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Russia’s Oil Empire Fades: Revenues Set to Halve by 2042 as Easy Reserves Dry Up
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Russia’s reliance on oil and gas revenues will continue to shrink over the medium and long term as low-cost hydrocarbon reserves are depleted, Russia’s Finance Minister Anton Siluanov said, The Moscow Times reported on December 30.
Siluanov said the country has already passed the stage of easiest and cheapest extraction, with production increasingly shifting to hard-to-reach reserves that are far more expensive to develop. As a result, taxes on the oil and gas sector will need to be reduced to sustain output.
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“We are introducing additional preferential tax regimes and clearly understand that we cannot rely on high levels of oil and gas revenues in the long term,” Siluanov said, as quoted by Interfax.
According to the finance minister, oil and gas revenues will account for about 23% of Russia’s federal budget this year, down from roughly 50% several years ago, and are expected to fall by another percentage point next year.
A long-term budget forecast approved by the government in December projects that oil and gas revenues will more than halve by 2042, declining from about 4% of GDP to 1.9%, the lowest level since the early 2000s, The Moscow Times wrote.
The forecast shows a sharp acceleration of the decline in the 2030s, with oil and gas revenues dropping below 3% of GDP by 2033, below 2.5% by 2036, and under 2% in the early 2040s.
Under a base scenario assuming oil prices of $69 per barrel, the sector’s share of the federal budget would fall to 13.4% within 17 years. In a more conservative scenario based on lower oil prices, the share would drop to 9.5% of the budget, or 1.3% of GDP, the lowest level since 1996.
The outlook raises questions about Russia’s future role in global oil markets. Under the government’s Energy Strategy 2050, approved in April, oil production could fall sharply without major investment, technological breakthroughs, and regulatory changes.
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Output is projected to decline from about 520 million tons per year to 477 million tons by 2036 and 287 million tons by 2050. Oil exports would be cut nearly threefold, from 234 million tons to 79 million tons annually.
In a “stress scenario” that assumes tougher Western sanctions and a faster global shift away from hydrocarbons, Russia’s oil production would drop to just 171 million tons by 2050, roughly one-third of current levels, with exports falling to zero, according to The Moscow Times.
Previously, it was reported that Russian crude shipments to India are set to sink to their weakest level in three years in December as US sanctions pressure disrupts buying patterns and forces refiners to reshuffle supply, according to Bloomberg.
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