Putin's Oil Industry Is in Trouble

Gasoline production in Russia has fallen after a series of strikes by Kyiv on the country's oil refineries, figures show. Rosstat, Russia's Federal State Statistics Service, said that in the week ending March 24, the nation's production of motor petrol fell by approximately 7.4 percent to 754,600 tons compared to the week prior, when production was at 815,300 tons, local media reported.

Moscow depends on its oil exports and energy industry, which make up some 30 percent of the country's budget revenues and are crucial for the funding of the war in Ukraine.

Kyiv ramped up its attacks on Russian refineries beginning this year. On January 18, Ukraine launched a drone attack on a St. Petersburg oil terminal, about 620 miles from the Ukrainian border.

Another of its drone attacks, near St. Petersburg on January 21, struck a major gas export terminal—a Novatek PJSC gas-condensate plant in the port Ust-Luga—causing a huge fire and halting fuel supplies. Ust-Luga is Russia's largest Baltic port, and the Security Service of Ukraine (SBU) claimed responsibility for that attack, the Kyiv Post reported.

Earlier this month, Bloomberg reported that the refineries forced to stop operations over the space of a week were collectively responsible for 12 percent of Russia's national oil refining capacity. Reuters estimates that figure has now risen to 14 percent.

The latest oil hub to have halted operations due to Ukrainian drone attacks is Russia's Rosneft-owned Kuibyshev mid-sized oil refinery near the city of Samara on the Volga river, Reuters reported on Thursday, citing two industry sources. The facility was struck last week...

The head of the SBU, Vasyl Malyuk, declared this week that it is behind all attacks on Russian oil hubs and that they will continue, spelling more trouble for the Russian leader ahead...

I can’t know what you know of refining.

It’s a big tank of crude. A nat gas burner is under it. It boils the crude (not ignition, boil temp).

The vapor travels up into the tower. At various heights, the temp has declined and the constituent component of the crude that re-condenses at that temperature flows out of the tower at that height (temp). It flows out into a tank of that particular product.

There are few lower tech processes imaginable, and Rosneft and Lukoil have been doing this for decades. There is no need for parts not made in Russia. In fact, they wear out regardless of attacks, and they’ve been replaced as they do.

I do not know who told you refineries around the world cannot operate without US involvement, but it’s absurd. It’s not just Russia. It’s also absurd in the UAE, Saudi Arabia, Norway and pretty much anywhere significant oil is flowing. It’s a simple process.

The old Soviet refineries were rebuilt with Western investment, Western tech, and Western and know-how.

In particular, Shell, BP, and Exxon abandoned their operations in Russia immediately after the 2022 phase of Russia’s war against Ukraine started. BP wrote off $24.4 billion, Shell $4.2 billion and Exxon $4 billion in assets and investments.

The refineries they created for Russia were dependent upon supplies, parts, and maintenance from key Western companies like SLB (Schlumberger), Baker Hughes, NOV, Noble Services, and Halliburton.

Some of the key technology and expertise the Russians desperately needed was for companies that had experience with fracking. While Russian oil fields are still chugging along just fine a lot of their oil fields were tapped out but fracking would restore many of those fields to production for years to come.

In any case, the Russian oil fields and refineries, as they are currently composed, require Western made machinery, parts, and maintenance for continued operations.

The Russians are resourceful and can make some things work with home made replacements. But anything that needs to synch up with software...and even the software itself...will require Western attention and investment.

So yes, the Russians can replace these things. But first they have to rebuild the organizations, experience, and supply lines to do so. They are faced with a serious logistical challenge.

Russia’s major oil fields are Western Siberia into the Urals/Volga region, they are also down on the north shore of the Caspian — and there is a solid deposit in the far east near Sakhalin.

None of this is shale. It will not get any value from artificial fracturing. I don’t think you have a feel for permeability of rock (worth a quick read). All that fracking does is it increases permeability.

In the world of oil you will find all fields have a natural decline rate. Because all wells have a natural decline rate. You find oil, you start extracting it from a well. On day 1 you flow (call it) 10,000 barrels/day. That’s a good conventional well. At the end of 1 year, it will be flowing maybe 9990 barrels/day. Not much loss of flow.

But that decline is relentless. If you want more flow per day, you have to drive down the road a ways and drill another well. That one will flow also 10,000 barrels/day. But by the time you are done drilling and getting it online, that first well is down to whatever, 9980 barrels/day. So now you get 19980 from that field.

Every new well adds, but the old wells add less and less.

This is what all oil countries deal with. Keep adding wells. Inject seawater to was oil out of pores and bring it up. The Russians have done this for decades.

But they don’t frack. They don’t need to. Their conventional (the word conventional for oil used to mean “not offshore rigs”, now it means “not fracked”) oil fields are flowing 9.5 mbpd and they can flow 11 mbpd. They throttled back as part of the OPEC+ agreement.

Note that paragraph above about flow rates. The big difference between shale and conventional is shale wells die vertically. They start at about 1000 barrels/day and at the end of the year they are at 600 barrels/day. Then the next year 400. Then 300. You get the picture. Conventional wells with natural permeability last for decades. Shale wells with artificial permeability (fracking) die in about 5-10 yrs.

For Russia, their 9.5 mbpd doesn’t really matter because their domestic consumption is only about 5 mbpd.

Now then — they have the Bazhenov Shale. This is a region of rock formation south of the Kara Sea. The IEA says it holds 1.2 Trillion (with a T) barrels of oil, the largest hydrocarbon rock formation in the world. It’s shale so it will have to be fracked. It hasn’t even been touched yet.

When they need to, they will, but that will be some time in the future. Their conventional fields can maintain production via more in field drilling for, oh, call it 10 years.

As for requiring western expertise to do fracking, nah. What western expertise would do is enable fracking to be more efficient. But when you have 1.2 Trillion barrels, you don’t really care if you leave some behind. Your total is somewhat infinite so inefficient fracking will flow comfortably, and leaving some behind means it is still there.

The Bible of oil is the World Statistical Report that BP has published for about 70 years, each June. They outsourced the storage of the spreadsheet last year to something called the Energy Institute, who just publish the data BP provides.

They lay out all the methodology and how they get info from govt and “secondary sources”.

You’ll find the spreadsheet here:

https://www.energyinst.org/statistical-review/resources-and-data-downloads

Get the .xslx file, not .pdf. It’s easier to navigate.

I see daily reports on the Russian economy It’s toast

Russia’s Economy Picked Up in Early 2024 on Consumers, Exports

By Bloomberg News

April 1, 2024 at 12:38 PM EDT

Russia’s economy accelerated at the start of the year on the back of strong consumer demand, investment and exports, as the country continues to weather the impact of sanctions following the invasion of Ukraine.

Despite signs growth was slowing at the end of last year, the economy picked up in the early months of 2024, according to a Monday statement by the Bank of Russia summarizing its decision to hold rates at last month’s meeting.

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