Will Russia’s Oil Production Ever Return To Record Highs?

According to Russia’s Ministry of Energy, the country is unlikely to return to pre-pandemic oil production levels. 

Prior to the pandemic, Russia was producing 560 million tonnes of oil, a rate of around 11.3 million bpd, hitting record levels in 2019. However, in 2020, production levels decreased for the first time in over a decade as Russia agreed to cut production alongside OPEC+ countries to help stabilize oil prices. Under this agreement, Russia decreased production by nine percent to 10.3 million bpd. 

The Energy Ministry believes that production levels will gradually increase, but not to pre-pandemic levels, reaching an estimated 11.1 barrels a day by 2029 before ultimately dropping to 9.4 million bpd in 2035.

A revised oil strategy will see Russia maximize monetization from crude exports prior to reaching peak production levels between 2027 and 2029, after which experts expect a drop in demand at the global level.

Pavel Zavalny, head of the energy committee at the Duma, explained “Everything that can be produced should be produced while there is still demand to sell it”. 

The combination of the ongoing pandemic and hastened decarbonization efforts are expected to lead to a decrease in the demand for fossil fuels across the developed world at an earlier point than previously expected. 

Russia is expected to gradually increase production levels throughout 2020, but it will still adhere to some OPEC+ restrictions into 2022. The country will ultimately focus on maintaining its current international market share. 

Despite the pessimistic outlook for the next decade of Russian oil, the country has succeeded in diversifying its export markets in recent months, presenting greater opportunities before it hits its peak. 

In March, as demand increased, U.S. refineries were receiving substantial shipments of Russian crude. This was largely due to restrictions on other options, including sanctions on Venezuela. Additional cuts from the OPEC states and Saudi Arabia means U.S. import options have been limited. 

In 2020, Russia was the third-largest oil exporter to the U.S., accounting for seven percent of U.S. oil and refined product imports. In total, roughly 538,000 bpd of oil came from Russia last year. 

However, a Bloomberg article from last month points out how this dependency on Russian oil is at odds with U.S. energy diplomacy. Lawmakers in Washington have opposed the Nord Stream 2 project, a multibillion-dollar pipeline that aims to carry Siberian gas to Germany, as it could enhance Russia’s leverage over U.S. allies. We are yet to see Biden take a stance on the topic, but the U.S. appears to be relying more heavily on Russia for its energy supply. 

Valero and Exxon were the two biggest U.S. importers of Russian oil in 2020, accounting for 50 percent of the total amount. But Russia’s foothold is not certain as Venezuela could once again become a major provider of U.S. oil should the sanctions be lifted. 

Ultimately, while Russian oil may never reach peak production levels again, it continues to maintain its international status as a major producer and exporter of oil. Diversification of its export markets and the monetization of its refined products show that Russia still has a long way to go before the eventual drop in global oil demand.