August 20, 2008
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Home / Issue Archive / 2008 / March #3 / Editor's Letter

№ 3 (March 2008)

Editor's Letter

Rig Shortage Sits High on Russian Agenda

Pat Davis Szymczak

Drilling activity jumped 19 percent in Russia last year and 2008 looks also to be a strong year. And the year after, and the year after that, and on and on for the foreseeable future.

Indeed, by 2012, Russian producers and drilling contractors must buy or lease at least 400 more drilling rigs than currently exist in the market. Some think the number might be closer to 600 or even 800.

Considering that “new build” manufacturers are producing 10 or 15 rigs a year for the Russian market – and Russia isn’t the only oil province where rigs are in deficit – the opportunity for those willing to think “out of the box” is enormous.

For our March cover story on drilling, Oil&Gas Eurasia senior editor Yagmur Kurbanov traveled north of the Arctic Circle to Novy Urengoi to report on a project which demonstrates how lateral thinking can create a “win-win” situation. The project involves the assembly in China of hybrid rigs for the Russian market that combine technologies from around the world, including U.S. companies, GE, Caterpillar and National Oilwell Varco and Germany's Siemens. Visit www.l-burenie.ru for technical specs on these rigs.

In his analysis, Kurbanov makes the point that Russia too could consider itself a center for the assembly of rigs not only for domestic Russian needs but also for export. It’s not a bad business with oil prices as high as they are. And in fact, Bentec seems to have considered this strategy in developing a plan to open a rig manufacturing facility in Tyumen this autumn with a capacity equal to its German plant. I myself visited Bentec’s headquarters outside of Dusseldorf and you can read what the company’s CEO told Oil&Gas Eurasia by visiting our website: www.oilandgaseurasia.com and checking out the archive on our June, 2007 issue.

Tatarstan and Canada Have Much in Common

Turning to other topics, OGE in March reports also on heavy oil and oil sands. This coverage complements our distribution at the World Heavy Oil Congress, March 10-12 in Edmonton, Alberta. Tatneft is sending a delegation to Canada to present reports on Russian experience in this area.

For those outside of Russia who might not know, Tatarstan is an autonomous republic within the Russian Federation (for simplicity sake, think of it as a state if you’re from the U.S. or a province if you’re from Canada). Along with Canada and Venezuela, Tatarstan has extensive deposits of heavy oil and oil sands. In 2007 in fact, state-owned Tatneft signed an agreement with Royal Dutch Shell to jointly explore bitumen deposits. If you’re interested in learning more about the World Heavy Oil Congress or would like to attend, visit www.worldheavyoilcongress.com.

And don’t forget to also visit www.russianoilgas.com where you can get the latest on the 2008 SPE Russian Oil&Gas Technology Conference and Exhibition planned for October here in Moscow. Awash in cash, Russian producers, state owned and private companies, are shopping the world for the latest technologies and equipment. And at the same time, Russian R&D centers are developing domestic technologies for use not only at home but for export abroad.

Technology and Claw Back Production Losses

Technology really is what’s important in the Russian oil patch. In the last month, there has been a raging debate about whether Russian oil production will flat-line in 2008. Russia, the world’s second-largest oil exporter, increased output by 2.3 percent in 2007 to 9.87 million barrels per day with the growth coming mainly on the back of higher Sakhalin-1 production.

But in 2008, Sakhalin-1 says it will cut production by 25 percent.
Reuters reported that Russia’s January output fell by almost 1 percent to 9.78 million barrels per day due to lower production in West Siberia and a 22 percent slump in output from production sharing agreements (PSA) generally and Sakhalin-1 in particular. And the neighboring Sakhalin-2 project, co-led by Gazprom and Royal Dutch Shell last year postponed the launch of year-round production.

The reasons for this are complex and of course, because it’s Russia, there is lots of politics and intrigues. But there are some straight forward explanations. Sakhalin-1 has developed Phase 1 of the project only and there is much more oil yet to be produced. The pause in aggressive production is part of the natural cycle of any oil project and there is absolutely nothing to panic over.

More worrisome is the Russian attitude that producers have so much money that they can buy “off the shelf” whatever technologies they need and move forward with major projects without foreign partners. We’ve seen that in Gazprom’s never ending quest to develop Shtokman in the Barents Sea. Now, I admit that I myself earlier in this column said that Russian companies are awash in cash and can buy what they want. But I’ll add here a little caveat – Russian reserves, though vast and rich, are not the easiest reserves to produce and often “off the shelf” technology just won’t get the best results.

Readers of Oil&Gas Eurasia might have noticed a trend over the last year in what senior executives have told our Moscow-based journalist team in interviews: nearly all are promoting solution-driven packages of services customized to suit a particular problem. And often these solution-driven packages include project management services. This is what Russia needs and until Russian producers wake up and understand that life as a global player is not a zero sum game, the road ahead will feel a bit bumpy.

I’m not worried though. As I’ve said many times in this column, Oil&Gas Eurasia is in the Russian market for the long haul, just like all foreign companies that have succeeded here. We’re the only oil and gas publication to offer advertisers a BPA audited, guaranteed circulation base with the highest readership in the Russian oil patch of any trade publication. And unlike our competitors based in Europe and the U.S., we are located in Russia with a journalist team that gets out into the field. If you really want to know what’s going on in Russian oil and in particular Russian oil and gas technology, visit us at www.oilandgaseurasia.com.

Copyright © 2007 Eurasia Press, Inc. (USA). All rights reserved.
Copyright © 2007 Eurasia Press (www.eurasiapress.com)