The Russian government will invest over 30 billion rubles (approx. 500 million U.S. dollars) in the development of oil and gas technologies and equipment until 2024, said Denis Manturov, Minister of Industry and Trade of Russia. The funds will be spent on subsidising companies’ R&D programmes, developing new technologies for the LNG industry, manufacturing of the hydraulic fracturing equipment, as well as on improving Russian oil and gas equipment manufacturers’ competitiveness in the international markets.
Denis Manturov, Minister of Industry and Trade of Russia. Image credit: Ministry of Industry and Trade
The Ministry of Industry and Trade expects that by the end of 2020, Russia’s overall dependence on imported oil and gas technologies and equipment will decrease to 43%, compared to around 60% in 2014. According to Mr Manturov, Russia currently imports around 45% of the horizontal drilling equipment, 43% of the oil refinery equipment, 50% of the LNG production equipment, 50% of the subsea equipment, and 30% of the geological exploration equipment.
The most challenging sectors for the Russian oil and gas industry are offshore geological exploration and field development. However, Russian E&P companies and service providers are actively looking to decrease their dependence on imported technologies in these sectors. For example, the new seabed sensors that can be used for the geological exploration in the Arctic have been recently developed. The prototype sensors were successfully tested by Russian E&P and oilfield services companies, including Gazprom Neft, Sovkomflot Geo, MAGE, and Rosgeologia. Mr Manturov didn’t specify the product, however, he was most likely talking about new CRAB seabed sensors tested by Gazprom Neft in 2019. “We expect that by 2021 we will complete all the tests in the Arctic conditions and we will get fully developed and competitive systems,” says Denis Manturov.
Image credit: Gazprom Neft
Another challenging sector, according to the minister, is subsea equipment for the offshore field development. “In fact, the market for the subsea equipment is controlled today by the oligopoly of three American and one Norwegian company: FMC Technologies, General Electric, OneSubsea (all from the U.S.) and Aker Solutions (Norway). However, taken into account recent sanctions cases, we must be absolutely self-sufficient and independent. The total need of Lukoil, Gazprom, and Rosneft for subsea equipment is expected to reach 300 subsea systems elements by 2035,” says Mr Manturov. In order to meet these market demands, the Ministry of Industry and Trade and Gazprom agreed to cooperate on the development of 12 technologies, the most needed by the Russian oil and gas industry. Since 2017 the Ministry invested 3.5 billion roubles (around 60 million U.S. dollars) in this project.
According to the plan for import substitution in the oil and gas industry developed by the Ministry of Industry and Trade in April 2019 (order 1329), by 2024 Russia should reduce its dependence on imports of subsea equipment for the continental shelf projects, as well as equipment for oil platforms and vessels to 50% from 75% in 2014. At the same time, import of technologies for geological, geophysical, and seismic surveys (including equipment for offshore projects) should be reduced by 2024 to 25% from around 65% in 2014. According to the Strategy of shipbuilding industry development, by 2035 the share of local equipment, works, and services should constitute at least 75% of the total costs of a vessel (used in the oil and gas industry). “Import substitution of 100% is not always economically viable and achievable in the current market conditions and international cooperation,” says Denis Manturov.
As we mentioned earlier, Western sanctions remain one of the main drivers for the Russian oil and gas industry technological development. Russian E&P and service companies actively work to reduce their dependence on technology imports from the West, first of all in the sectors affected by the sanctions: equipment for offshore field development (including subsea equipment) and hydraulic fracturing. As Western sanctions may affect Russian oil production in the mid to long term perspectives, they may also eventually lead to the loss of the Russian market by the leading oilfield services providers. In 2019, the largest OFS companies (Schlumberger, Halliburton, Baker Hughes) declared either loss or significantly reduced profits. Apart from other reasons (decreasing activities in the U.S. shale industry, focus on the cost reduction by major operators etc.), the Big 3 negative financial results can be explained by the increasing competition. Active technology development in Russia may not only make Russian oil and gas sector technologically independent but will also create strong and active competitors that would offer their services (with potentially better value proposition) in the international markets.