Russia is desperate to beat peak oil demand

Several of the world's largest oil producers have announced plans to boost production capacity. The reason: peak oil demand is coming, countries are determined to make the most of their oil resources as best they can.

"Everything that can be produced should be produced while there is still demand," Pavel Zavalny, chairman of the State Duma's energy committee, said last month when presenting a draft document aimed at achieving this goal.

Pavel Zavalny also told the conference: "The main argument of this strategy is the monetisation of current reserves resources - that is, the greater monetisation of exports."

Russia is one of the world's top three oil exporters, along with Saudi Arabia the United States. Its oil reserves will last at least until 2080, its gas reserves for another 103 years. The government is pouring hundreds of billions of dollars, $110 billion to be exact, into the development of new oil reserves in eastern Siberia, extracting 100 million tons of new crude a year. That's about a fifth of the country's annual 2019 production.

Much of this oil will replace depleted fields in western Siberia. According to Russia's energy ministry, the country does appear to have plans to significantly increase current production. In the last year before the outbreak, production was 11.3 million b/d, a record high. Now, the Department of Energy expects currently constrained production to rise 10.3 million barrels per day to 11.1 million barrels per day by 2029, before starting to decline. In other words, Russia, in its own case, has eight years to take advantage of the rise in global oil demand.

However, there are various scenarios for peaking oil demand. BP, for example, forecasts that peak oil demand has already arrived in the worst-case scenario will peak in 2030 in the best-case scenario. Equinor, the Norwegian oil company, expects peak oil demand to come in 2027 2028. Restar Energy expects demand to peak within five years, while the International Energy Agency expects demand to peak in the next decade. All in all, the projections are in the range of 2030.

That means oil producers such as Russia, Saudi Arabia, Iraq the Gulf states will have little time to make full use of their reserves before demand begins to fall steadily. With all these countries ramping up production planning to increase production, competition in the oil market is bound to be even fiercer than it is now.

In terms of competition, Russia is in a better position than its Middle Eastern partners. It has been less dependent on oil export revenues than Middle Eastern producers. Lately, Russia has been deliberately reducing that dependence. Oil gas revenues still account for 30 per cent of Russia's gross domestic product, but the country is slowly but surely diversifying as energy sources such as hydrogen grab the government's attention. Still, there are billions of barrels of oil in the ground it would be a shame to leave them there, hence the plan to boost production. But who will buy it?

India is an obvious candidate. The country imports 80% of the oil it consumes, so it likes cheap oil. In India, Russia will compete with its OPEC partners the United States, which is also a major destination for U.S. oil exports. Other emerging markets in Asia will also become a key market for oil exporters as peak demand draws closer.

Then, based on demand projections, oil producers seem to be scrambling to sell as much oil as possible while there are still buyers. But the fact that peak oil demand may indeed occur in a decade less doesn't mean that demand will drop precipitously -- unless another epidemic hits the planet. In the absence of such unforeseen events, oil demand is likely to decline gradually, giving farsighted producers enough time to adjust by boosting the non-oil sector. Viewed this perspective, Russia has had plenty of time to reduce the share of oil gas revenues in GDP. Whether it will use this time wisely to achieve these goals remains to be seen.

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Source: International Petroleum Network