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Broken needle. What will happen to Russia when the oil will run out

Сломанная игла. Что будет с Россией, когда закончится нефть

Soon in Russia will run out of oil, and the fall will begin production in 2020. With such a warning made by the Minister of natural resources and environment Sergey Donskoy. “Ribbon.ru” understood how the Russian economy will react to the destruction of the Foundation of black gold.

The cold autumn of ‘ 44

The Minister named several curious figures. First, he estimated the volume of oil reserves in Russia is 29 billion tons (200 billion barrels). “These are the ones that theoretically can be extracted from the subsoil”, — said the official. In 2015, the country produced about 505 million tons. With this level of production it turns out that the reserves will last for 57 years until 2073.

But the second evaluation, given the don, a much more pessimistic: “the Volume of proven reserves (about which we know exactly where and how to retrieve), according to experts, less than half, about 14 billion tons.” It’s only for 28 years. That is, to 2044 year oil may simply dry up.

Another problem is that in the total volume of reserves of an increasing proportion of hard-to-recover oil. According to the Minister, and its unloading requires the development of technology and significant financial investments. “Without new discoveries the extraction of conventional reserves begin to decline from 2020,” predicted Sergei Donskoi.

Shock therapy

The decline in oil production and a fall of its price, is the loss of money by the government and companies. Investment attractiveness of the industry as a whole is declining, financial flows go in a different direction, and the structure of GDP is changing. Therefore, the collapse of quotations, and the depletion is a real chance to break the oil needle. The “Dutch disease” can be treated in two ways. Any conscious state policy, takes raw money in the development of third-party industries (manufacturing, agriculture, services; so, in fact, received in the Netherlands). Or shock therapy.

Сломанная игла. Что будет с Россией, когда закончится нефть

Photo: Sergei Karpukhin / Reuters

To the shock therapy is used when the state is facing a resource crisis (in our case — falling oil prices, the decline in production, reduction of stocks). The economy in any case have to adapt to new conditions, but with a dramatic fall in the standard of living of the population. A striking example is Venezuela. The Bolivarian government has not pursued a conscious policy for the development of non-extractive industries, and now the population is reaping the bitter fruits: inflation in 720 percent (the IMF’s forecast for 2016), the collapse of the national currency (according to The Economist, the difference between the official rate of the Bolivar and its value on the black market reached at certain points of 10,000 per cent), food shortages (due to problems in agriculture).

Prime Minister of Russia Dmitry Medvedev was not in vain rejoiced falling oil prices. “These are the challenges we now face, if they weren’t, they would have probably come up with”, he said, stressing that Russia needs to seize the moment and change the structure of the economy.

The words of Sergey Donskoy about the depletion of oil reserves is a good occasion once again to think about the so-called structural reforms, without which, according to the gloomy forecast of the Finance Ministry, Russia will have 15 years of stagnation. The essence of change is the diversification of the economy. Sounds simple — is realized with great difficulty.

Oil abundance

Experts interviewed “Tape.ru”, urged not to dramatize the situation. Exploration and modern technology allows to produce oil for a long time. On the other hand, Russia may face reduced production in the next few years that will lead to the loss of markets.

Analyst of oil and gas branch of Raiffeisenbank Andrei Polishchuk in an interview with “Tape.ru” admitted a realistic assessment of the Ministry of environment. “But keep in mind that we are talking about proved reserves. This does not mean that the oil has run out after 28 years,” he says. The analyst believes that Russian companies have technology and money to develop hard to recover reserves. However, production of such oil will be small, because corporations will continue to pick traditional stocks. According to Polishchuk, the key risk for Russia is to reduce production. “Mining in the world most likely will not fall. Accordingly, we will lose market share of oil,” he said.

Сломанная игла. Что будет с Россией, когда закончится нефть

Photo: Sergei Karpukhin / Reuters

“We have to be careful to interpret: the fact that proven reserves will last for 28 years, does not mean that Russia is by this time quite will run out of oil”, — says head of Department for strategic studies in energy Analytical center under the government of Russia Alexander Kurdin. Proved reserves are falling as a result of mining, but grow at the expense of exploration, he recalls. The expert told “lente.ru” that the Russian oil companies have the necessary technologies: horizontal drilling, hydraulic fracturing, offshore — to develop tight reserves. “Technologies exist, including through cooperation with foreigners,” he says. Well, the availability of funds for such projects depends on oil prices.

Alexander Kurdin also notes that the fall in oil output in Russia is projected for years, but until now there has only been growth. Indeed, according to the latest data of the Central dispatching control (CDC) of the FEC, in February Russia has increased its production of black gold 5.3 percent compared to the same period last year. Total for the month was produced by 43.1 million tons. “And yet sooner or later the decline will start — it is likely that it will be 2020. But the situation on the demand side will also change. In Europe reduced demand for oil products, and so much oil as now, the region is not required. Reduced demand in Japan. So that the positions of Russia there can be saved”, — predicts specialist. In developing countries the situation is different — the demand for oil will grow there (especially in Chinese market), and restrictions of Russia reserves and the cost of their development hurt “to maximize market niche”.

“The success of adaptation of Russia depends on how effectively now natural capital is converted to human,” said Alexander Kurdin.

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