Oil industry

Russia has the largest oil and gas reserves in the world and is the second largest oil producer with 13% of total global oil output. The oil upstream industry is a backbone of the economy with an impact on the country’s international payments, exchange rate and the formation of the economy’s investment resources.

Upstream

According to the Russian Ministry of Energy, in 2014, Russian oil output reached 527,000 million tons of oil, which is a 0.6% rise compared with the previous year. This increase was supported by the development of new oil production centres in East Siberia, and major crude oil exports to Asia, primarily to the People’s Republic of China, where demand for Russian oil is increasing, have started.

Russian producers capitalized on rising oil prices in the first half of 2014, when they reached over US$113 per barrel. However, prices have halved since then. The price of oil fell from US$108/barrel to below US$60/barrel and has stabilized at that level. The drop in prices could have an effect on both production and demand - downward pressure on investment into new production, combined with upward pressure on demand.

Production in the oil sector hasn’t been affected by falling oil prices and Western sanctions yet. The impact on production will most likely be seen this year.

+5,6 mn t in 2014
+2.9 units in 2014

Midstream

With over 50 thousand km of oil pipelines and more than 400 installed pump stations, Russia has the largest oil pipeline system in the world. Over 90% of crude oil produced in Russia is transported through the existing trunk pipeline system.

In 2014 crude oil exports via state monopoly Transneft fell 5 percent to 195.5 million tonnes due to rising domestic demand and refinery runs.

The existing pipeline system is constantly expanding through the following projects:

  • The construction of the Zapolyarye-Purpe oil pipeline, with an overall capacity of 45 million tonnes per year, is planned in order to transport oil from the green fields of the Yamalo-Nenets Autonomous District and from the North of the Krasnoyarsk District. The overall length of the pipeline is estimated to be 500 km;
  • The construction of the Kuyumba-Taishet oil pipeline, with an overall capacity of 15 million tonnes per year, began in 2013 to transport oil to the system of pipelines in the ESPO-2 project. The overall length of the pipeline is estimated to be 700 km;
  • The ESPO expansion — the construction of oil pipelines from Taishet-Skovorodino-Koz’mino;
  • The construction of the South diesel route via southern Russia;
  • The construction of the north-western Sever diesel pipeline.

Total capital expenditure by Transneft in 2014 is estimated as 372.6 billion rubles.

Downstream

The Russian refining system is the third largest in the world, ranked only behind the U.S. and China, with approximately 275 million tonnes of total capacity. It is absolutely obvious that Russia’s downstream segment is continuing to develop rapidly. Oil product prices and the current tax environment remain supportive of development, contributing to increased refining outputs and a higher level of investments. If the upgrading of the domestic refining infrastructure keeps up at its current pace, the depth of refining in Russia will rise from 72% to 85% by 2020.

In 2013, the estimated volume of primary processing hit a record level of 290 million tonnes, up 4% year-on-year.

According to investment plans announced by oil companies, capital expenditure in the sector exceeded 299 billion rubles in 2014.

In the coming years, primary processing capacities in Russia can add another 12.2 million tonnes (or 5.2 million tonnes, excluding Taneco’s potential expansion). Russia’s total processing capacities (including condensate) may

therefore rise from around 290 million tonnes to 300.2 million tonnes (or even to 307.2 million tonnes if Taneco’s expansion is completed). Consequently, the share of secondary processing may grow from the current 70% to about 100% (this compares with 140% in the US).

Industry growth is likely to be driven by new projects in 2013:

  • Rosneft is still developing programmes to upgrade in the Tuapse and Novokuybyshevsk refineries: Upgrading Tuapse oil refining complex by putting into operation two stations of primary oil refining and construction of a the catalytic reforming complex and a complex of a low-temperature isomerisation and hydrocracking complex in Novokuybyshevsk refineries plants;
  • Lukoil is continuing to reconstruct its diesel fuel production unit and modernise at Volgograd refinery plant;
  • Gasprom Neft started installation and building a combined oil refinery installation in Omsk.

Gas pipeline projects

The Unified Gas Supply System of Russia, operated by Gazprom, is the world’s largest gas transmission system and

represents a unique engineering complex encompassing gas production, processing, transmission, storage and

distribution facilities. It assures continuous gas supply from the wellhead to the end consumer.

The system includes 161.7 thousand kilometres of gas trunk lines and laterals, 215 line compressor stations with gas compressor units totalling 42 thousand MW in capacity, 6 gas and gas condensate treatment facilities and 25 underground gas storages locations.

Gazprom has approved an 840 billion ruble (US$13.5 billion) investment program for 2015.

The bulk of Gazprom's 2015 investment will go into research for a new gas pipeline route to China, most likely from West Siberia, and the construction of Power of Siberia gas pipeline.

Power of Siberia will run nearly 4,000 kilometers through five Russian constituent entities: the Irkutsk Region, the Republic of Sakha (Yakutia), the Amur Region, the Jewish Autonomous Region and the Khabarovsk Territory and will have an annual capacity of 38 billion cubic metres of gas.

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