Omens of decline for Russia’s once world-leading energy industry

Russia does not have a large oil storage system, and so when it is unable to export oil, it is forced to curtail wells or shut them down altogether. There is nowhere to put the oil. Russian oil production fell by 900,000 barrels per day, or 10%, in April compared to March. The International Energy Agency, the Paris-based group, said recently that the amount of the production cut could approach 3 million barrels per day later this year.

And in a sign that more taps could be turned off, analysts at Kayrros, a research firm, said oil on tankers was rising rapidly. This suggests that “Russia may again find it harder to dump its crude,” they said.

Russia managed to find oil buyers who otherwise could have gone to Europe and the United States. Flows to India have increased. Viktor Katona, an analyst at Kpler, said China, where energy consumption has fallen due to Covid lockdowns, appears to be stepping up purchases.

Russia is also making money, thanks to high oil prices. S&P Global analysts estimate that Russia made about $26 billion in natural gas sales to Europe since the start of the war in Ukraine on February 24 until the end of April, more than three times the period of the previous year. Of this total, about a quarter went directly to the government and about half to Gazprom, the gas monopoly. About $5 billion went to Asian and Western LNG investors. (Tax exemptions intended to encourage investment in LNG mean that chilled gas now generates little revenue for the Russian government.)

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