The Oil Drum

61 comments on Uncertainties About Russian Reserves and Future Production

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DaveyM on February 15, 2006 - 10:53pm

Not so sure about the virtue of the SU in staving off Peak Oil. In John Grace's book, Russian Oil Supply - Performance and Prospects, he notes that in 1983 Soviet oil netted the country over $22 billion. In 1987 the industry's net income was -$4.8 billion on 11.4 million barrels per day of production. In 1993 it was -$4.1 billion on just 7 million barrels per day of production. Translation: because the Soviet regime paid no attention to costs, it was subsidizing world oil consumption on every barrel it exported (not to mention the other 2/3 of Russian production, which was sold on the domestic market for much less than world price). Grace also notes that the 1987-1988 peak was had by virtue of overly aggressive water flooding that ultimately will reduce the amount of oil extracted from these (predominantly West Siberian) fields.

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LevinK on February 16, 2006 - 11:40am

> In 1987 the industry's net income was -$4.8 billion on 11.4 million barrels per day

This is a very relative estimate. Former Soviet Union suffer severe deficit of foreign currency. There was a fixed official rate of exchange of the russian ruble (less than a ruble per 1$ as far as I remember) which was just what it says - official and nothing more. On the black market the ratio was more like 5 : 1.

For the Soviet government it was a much better deal to subsidise the costs of their oil industry (which were mostly in rubles) but keep those hard currency flows going in. I know this sounds strange for people that lived in free market economies, but that was what socialism was like - lots of control and mad economic decisions.

Actually this is my reason to be cautios about any simple modelling of Russian production.