As Russian Production Growth Falters, When Will Its Decline Begin? Oil Drum

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EDIT

Before we go any further I want to stress an important caveat here. Baker Hughes does not produce figures for Russia, which means we only have the Schlumberger counts, which do not separate out oil and gas rigs. It's also unclear how accurate counts in Russia might have been especially during the chaotic years of the 1990s. For the purposes of this analysis we shall make the simplifying assumption that the number of oil rigs is roughly proportional to the total number of rigs, and that the counts are accurate enough to be useful. However, this caveat has to be borne in mind in considering the strength of evidence for the conclusions of this post.

After noting that production has been increasing, the second observation is that the rate of increase is falling steadily. In particular, if we take the year on year change in the moving averages, we get the following picture:


Year-on-year change in centered moving average of Russian oil production according to three data sources: EIA Table 1.1c, IEA Table 3, and JODI. Black line is an extrapolation of the current trend and is a scenario, not a forecast

The rate of increase peaked at about 10% per year in the 2003 timeframe, and has been falling steadily since, being down to only around 1.5% per year now. The black line shows an extrapolation to zero in early 2008. Zero percent increase would be a peak in production. Furthermore, this would imply the total cumulative increase in production between now and the peak would only be around 1% (about 100kbd). However, some caution should be applied since the curves had a sideways dogleg in 2006, and perhaps this could happen again, delaying the ultimate peak. Hence I emphasize that the early 2008 peak is a fairly plausible scenario, rather than a firm prediction.

If we take into account the rig count picture, things look more serious. This next graph shows how much increase in production occurred for each rig in the country (expressed in thousands of barrels per day increase, per year, per rig).


Rate of increase in Russian oil production per rig in country. Production is 13 month centered moving average, recursed once, of IEA Table 3 production estimates. Rig data are from Schlumberger data and include both oil and gas rigs.

The absolute level of this graph shouldn't be taken too seriously since it's dividing an oil production increase by a rig count for oil and gas rigs. However, the general trend is probably meaningful, and what it shows is a complete collapse in this metric from around 10,000 barrels/day/year/rig at the height of the revival to only around 200 barrels/day/rig today. A much larger number of rigs is producing much smaller production increases.

This suggests either that the opportunities for new drilling projects are much poorer than during the height of the revival, or that the base production is declining faster so that it's harder for new projects to increase overall top line production. Probably some of both. Either way, it tends to the view that Russia cannot increase production much further, even if the rig count goes up a lot more. And if Russia were to begin declining next year, it's likely we would see the world as a whole move out of plateau, and into unmistakable decline.

EDIT/END

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