fact that our NATO allies are now more energy insecure than at any time in the recent past. The US, in other words, is going to be deeply invested in securing sea lanes and facilitating the flow of oil for a long time to come because its partners and allies don’t have any oil.

Is it still possible that the “energy revolution” will catapult America out of its current economic and political malaise? Absolutely. Almost anything is possible. But so far the highly touted fracking revolution has largely been a story of new American production offsetting production declines in Europe, not American production driving down prices or displacing exports from scary places like Russia, Iran, or Saudi Arabia. And for all of the vitriol that it attracts in the Western press, the data shows that Russia’s oil sector is doing OK: not booming like America’s, but also not in terminal decline like Europe’s. Steady, predictable, boring performance. We’ll have to see what happens further down the line, of course, but so far Russia appears to be adapting to the new energy environment without any great struggle. The Europeans, on the other hand, are in for a very rough ride.

* there’s nothing like a crippling years-long economic crisis to promote energy efficiency! If Europe ever gets its act back together, its net oil imports are likely to tick higher (unless you think it’s a coincidence that European oil imports just happened to peak in late 2008)

Forbes

6 Comments on "Reports Of The Death Of Russia’s Oil Sector Have Been Greatly Exaggerated"

Arthur on Wed, 14th Aug 2013 11:51 pm 



“The Europeans, on the other hand, are in for a very rough ride.”

Correction: the Europeans are in for a very rough ride… FIRST… and as such are forced to act first.

GregT on Wed, 14th Aug 2013 11:58 pm 



“Is it still possible that the “energy revolution” will catapult America out of its current economic and political malaise? Absolutely. Almost anything is possible.”

Yup, ALMOST anything is possible, but America being ‘catapulted’ out of it’s economic and political malaise, is NOT. Anyone with 2 brain cells left to rub together, should be able to figure THAT out by now.

“not American production driving down prices or displacing exports from scary places like Russia, Iran, or Saudi Arabia.”

Ooooo, scary people in far away places, that we probably couldn’t even point to on a world map. Here’s a great idea, why not leave all of those scary people alone, and bring back all of your wonderful weapons of mass destruction with you. The world would be a lot less scary place, if you did.

“The Europeans, on the other hand, are in for a very rough ride.”

No more of a rough ride than the US, minus about a hundred million semi automatic assault rifles.

dissident on Thu, 15th Aug 2013 12:21 am 



The fracking “revolution” is a confidence racket crock. The US “oil” production figures include an enormous amount of natural gas derived liquids. About 30% of the total “oil” production. Russian oil production figures are not fluffed up with such BS.

Anyone who thinks that the current US “oil” boom will last for decades should consider purchasing that fine antique suspension bridge over the East River that I have for sale.

BillT on Thu, 15th Aug 2013 1:40 am 



“… The US, in other words, is going to be deeply invested in securing sea lanes and facilitating the flow of oil …”

I don’t think so. It’s hard to run a military without funds and ‘oil security’ is not going to be a problem when China takes over that job. If you are paying attention, you would see that in 5-10 years, or less, China will have a Navy capable of guarding the sea lanes it needs. That is, IF there is still a need to import oil. World wars can change many things …

DC on Thu, 15th Aug 2013 2:46 am 



Only forbes would stop to think Russia should be worried about amerika’s toxic,expensive, over-hyped, low-net energy sorta oil. Russia still has plenty *real* gas left they can extract, the US, not so much anymore. Amerikas(and Canada’s not-really-oil) is not widely traded on world markets. Its the stuff people buy AFTER they get outbidded for the less expensive, higher quality crude. IoW, the leftovers. Not that people wont buy it(Unless your the EU and have to good sense to regulate the import of dirty Quasi-Canadian asphalt.

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