For a man obsessed with Russian greatness, President Vladimir Putin is doing his best to sabotage the one economic sector that allows Moscow to claim superpower status and helps fund its war in Ukraine: oil and gas.
By attacking Ukraine, Russia is endangering its future as an oil and gas exporter.
His invasion puts all that in jeopardy.
The sanctions restrict Russia's access to crucial Western technology and funding needed to help it drill for oil in depleted, remote and inhospitable Siberian and Arctic fields. The departure of Western companies is also crippling its ability to produce ultra-lucrative liquefied natural gas for the decade to come.
Note:- my response read Putin’s war imperils Russia’s energy cash cow full article.
Russia may also have to find new places to sell. The European Union is talking about taking action on oil in its sixth sanctions package this week. Countries are already setting short-term goals to end their dependence on Russian oil and gas.
This leaves Putin with a headache.
“We must assume that in the foreseeable future the energy supply to the West will be reduced,” the Russian president said earlier this month, pledging to “increase energy resources to other regions of the world".
But that means building pipelines and LNG terminals to redirect exports to Asia, and Russia lacks both the money and the technology to quickly effect such a change. China simply cannot suck up all the vast volumes of energy consumed in Europe to help the Kremlin. Already Moscow's biggest buyer of crude, Beijing has its own strategic goals in keeping various suppliers.
Dark prospects for black gold
Headlines have focused on the withdrawal of energy majors like Shell, BP and ExxonMobil from Russia, but it's the oil services companies - led by the trio of Halliburton, Schlumberger and Baker Hughes - that will ultimately prove much more substantial.
Indeed, after a boom in the 1980s and 1990s, many of the oil fields in central Russia in western Siberia are in decline.
The techniques developed and perfected by the professionals in Texas - such as the use of remote-controlled robots to drill the rock horizontally for miles, guided by advanced imaging software to locate and expel those last drops of oil - rely on a technology that has now been sanctioned.
"These technologies are the product of market-driven innovation and technological progress, mainly originating in the United States," said Vladimir Milov, Russia's former deputy energy minister and now a political opposition figure. "The Soviet oil industry lacked them, and the Russian private oil industry just bought them, because why develop something on your own when you can just hire Halliburton and Schlumberger?"
Service companies said they would not accept new work in Russia, and Halliburton said it planned to end its existing operations in the country. The three declined to detail the scale and time remaining on existing contracts.
Upstream analysts at Rystad Energy said the result would be a decline in Russian oil production of 4-7% per year.
If the companies pull out completely, it "could lower Russian production by 10, 15 percent, I don't think that's an exaggeration," Milov said.
"Well drilling, production, exploration, all of this can be done by Russian service companies as well as service divisions of the biggest oil producers like Rosneft and Surgutneftegaz," said senior analyst Daria Melnik. upstream of Rystad.
But it will cost more and more, as the search for new supplies forces exploration deeper underground or further afield in places like the Arctic.
"You are fighting a rearguard battle, trying to maintain the old production fields as long as you can, stepping back, drilling all the time... begging the Russian government for more funds in the form of loans cheap, and will you build us a port, please, and by the way, we will need a new pipeline,” said Thane Gustafson, professor of Russian politics at Georgetown University in Washington. "It's several billion rubles that are needed for the state to help with this next chapter of Russian oil."
