CONTENTS OF THE REVIEW

 

I. Introduction
II. Russian Oil Industry
 1. Coping, but not without difficulties
III. Gazprom
 1. In search for a new business model
 2. Consequences of gas output reduction for gazprom
IV. LNG Production: Thriving, But For How Long?
V. Looming Tax Increases
VI. Loosening Environmental Discipline
VII. Commentary: Negative Effects For The Environment
Conclusions

 

This analytical review explores the impact on Russia’s oil and gas industry of Western sanctions and the significant change in relations with the West following Putin’s invasion of Ukraine in February 2022. Key sanctions include embargoes on oil and oil products imposed by the EU, US, and other Western countries, as well as price caps on Russian oil and restrictions on liquefied natural gas (LNG). Despite these challenges, the Russian oil industry has proved relatively resilient, thanks to low production costs and a progressive tax system. Remarkably, Russian oil production has barely declined despite the sanctions.

“TO DRAMATICALLY EXPAND MILITARY SPENDING, RUSSIA EXPECTS TO INCREASE FEDERAL BUDGET REVENUE IN 2024 BY OVER 22% AS COMPARED TO 2023; OVER RUB 1,5 TRILLION OF THESE EXTRA REVENUES (OVER $16 BILLION) ARE EXPECTED TO COME FROM ADDITIONAL TAXATION OF THE OIL & GAS INDUSTRIES”

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Gazprom suffered the most, losing a significant portion of it’s European market. In 2023, gas exports to Europe contracted by 70% compared to 2021, and natural gas production fell by 21.5%. Finding alternative markets, such as China and India, proved to be a challenging task. The absence of access to critical gas liquefaction technologies limits Gazprom’s capabilities to redirect exports. Conversely, LNG exports from Russia to Europe thrived in 2022–2023, but the future of LNG exports is under threat due to U.S. sanctions and the EU’s plans to phase out Russian LNG.

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“SANCTIONS, RIFT WITH THE WEST, AND LOOSENING  GOVERNMENT'S REGULATORY CONTROL OPEN WAY FOR MASSIVE INCREASE OF THE AMOUNTS OF FLARED GAS”

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One of the key consequences of the sanctions was the loosening of environmental control. There is a significant increase in emissions and the number of oil pipeline ruptures in Russia, leading to increased pollution of rivers and seas with oil and oil products. In 2022, the number of oil pipeline ruptures increased by 2.2 times, amounting to almost 13,000 cases. Experts estimate that the pollution of water bodies with oil and oil products could reach 10 million barrels in 2023.

The use of shadow and uncertified tankers for oil transportation increases the probability of accidents by 10% or more, significantly raising the risk of catastrophic environmental consequences.

In conclusion, sanctions and the rift with the West have had a significant impact on the Russian oil and gas industries. While the oil industry has so far withstood the pressure, the gas sector, particularly Gazprom, is facing serious challenges. The weakening of environmental control could have long-term negative consequences, including transboundary effects.

“IN 2022, THE NUMBER OF OIL PIPELINE RUPTURES INCREASED 2.2 TIMES AND AMOUNTED TO ALMOST 13 THOUSAND CASES. THAT IS MORE THAN ONE LEAK EVERY HOUR”

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