Russian oilfield services (OFS) market experiences the decline in hydraulic fracturing (HF) operations, reports Deloitte, a global consulting firm, in its recent Russian OFS report. In 2018 Russian oil and gas companies conducted 5,921 hydraulic fracturing operations, a 4% decrease compared to 2017. The number of hydraulic fracturing operations in Russia has been decreasing since 2015, with only a one-off 2% increase in 2017. The number of HF operations conducted by Surgutnedftegaz, a Russian oil and gas major, fell by 17% marking the biggest decrease compared to the company’s peer group.
Gazprom Neft Technology Centre. Image credit: Gazprom Neft
The efficiency of hydraulic fracturing operations in Russia has also been decreasing. In 2018, fracturing allowed the production of 6,7 million tonnes of crude oil, a 3% decrease compared to the previous year. At the same time, Surgutneftegaz was able to increase the efficiency of its fracturing operations by 6%, while Lukoil saw a 20% decrease in HF efficiency. The efficiency of hydraulic fracturing operations has been decreasing in Russia for the last few years. On average, in 2013 one operation produced 1,426 tonnes of crude oil, while in 2018 it decreased to 1,135 tonnes, reports Deloitte.
Around 75% of all the hydraulic fracturing operations in Russia were conducted by four oil and gas companies: Rosneft, Surgutneftegaz, Lukoil and Tatneft.
Data: Deloitte
“Hydraulic fracturing remains a perspective technology in Russia, which can be used to sustain production on the ageing oilfields and also to increase the tight oil reserves. Increase in horizontal drilling can drive the hydraulic fracturing market up but the latest data shows that this market is negatively affected by the sanctions. Thus, the priority for the Russian companies would be the development of domestic technologies and software for hydraulic fracturing. However, it would take some time,” says Andrey Kolpakov, a senior researcher at the Institute of Economic Forecasting of the Russian Academy of Sciences.
Hydraulic fracturing operations in Russia were seriously affected by the U.S. and the E.U. sanctions imposed on the Russian oil and gas sector in 2014. Thus, the U.S. sanctions prohibit “the provision, exportation, or reexportation, directly or indirectly, of goods, services (except for financial services), or technology in support of exploration or production for deepwater, the Arctic offshore, or shale projects” in Russia. As hydraulic fracturing is a primary technique for shale oil production, as well as an enhanced oil recovery (EOR) method used to increase production on conventional fields, the export ban can negatively affect both. Deloitte’s data doesn’t specify which area was more affected, however, the decrease in hydraulic fracturing operations may contradict the report’s data showing an increase in horizontal drilling in Russia by 19% in 2018.
Hydraulic fracturing is one of the key EOR technologies used by Russian E&P companies. According to Lukoil, a Russian private oil company, in 2017 hydraulic fracturing operations accounted for 30.41% of the company’s additional oil production, allowing the production of 6.6 million tonnes of crude oil. However, the number of HF operations conducted by Lukoil has been steadily decreasing from 980 in 2014 to 727 in 2017.
Hydraulic fracturing is a crucial technology for enhanced oil recovery on the mature fields, said Tatiana Mitrova, director of the Energy Institute at Skolkovo business school, in 2018. However, since the sanctions were imposed no new hydraulic fracturing fleet was manufactured in Russia, while the old fleets are ageing. According to the plan for import substitution in the oil and gas industry developed by the Russian Ministry of Industry and Trade in April 2019, by 2024 Russia should reduce its dependence on imports of hydraulic fracturing equipment to 25% from 85% in 2018. Russian E&P companies, such as Lukoil and Gazprom Neft, list the development of their own HF technologies among the top priorities for the companies’ technological development.
The current decrease in hydraulic fracturing operations in Russia shows that technological sanctions imposed on Russian oil and gas industry in 2014 may work in a mid-term perspective, eventually contributing to the oil production decline. At the same time, the western OFS service providers and equipment manufacturers are losing the significant market, while Russian E&P and OFS companies are working towards the development of new fracking technologies, enjoying the full support of the government.
The Eurasian Links 