Saturday, December 11, 2010

Trends in Russian Petroleum Production and Consumption

Russia is number six on the list of largest petroleum provider to the USA according to Annual Energy Review for 2009 (see e.g., Fig. 5.4 and Table 5.4).  According to the EIA’s country analysis brief for Russia,  most of Russia’s oil presently comes from Western Siberia, although untapped oil from Eastern Siberia, the Caspian Sea, and Sahkalin (in the Far East ) may play a larger role in the future.

Relatively little of Russia’s oil exports finds its way outside of Europe and Asia—only about 6% were exported to all of the western hemisphere: 


Unlike Saudi Arabia or Nigeria, which have had sent a fairly steady percentage of their net exports to the USA, Russian exports to the USA have come from essentially nothing to eight percent over the last decade. 

For instance, the EIA Russian energy profile indicates that Russia’s exports to the USA have gone from 24 in 1998 to 465 mbd in 2008.  Additionally the EIA’s published spread sheet entitled, U.S. Total Crude Oil and Products Imports (hereinafter, “Total Imports”)  indicates that in 2009, USA exports from Russia further increased to 563 mbd.  As a percentage of Russia net exports, this puts exports to the USA alone at 8%. So, the above chart from the EIA is somewhat out-of-date.

Therefore, although the USA is still a relatively minor consumer of Russian petroleum exports as compared to a number of European countries, there is a strong trend for Russia to export a greater proportion of its petroleum to the USA.  For instance, a linear regression analysis of the data presented in the above figure has an r2 of 0.91 (slope 0.602; intercept -1201), suggesting a near linear increase in the percentage of exports to the USA equal to about 0.6%/yr.

For the analysis to follow, I have assumed that Russia’s exports to the USA will continue to increase according to this linear trend (0.6%/yr) going forward.
   
Non-linear least squares (NLLS) analysis of total petroleum production
Figure 1 shows total petroleum production for 1985-2009 as reported in the BP statistical review (it appears that prior to 1985, production was grouped under, “Other Europe & Eurasia”).

After a local peak in production in late 1989, there was a large, about 50 percent, decline in production in the early 90s, no doubt reflecting the collapse of the Soviet Union, a plateau through the mid 90s, then an up-turn in production in the late 90s and indications of a plateau since about 2006. 

Figure 1 also shows the best fit of the Hubbert equation to the 1999-2009 data (solid line best fit parameters: “a” = 0.17; Qo = 14.4; Q∞ = 85.6). I did not attempt a fit using my modified equation 9 to such a short time span of data. 

The best fit to the 1999-2009 data looks a lot like the best fit to Mexico’s production data from 1999-2009 and, if this trend holds, it suggests a rapid decline production (e.g., half of peak production in 2009 by about 2018).  Perhaps this trend will break with new production in eastern Siberia or other locations, but I see no trend in the data to support this.

In the export analysis to follow, I have using the NLLS analysis of the Hubbert equation best fit to the 1999-2009 data.
 

Non-linear least squares (NLLS) analysis of total petroleum consumption
Figure 2 shows the best fit of the Hubbert equation to Russia’s petroleum consumption data (as reported in the BP statistical review.  As illustrated in Figure 2, Russia’s domestic consumption since 1998 has been fairly flat and about half of its peak consumption in 1989. 

The red line in Figure 2 shows the best-fit of the Hubbert equation to the full data set from 1998-2009 (“a” = 0.036; Qo = 39.6; Q∞ = 110).  The best fit suggests that domestic consumption during this period may peak in 2014 although the rate of change in consumption is fairly flat.

Predicting future trends in Russian petroleum exports
Figure 3 shows the best fits obtained using the Hubbert equation analysis of the 1998-2009 time span of consumption data and the 1999-2009 time span of production data as well the 2002-2009 time span of production data.
The predicted export curve (solid green line) is calculated based on the difference between the production and the consumption curves shown in the figure.  Additionally, I show the “measured” export data from 1991-2009 time period (i.e., the BP statistical review reported production minus the EIA reported consumption). 

The predicted production and consumption trends suggests that Russia’s net exports would end in 2023, due to declining production and steady consumption at about 1 bbs/yr.

Impact on USA
Figure 4 reproduces the USA production and consumption trends, plus Canadian, Mexican, Venezuelan, Saudi Arabian and Nigerian petroleum measured and predicted future exports presented from the previous article, Trends in Nigerian Petroleum Production and Consumption.
 
The dark red line shows the addition of Russia’s exportable petroleum to the USA, which equals the predicted total exports (i.e., the solid green line shown in Figure 3) multiplied by the percentage of exports calculated from the slope and intercept obtain from the linear regression analysis done on the data in the graph, “Percent of Russian net exports to USA.” presented above.  The dark red circles show my estimate of Russia’s measured exports to the USA.


To make a better estimate of measured exports to the USA, I have refined my calculation as compared to previous articles in this series.  Namely, rather than apply the last year or several year average percentage of Russia’s exports to the USA to the past data, I have applied the actual year-by-year percentages to the USA, as calculated from the first graph in this article (extracted from the EIA energy profile, and “Total Imports”).  Thus the estimated measure exports to the USA equals the total measured production minus total consumption, the green circles in Figure 3, times this variable percentage.  I only depict measured values from 1998 and on because prior to 1998, there were substantially no exports to the USA from Russia.  

I also went back and performed the same type of correction to the measured estimated exports to the USA for Nigeria and Saudi Arabia —however the effect of this correction is barely visible in Figure 4.

Based on the predicted export trend, Russia’s exports to the USA by 2015 is predicted to equal about 0.178 bbs/yr and only 0.066 bbs/yr by 2020.  That is 85% and 31%, respectively, of Russia’s estimated exports to the USA in 2009 (0.21 bbs/yr).  Remember, these predictions are based on my assumption that Russian exports will continue to increase at 0.6%/yr (i.e., about 11% and 14% of Russian net exports in 2015 and 2020 respectively).  However, this does not mitigate the overall downward trend in Russian production, and hence, net exportable petroleum.  Nevertheless, for a few years, Russia’s importance as a supplier of petroleum to the USA will increase.  For instance, if the export trends for Mexico and Russia continue, by 2012, Russia should overtake Mexico in importance as a supplier to the USA. 


For 2010, I predict that Canada, Mexico, Venezuela, Saudi Arabia, Nigeria and Russia’s exports, together with USA’s domestic production, will provide about 68% of the USA’s predicted consumption.  By 2015, USA domestic production and imports from these current top six foreign providers will only amount about 56 percent of the USA’s predicted consumption.  Once again, by 2020 the USA is down to getting exports essentially from Canada and a small amount from Nigeria


Moreover, if the trend for a production decline does continue, I would expect that it will be most cost-effective for Russia to supply Europe through the pipeline networks connected to Russia, and to drop or reduce the percentage of net exports to its more marginal customers such as USA and China.


That small sliver of additional Russia oil added to the summation curve shown in Figure 4, tells me that I have reached a stage in this analysis where the further consideration of the USA's imports from other countries will be adding ever-smaller amounts to the summation curve.  I will continue to explore this for a few more countries, maybe up to the top ten of exporters to the USA, but I expect that the additions of petroleum exports for countries seven through ten will probably only bring the total up to about 75-80% of the USA’s predicted consumption for 2010.  The remaining 25-20% would have to be filled by more minor suppliers.


But, perhaps, one of countries seven through ten will show some signs of expanded exports going forward?

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