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 So, the above chart from the EIA is somewhat out-of-date.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?

Trends in Nigerian Petroleum Production and Consumption

Nigerian is number five on the list of largest petroleum providers 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 Nigeria, oil accounts for over 95 percent of export earnings and about 65 percent of government revenues.

Overview of Nigerian petroleum production, consumption and exports

The majority of the oil is located in the Niger Delta where since 2005 there have been substantial domestic conflict involving local militant groups wants a share of the oil revenues.  This has lead to attacks takeovers and damage to oil infrastructure and staff, damage to pipelines (e.g., due to “bunkering,” or siphoning oil from the pipeline, similar to that done in Mexico).  For instance, in 2009 it has been estimated that, 0.8 mbd of production was lost due to militant attacks—a significant amount compared to a total crude oil production of about 2 mbd (from: Nigeria may struggle to stem future production declines).  

In addition to these security issues, government delays in approving new projects (e.g., due to government factions pushing for higher royalty payments from international oil companies), the rate of future developments as may slow hesitate to invest in expensive future exploration and developments:

Managing Director, Mobil Producing Nigeria Unlimited, Mr. Mark Ward, said on Monday in Abuja, that Nigeria could see a decline in its upstream deepwater production by 2018, if urgent steps were not taken by the government to promote exploration, drilling and sanctioning of new projects.

...

“The current portfolio of producing deepwater assets were developed within seven to 10 years, whereas fields currently under development or expected to receive Financial Investment Decisions in the near term are projected to take much longer to be brought on stream. Nigerian deepwater lead times are now on average 14 years.”

...

“Average cycle time of 14 years pushes first oil to 2025. With a decline in Nigeria’s deepwater production around the 2018 timeframe, a significant gap could occur.”

from NIGERIA’S DEEPWATER OIL PRODUCTION MAY DECLINE BY 2018’

These issues raise uncertainties as to the viability of making long-term investments in Nigeria oil production:

For all the grandstanding announcements, the devil is in the detail and not much as been said on how the government would apportion a 10% stake of its joint ventures to the people of the Delta. Three decades of corruption and mismanagement of revenue accruing from oil and lack of transparency in detailing how oil money is allocated and spent have engraved a litany of mistrust between the stakeholders.

...

While efforts to inject greater accountability and transparency in the energy sector have been welcomed, the multinationals fear the tough fiscal terms in the legislation will making Nigeria one of the least investor-friendly countries in the world.

They say the aggregate impact of multiple taxes, high royalties and loss of incentives under the bill will have a significant negative impact on investments.

from, Nigeria may struggle to stem future production declines

Therefore, its seems that Nigeria’s recent downturn in production and possibly future production, unlike Mexico or Saudi Arabia, is not due to terminal decline in its oil reserve but rather the inability to pump the oil that it has.

According to the EIA the USA is the single country largest destination for Nigeria’s oil:

It is interesting to note that while China is not even on the chart of significant importers of Nigeria’s oil for 2009—India and Brazil take about 10 percent of Nigeria’s exports.  

Although the EIA states that 40% of Nigeria oil goes to the USA, the EIA own energy profile data for Nigeria indicates that a larger percent than this has gone to the USA for the past several years:

It is interesting to see that the USA’s share of Nigeria’s exports has increased, despite the above-mentioned problems of militants and government approval delays, for the past several years.   Nigeria’s exports to the USA as a percentage of net exports for the last five years of data availability (2004-2008) equals 53 ± 2.  For the analysis to follow, I have assumed that Nigeria’s exports to the USA will continue in this proportion (53%) going forward.   

Non-linear least squares (NLLS) analysis of total petroleum production

Figure 1 shows total petroleum production for 1965-2009 as reported in the BP statistical review:

Similar to Saudi Arabia, after a local peak in production in late 70s, a subsequent decline in production in the earlier 80s, production has increased through the late 80s and 90s.  There are indications of a plateau  or rolling over in production since the late 90s. 

Figure 1 shows the best fit of the Hubbert equation to the 1983-2009 data (solid line best fit parameters: “a” = 0.080; Qo = 6.8; Q∞ = 41.9) as well as the best fit of the Hubbert equation to the 2002-2009 data (dashed line best fit parameters: “a” = 0.244; Qo = 4.2; Q∞ = 14.6).  My attempts to fit my modified equation 9 to the data (e.g., similar to that done for Canadian or Mexican production shown in Figure 2 here) did not result in a significantly better fit to the data.  

The best fit to the 2002-2009 data looks a lot like the best fit to Mexico’s production data from 1999-2009 (shown in Figure 1 here) and, if the trend held, would suggest a rapid decline production

(e.g., half of peak production in 2005 by about 2012).  

However, in my opinion this not the most likely scenario for Nigerian oil production in the coming years because a substantial amount of the recent downturn is due to the above described domestic militant activity.    Additionally I found no signs or concerns that Nigeria has a giant oil field, like Mexico’s Cantarell, that is terminal decline.

Therefore in the export analysis to follow I have focused on Nigeria’s predicted future production based on the NLLS analysis of the Hubbert equation best fit to the 1983-2009 data.  

Non-linear least squares (NLLS) analysis of total petroleum consumption

Figure 2 shows the best fit of the Hubbert equation to Nigeria’s petroleum consumption data (as reported in the EIA’s Energy Profile; the BP statistical review did not report Nigeria’s consumption as a separate line item).  As illustrated in Figure 2, Nigeria’s internal consumption is very small (about 1/8) compared to its production.

The red line in Figure 2 shows the best-fit of the Hubbert equation to the full data set from 1980-2009 (“a” = 0.013; Qo = 5.83; Q∞ = 3032.).   Similar to the analysis of Saudi Arabia consumption, the unrealistically high value of Q∞ suggests the NLLS best fit using the Hubbert equation blows up because the consumption data follows an exponential increase with no signs of rolling over.  Again I could have just as well as fit this to simple exponential equation, but the Hubbert equation fit does a pretty job of doing the same and so I have used this curve for the export analysis to follow. 

Predicting future trends in Nigerian petroleum exports

Figure 3 shows the best fits obtained using the Hubbert equation analysis of the 1980-2009 time span of consumption data and the 1983-2009 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 curve (1983-2009 Hubbert equation best fit) and the consumption curve, shown in the figure.  Additionally, I show the “measured” export data from 1985-2009 time period (i.e., the BP statistical review reported production minus the EIA reported consumption).  Also shown is an alterative predicted export curve (dashed green line) based on the difference between the production curve using the predicted production from the 2002-2009 data (solid green line 2002-2009 Hubbert equation best fit).  

The predicted production (1983-2009 data) and consumption trends suggests that Nigeria’s net exports would end in 2039.  Positive net exports drags on for quite a long period (compared to Saudi Arabia for example) because Nigeria’s domestic consumption is so small relative to its production.   Nevertheless, by 2029 a decade before totally ending, net exports are predicted to be below 30 percent of the net exports in 2009.  Net exports would end much sooner in 2018, however, if production follows the trend predicted by the NLLS analysis of the 2002-2009 production data.

Impact on USA

Figure 4 reproduces the USA production and consumption trends, plus Canadian, Mexican, Venezuelan and Saudi Arabian petroleum measured and predicted future exports presented from the previous article, Trends in Saudi Arabia Petroleum Production and Consumption.

 

The gold line shows the addition of Nigeria’s exportable petroleum to the USA, which equals the predicted total exports (i.e., the solid green line shown in Figure 3) multiplied by 0.53 (i.e., my estimate that 53% of Nigeria’s total exported petroleum will continue to be sent to USA).  The gold circles show my estimate of Nigeria’s measured exports to the USA (total measured production minus total consumption, green circles in Figure 3, times 0.53).

Based on the predicted export trend, Nigeria’s exports to the USA by 2015 will equal about 0.30 bbs/yr and only 0.22 bbs/yr by 2020.  That is 86% and 63%, respectively, of my estimate of Nigeria’s exports to the USA in 2009 (0.35 bbs/yr).  

Although these exports are in decline, the rate of decline is not as severe as a number of the USA’s other current top import sources.  For instance, if this trend continues, I predict that by 2015 Nigeria would over take Mexico, Venezuela and equal Saudi Arabia as the third most important exporter to USA.  By 2020 Nigeria would only be second Canada as the biggest exporter to the USA.   

For 2010, I predict that Canada, Mexico, Venezuela, Saudi Arabia and Nigeria’s exports, together with USA’s domestic production, will provide about 65% of the USA’s predicted consumption. 

By 2015, USA domestic production and imports from these current top five foreign providers will only amount about 54 percent of the USA’s predicted consumption. 

A note of concern about Figure 4

I am becoming increasingly uneasy at the disparity between the actual USA total consumption reported in the BP statistical review through the decade of 1999-2009 versus sum of total production from the USA and the USA’s top export sources as I have progressively added them to this graph.  Either my estimates of actual petroleum exported to the USA are way off, or, there have been several additional sources of petroleum exported to the USA that are not among these top five exporters.  I can see how my estimate of measured exports to the USA for the earlier measured years depicted (i.e., the early 90s) could be over-estimated for some countries.  For instance, I having been estimating measure USA exported based on the recent trend for the percent of total exports to the USA (e.g., 75% for Venezuela/Caribbean; 18% for Saudi Arbia; 53% for Nigeria).  But the percentage of net export from some of these countries (e.g., Nigeria) has been less than this in the past.

But this potential over-estimate of USA exports would not explain under-estimate of nearly 2 bbs/yr of total production by the USA, plus my estimate of exports from its top five exporters, versus the reported total USA consumption from 2004-2009.   Where in the world did that additional ~2 bbs/yr petroleum come from for these years?