Russia and sanctions .. Will the oil and gas industry decline in the long term?

The British Financial Times confirmed that with the intensification of Russia's isolation following the start of the war on Ukraine, questions arose about the future of its most important industry, which is oil and gas.

The newspaper said that the main foreign partners in this industry have drawn up plans to exit Russia, while international oil service companies have pledged not to provide new investments, and dozens of customers have begun to avoid buying Russian crude.

However, Michael Moynihan - an expert in the Russian oil and gas exploration sector at the consultancy "Wood Mackenzie" - said that despite all the sanctions, it is possible to achieve the required growth for the oil industry and everything succeed, although this does not appear in the foreseeable future.

optimism

According to Moynihan, the big Russian players are able to maintain production normally, as they have a "broad portfolio" of oil fields, and they can guarantee new production without problems.

Eric Melecki, head of the research team at Wood Mackenzie, confirmed that Russian oil and gas companies entered the current crisis in "good financial health" with manageable debt levels and low production costs.

Rosneft and Gazprom have invested heavily in developing the domestic oil and gas industry services sector, especially after US and European sanctions imposed in 2014 after Moscow annexed the Crimea, making it currently in a better position.

According to the Financial Times, what the local industry lacks is the ability to do complex technical analysis to develop "new oil reservoirs", which threatens to halt a number of previously planned development projects.

The newspaper quoted Alekperov - who resigned last month from the position of president of "Lukoil" after being subjected to British sanctions - describing it as a "big blow" to stop new investments by the largest international oil service companies.

But Alekperov stressed that the Ruwais oil industry has the ability to develop as usual, despite some modifications and shifts that may occur in the schedule of the program of implementation of its plans.

The newspaper stresses that despite the confidence expressed by Alekperov, it is clear - according to analysts - that the prospects for the oil and gas industry depend more on the existence of markets for its products, rather than on the ability of companies to continue production.

The British newspaper says that the increasing boycott of Russian exports since the start of the war on Ukraine has begun to weigh on oil production, as the average production last April amounted to 10.05 million barrels per day, compared to 11.01 million in the previous March, according to "Oil X".

A data provider that uses government statistics and satellite imagery to measure activity in oil fields.

And Russian Finance Minister Antoine Siluanov had previously warned last April that oil production in Russia could fall by 17% this year, which means a drop of two million barrels per day.

But Deputy Prime Minister Alexander Novak gave a more optimistic view, telling the Russian media that production increased last May by 200-300 thousand barrels per day, explaining that he expects an additional recovery in this June.

Asian destination

It seems that the solution to the Russian oil industry - as mentioned by the Financial Times - lies in diverting the supplies that were sent to Europe to a second destination, and the British newspaper quoted the head of the Russian National Energy Security Fund Konstantin Simonov as saying that if Russia was removed from the European market, Russian production would simply appear In India, China and other countries.

And the Financial Times says that redirecting Russian energy exports from Europe to Asia will be a complicated process, as there is not enough capacity to ship exports by sea, knowing that sea freight traffic will suffer from several restrictions if the European Union and Britain implement a ban on insuring ships carrying Russian crude.

However, Moynihan said that it is not impossible for Russia to take measures to secure production supplies to China, acknowledging at the same time that it will cost them more.

Moynihan adds that one of the challenges for Russia is the lack of significant incentives for China to contribute to the cost of the new pipeline infrastructure, given that Moscow does not have many options.

The newspaper says that the situation will be especially difficult for Gazprom given that all elements of its infrastructure are connected to Europe, and there is no pipeline connecting its production areas to eastern Russia and China.