RUSSIA - Russian Petroleum Reserves.

Russia's proven reserves of conventional crude oil have been estimated independently at between 69 bn and more than 130 bn barrels. Proven reserves of natural gas in Russia are estimated at 47 TCM (1,659.1 TCF).

There are doubts about the official estimates of oil reserves in Russia, where the state has become less transparent and related data now are a national secret. In many of the huge oilfields in western Siberia, including Samotlor, which yield more water than oil, the rate of depletion seems to have accelerated as a result of over-production.

Also doubtful are predictions by Russian geologists that eastern Siberia could contain 100 bn barrels of recoverable oil and 40 TCM of recoverable gas. Such reserves - if official announcements are confirmed by independent quarters - would back a big shift in Russian oil and gas exports to the east at the expense of the European market. If huge official estimates of oil and gas reserves in northern Russia are confirmed independently, then there could also be a major shift to the US market. Gazprom intends to develop the huge Shtokman gas field in the Barents Sea for export in LNG form to the US (see Part 3).

Russian oil exploration began in the 19th century and concentrated on the southern Caspian, mainly in Azerbaijan (see the Review's current volume, No. 1). Exploration was extended to western Kazakhstan late in that century and oil production in the Atyrau region began in 1911 (see the Review's current volume, No. 4). In the early 1960s the emphasis shifted to western Siberia. Exploration of other parts of Russia began in the 1970s, when world oil and gas prices rose sharply. Most of Russia's gas discoveries were made in the 1970s and 1980s. Discoveries in the early 1990s were not significant (see background in Vol. 59, Gas Market Trends No. 10 & Vol. 63, Gas Market Trends No. 7).

Every year, the Natural Resources Ministry auctions blocks in various parts of Russia. But since he was re-elected in March 2004, President Vladimir Putin's regime has become more secretive and less favourable to private oil companies. He is particularly hostile to some of the oil oligarchs, notably including the owners of Yukos which went bankrupt on Aug. 1, 2006. Especially alarming to all companies has been the way the post-election government has taxed Yukos.

Changing tax regimes and levies on oil exports have, more recently, caused many foreign investors to think twice before considering whether or not they should put big capital in Russian E&P, whether for oil, natural gas or for both. Another big Western-Russian merged company like TNK-BP is ruled out, although ConocoPhillips has got President Putin's nod to buy into LUKoil, the biggest oil producer in Russia.

The Natural Resources Ministry in June 2006 submitted a new version of Russia's subsoil law to the government, clarifying its increasingly tough line on the reserve threshold for "strategic" oil and gas fields to which foreign companies will have limited access. This classified fields as "strategic" if they had 511m barrels and more of crude oil or 50 BCM and more of natural gas. These were lower than the 1.1 bn barrels of oil and 75 BCM of gas which the ministry had been discussing earlier in the year.

In 2005, the ministry suggested over 1.1 bn barrels of crude oil and 1 TCM of gas as the minimum limits for strategic reserves. But the government rejected them as being inadequate for defending Russia's national interests.

The new version of the law would ban foreign companies and Russian ventures with more than 49.5% of overseas investment from developing "strategic" oil and/or gas reserves.

In early 2006, the Russian Industry and Energy Ministry drafted its definition of the country's "strategic" companies whereby foreign investors were to have limited access. Included in this category were LUKoil, TNK-BP, Tatneft and SurgutNefteGaz, the state-owned Rosneft, and the state-controlled Gazprom. It said that "strategic" were those companies which already controlled crude oil reserves in excess of 150m tons, more than 1 TCM of natural gas, uranium, diamonds, gold, copper, etc.

The Energy Ministry then said that, in order to obtain a majority share or control in "strategic" companies, foreign investors had to receive authorisation from the Russian government. The ministry submitted its draft bill to the State Duma (parliament) in March.

To offset depletion of onshore petroleum reserves, the Ministry of Natural Resources in March 2006 submitted to the government an offshore development strategy, highlighting the potential of Russia's offshore shelf. The document envisages Russia producing up to 20% of its crude oil from offshore fields by 2020, compared with 0.2% at present.

The ministry said over 75% of Russia's crude oil and natural gas reserves were being developed, and almost all of them were 50% depleted. As a result, it warned, the country's profitable fields could be exhausted within ten years. It said that achieving the ministry's objectives would require about $115 bn of investment, including around $1.2 bn from the state's budget.

In mid-2005, it was reported that the Russian government was looking to Norway for a model of how to manage the state's interests in offshore oil and gas blocks. It was said the government favoured establishment of a state-owned firm to manage Russia's interest and hold an equity of 49-75% in offshore blocks.

Norway's Petoro, which manages the state's direct financial interests in oil and gas E&P ventures without being an operator itself, was seen as a "good example of successful compromise between the state and commercial interests". But the idea was opposed by Economic Development Minister German Gref, who argued that offshore fields should be developed by consortia, as happened at Russia's existing offshore ventures. The offering of several offshore blocks in 2005 and so far in 2006 was delayed because of differences on the matter within the government. Also the offering of other "strategic" blocks has since been delayed because of differences in definition. Among those delayed were the prospective Titov and Trebs blocks in the Nenets autonomous region in the northern Timan-Pechora district. The offering of the Lodochnoye field was delayed as well.