The Bear Awakens: Resurgence of Oil and Gas in the Former Soviet Union
Authors: Foreman Neil E. 
Published: December 2007

Since dissolution of the Soviet Union (USSR) in late 1991, the oil and gas industries in the 15 component nations have been in a state of turmoil stemming mainly from past communist management practices and the transition to Western-style market economies and multiparty governments. As a result, oil and gas output have fallen dramatically. This study incorporates separate oil and gas production forecasts, predicted independently by onshore and offshore sectors, for each of the 11 producing republics of the Former Soviet Union (FSU) over the period 1996-2005. Supply—assessed by full-cycle resource analysis—and demand, estimated from available historic and projected consumption figures, are balanced to yield a coherent picture. Production of both oil and gas for the FSU is forecast to recover strongly. Oil and condensate output—led by Russia, Kazakhstan, and Azerbaijan—are forecast to rebound to 9,545 MBOPD by 2005, which will reinstate the FSU as one of the world's premier crude exporting blocs. Natural gas output—propelled by gains in Russia, Turkmenistan, and Uzbekistan—will likewise resurge, reaching a world-leading 96,051 MMCFD level, of which a large amount will be exported.

Introduction

The USSR, which had been built up by conquests and annexations over a period exceeding 1100 years, dissolved almost bloodlessly in a five-month span in late 1991. Its component oil and gas industries, constructed almost entirely under communist direction, then were forced to deal with a completely new operating environment whose economic, political, and business relationships have been in a state of uneasy flux and uncertain direction ever since. Communist management practices, which featured suboptimal exploration, field exploitation, transport, and downstream conditions and unhealthy levels of interdependence between the other republics and Russia, suddenly had to confront modern competition and new business criteria to survive. Some of the major problems facing the hydrocarbon industries include (a) improvement of exploration, production, transport, and refining facilities and practices, (b) stabilization of the operating environment, and (c) adoption of streamlined Western-style business approaches after decades of communist mismanagement. The massive investment needed to return the industry to solid prosperity will require foreign capital, yet the unsteady fiscal and legal environment leaves much to be desired in each of the above-mentioned areas.

Many of the images reaching the West in recent years present a panorama of chaos: a now-fragmented oil industry in disarray superimposed upon a dismaying set of multiple national economies and crumbling social structures. Hydrocarbon production is symptomatic of this weakened condition. Since the maximum oil production peak in 1987-88, output for the FSU as a whole has fallen over 5,000 MBOPD; and even natural gas output, long the shining star in the FSU universe, has fallen by almost 13,000 MMCFD from its historic peak in 1990. Given the maturity of many of the key producing fields and basins and the massive obstacles to overcome, outside observers could well speculate that the Russian bear, the emblem of both imperial Russia and the USSR, is heading to new haunts and will not reassert itself in the global oil and gas arena. This study sees the present difficulties as only a temporary hibernation, and the bear's reawakening will bring a strong resurgence in both oil and gas production in the Former Soviet Union.

Methodology

The projections presented here are parts of two global forecasts, Worldwide Crude Oil 10-Year Forecast and Worldwide Natural Gas 10-Year Forecast, released in summer 1996. These predictions employ a unified, coupled supply-demand approach that examines both domestic and world market conditions. P. 597