No. 1, 2008

Impending depletion of hydrocarbon reserves: an expert opinion

With enviable regularity, the Russian and foreign media bring up the question of depletion of the world’s hydrocarbon reserves. They foster the opinion that oil and gas will come to an end in the foreseeable future, in just a few decades from now. Yet, forecasts by leading Russian research centers show the opposite: there are no serious reasons for panic.

When will the oil reserves dry up?

The world oil and gas industry has achieved impressive successes in its development. At the beginning of 2005, accumulated oil reserves exceeded 140 billion tons and gas reserves amounted to about 95.0 trillion m³. Overall, a reliable resource base had been created to provide for stable production of liquid and gaseous hydrocarbons for another 40 and 60 years, respectively.

However, given the skyrocketing of oil prices on the world markets and the growing energy dependence of a whole number of leading world powers, the mass media are again harping on the upcoming depletion of hydrocarbon reserves and the need to search for alternative energy sources. According to the International Energy Agency, the worldwide demand for oil in 2007 amounted to 85.9 million barrels a day, which is 1.5% higher than the 2006 level.

One thing is certain: there is a real exacerbation of the problem of ensuring global energy security as a result of a global structural energy crisis that started to develop at the turn of the century. This crisis is not at all connected with replacement of some energy products with others in the world energy balance or with a temporary shortage of energy resources as a consequence of hostilities or any other one-off factors, but is a result of the increasingly manifested limited nature of the current resource base and physical infrastructure of the world fuel and energy complex, engendered by 25 years of underinvestment in the world power industry during the period of low oil prices.

I believe, however, that this urgent issue should be considered without too much emotion. In 2005, for instance, world oil production, consumption and exports reached their historical maximum of 3.9 billion tons, 3.8 billion tons and 2.5 billion tons, respectively. Analysis of the development of the Russian and international energy supply systems indicates a further increase during the next decade in worldwide consumption of energy resources, above all hydrocarbons. According to the forecast by the International Energy Agency, in 2008, oil consumption will rise to 88 million barrels a day. On the regional plane, the demand for oil and gas will go up fastest in the countries of the Asia-Pacific Region (above all China, India, Indonesia and the Philippines). In this connection, the role of the oil and gas complex will steadily grow. At the beginning of the 21st century, the share of oil in the structure of the global energy balance is about 40%. The International Energy Agency estimates that this indicator will remain at the same level until 2025. In turn, the share of natural gas will rise over the next two decades from the current 24% to 30%. This testifies to a steady growth in the significance of Russia’s fuel and energy complex within the system of international political and economic relations.

Russia’s huge hydrocarbon potential

The history of this issue reveals that the peak of oil production in the USSR was reached in the 1986-1988 period, when the country produced over 625 million tons of oil and gas condensate, which was 21% of the global figure, including almost 570 million tons in the Russian Federation, this being over 19% of the world’s total. Since the mid-1980s, 67-72% of Russian oil has come from Western Siberia. The Khanty-Mansi Autonomous Area has become the main center of the country’s oil industry, producing about 80% of the region’s oil. Large-scale oil and condensate production is now under way in the Yamal-Nenets Autonomous Area and the Tomsk Region. After 1989, oil production in Russia began falling gradually and, from 1991 onwards, it accelerated dramatically. By the end of the 1990s, it had stabilized at a level of 300-307 million tons or 8-9% of the worldwide figure. This situation (coupled with development of “Soviet-time” fields) was largely responsible for the appearance among certain scientists of the theory of fields depletion. Yet, the sharp drop in oil production was, to a considerable extent, unconnected with exhaustion of Russia’s hydrocarbon reserves. The main reasons for it were the breakoff of economic relations between the former Soviet republics, the change in the organizational structure of the industry, a drop in domestic demand, falling investments and, last of all, natural depletion of a number of major fields (Samotlor and others).

Russia’s oil and gas complex has now restored its hydrocarbon potential. For instance, the report made by the Minister for Natural Resources of the Russian Federation, Yury Trutnev, on October 22, 2007 “On the results of and guidelines for the activities of the Ministry for Natural Resources of the Russian Federation in 2008-2010” indicates that the area of Russia’s expanded continental shelf in the Arctic beyond the 200 nautical mile limit might be 1.2 million km², with probable hydrocarbon resources of 4.9 billion tons of oil equivalent. Another priority line of business is identifying hydrocarbon resources and subsequently filling the Eastern Siberia – Pacific Coast trunk pipeline. It is proposed to carry out parametric drilling in the Krasnoyarsk Territory, the Evenk Autonomous Area, the Republic of Sakha (Yakutia) and the Irkutsk Region. In toto, it is planned to drill, in just three years, seven wells or 24,100 running meters.

In addition, Russia has enormous reserves of so-called nontraditional hydrocarbons, including bituminous sands and natural gas-hydrates, which can compensate to a considerable degree for the shortage of traditional energy materials. Suffice it to recall that on the territory of Tatarstan alone, Russian geologists have discovered 450 accumulations of native bitumens, 150 of them in the operating zone of JSC Tatneft and 12 already ready for industrial development. Many estimates put the native bitumen resources in the Republic of Tatarstan at up to 7 billion tons.

Innovations guarantee sustainable development

At the end of last century, it became clear that sustainable economic growth is unthinkable without innovation and research. Intensification of the contradictory impact of globalization processes led to exacerbation of the technological rivalry in the world oil and gas industry. The energy supermajors realized that continued innovation was the cornerstone of their further successful development.

The favorable world market situation and completion of the key organizational transformations are responsible for the current rise of the Russian oil industry. In 2006, oil production in Russia exceeded 480 million tons – the highest level since 1991. In 2007, according to preliminary estimates, about 500 million tons of oil will be produced.

Last year, at a meeting of the government commission on the development of the fuel and energy complex, RF Industry and Energy Minister Viktor Khristenko noted that, according to available forecasts, oil production in Russia in 2015 might rise to 509-542 million tons as against 472 million tons in 2005. The main increment will come from the regions of Eastern Siberia and the Far East (projected recovery increment is 74 million tons of oil). According to Mr. Khristenko, these regions are likely to produce an additional 23 million tons of oil. He noted that by 2015, Russian crude exports will go up to 272-300 million tons a year. For comparison, in 2005, exports of crude oil amounted to 253 million tons. There will also be an increase in primary refining – to 225-230 million tons a year against 207 million tons in 2005.

Russia’s hydrocarbon resource base is currently characterized by stable annual growth of oil and gas production and reserves increment. Overall, there is no reason for groundless concern in the coming decades. Consumption of oil and natural gas will continue to steadily grow throughout the world, but the current hydrocarbon reserves allow for optimism with respect to the future of human civilization.