Sanctions-driven production declines are likely to force Russia to shut in some of its oil and gas fields, IEA chief energy economist Tom Gould said today.
The EU's ban on Russian seaborne crude imports will come into effect on 5 December, followed by an embargo on oil product imports from February. If Moscow fails to reroute all of its displaced European oil exports, it has the option to direct more crude to domestic refineries, but it also raises the prospect of field shutdowns, according to the IEA.
"It's very clear that the loss of Russia's large export markets is having knock-on effect upstream. You can see that already in gas and in our view, you're going to see some of those impacts in the oil sector as well," Gould said following today's launch of the IEA's annual World Energy Outlook (WEO).
Under the WEO's Stated Policies Scenario (STEPS), which is based on prevailing policies worldwide, Russian oil production falls by 2mn b/d from pre-invasion levels in the near term as a result of European and US sanctions. And it stays well below pre-war projections in the long term. Argus estimates Russian crude output fell by another 200,000 b/d last month to 9.55mn b/d. In January, before Russia invaded Ukraine, Argus pegged Russian crude output at 10.04mn b/d.
"For some of the west Siberian fields, and fields perhaps in the Yamal peninsula, that are really dedicated towards westward flows, there is the prospect of some fields being shut in," Gould said. "Particularly for the older fields, it's not clear once… you've dialled back production from those fields, if it's going to be particularly easy to start them up again."
Russian crude exports have realigned in recent months as Asian buyers — particularly China and India — step in to absorb discounted cargoes shunned by European refiners either because of existing sanctions or self-sanctioning. The IEA said there has been no "meaningful" reallocation of Russian refined oil product flows though, as this trade involves "complex operations including storage and blending".
IEA executive director Fatih Birol said he expects Russia's dwindling customer base to have a substantial impact on the country's oil and gas revenues. "Between now and 2030, this will cost $1 trillion... of revenue loss of hydrocarbon exports," he said.
The IEA said the fallout from the war in Ukraine is the primary cause of the current global energy crisis. None of the three scenarios in the WEO, which look out to 2050, have Russian hydrocarbon exports returning to pre-war 2021 levels. Moscow's share of oil and gas traded globally drops by half by 2030 in the STEPS.
"When people misleadingly blame climate and clean energy for today's crisis, what they are doing, whether they mean to or not, is shifting attention away from the real cause — Russia's invasion of Ukraine," Birol said.
