Exploration and production
Most of Russia’s oil production originates in West Siberia and the Urals-Volga regions (Table 1),[15] with slightly more than 12% of production in 2016 originating in East Siberia and Russia’s Far East (Krasnoyarsk, Irkutsk, Yakutia, and Sakhalin). However, this share is up from less than 5% of production in 2009.[16] In the longer term, Russia’s eastern oil fields, along with the largely untapped oil reserves in the Russian Arctic, may play a larger role. The Russian sector of the Caspian Sea and the predominantly undeveloped areas of Timan-Pechora in northern Russia also may hold large hydrocarbon reserves.

A number of new projects are in development. Some of these new projects may only offset declining output from aging fields and not result in significant output growth in the near term. The use of advanced technologies and the application of improved recovery techniques is resulting in increased oil output from some existing oil deposits.

Russia’s oil- and natural gas-producing regions
Urals-Volga
Urals-Volga was the largest producing region up until the late 1970s when it was surpassed by West Siberia. Today, this region is a distant-second producing region, accounting for about 23% of Russia’s total output. The giant Romashkinskoye field (discovered in 1948) is the largest in the region. Tatneft operates the field which produced over 300,000 b/d in 2016. [17]

Khanty-Mansiisk
The Khanty-Mansiisk area of West Siberia is Russia’s largest oil-producing region, accounting for about 4.8 million b/d of liquids production, nearly 45% of Russia’s total production in 2016.[18] One of the largest and oldest fields in Khanty-Mansiisk is Samotlor field, which has been producing oil since 1969. Production from the Samotlor field has been declining since its post-Soviet era peak of 635,000 b/d in 2006. Other large oil fields in the region include Priobskoye, Mamontovskoye, Malobalykskoye, and Prirazlomnoye (Rosneft).[19]

Yamal-Nenets, Krasnoyarsk, and the Arctic offshore
The Yamal-Nenets Autonomous district straddles the Arctic coast of West Siberia, with Krasnoyarsk lying just to the east of Yamal-Nenets. This region is mostly known for natural gas production. Crude oil development is relatively new for the region and has required the construction of new infrastructure.

The offshore Prirazlomnoye field (Gazprom) was discovered in 1989 but only began production in December 2013. The field lies in the Arctic offshore, and Gazprom is developing the field. Production from Prirazlomnoye field is expected to peak at about 100,000 b/d.[20] Novoportovskoye field, also being developed by Gazprom, is located on the Yamal peninsula, far from existing oil infrastructure. In May 2016, Gazprom began loading production from Novoportovskoye field at a new Arctic terminal for seaborne delivery to Europe. Production from Novoportovskoye field is expected to peak at about 125,000 b/d by 2018.[21]

The start-up of the Rosneft’s Vankorskoye (Vankor) oil and natural gas field in August 2009 has notably increased production in the region and has been a significant contributor to Russia’s increase in oil production since 2010. Vankor, located north of the Arctic Circle in Russia’s Krasnoyarsk region near the border with Yamal-Nenets, was the largest oil discovery in Russia in 25 years. Rosneft built a 345-mile pipeline to connect Vankor field to the Transneft oil pipeline system at Purpe. In 2015, the field produced about 440,000 b/d.[22] Rosneft is also developing three smaller nearby fields—Suzunskoye, Tagulskoye, and Lodochnoye—also known as the Vankor cluster fields. Production at Suzunskoye started in late 2016.

To the west of Vankor and the Vankor cluster of fields, on the eastern edge of the Yamal-Nenets region, is another cluster of fields under development. Lukoil’s Pyakyakhinskoye oil, condensate, and natural gas field started commercial production in October 2016. Other fields in the area include Gazprom’s Zapolyarnoye natural gas and condensate field, as well as the Vostochno Messoyakha, Zapadno Messoyakha, and Russkoye oil fields. Transneft recently completed construction of the Zapolyarye-Purpe and Purpe-Samotlor pipelines to connect these fields to the Eastern Siberia-Pacific Ocean (ESPO) pipeline.

East Siberia
Rosneft’s Verkhnechonskoye oil and natural gas condensate field lies in the Irkutsk region near the ESPO pipeline. Production at Verkhnechonskoye field began in 2008, with full production reaching about 160,000 b/d.[23] The Yurubcheno-Tokhomskoye and Kuyumba fields lie in southern-central Krasnoyarsk and connect to the ESPO pipeline via the recently completed Kuyumba-Taishet pipeline. The start of commercial production has been delayed at both fields.

Bazhenov shale
The Bazhenov shale layer, which lies under much of the existing West Siberian resource deposits, also holds great potential. In the 1980s, the Soviet government tried to stimulate production by detonating small nuclear devices underground. In recent years, the government has used tax breaks to encourage Russian and international oil companies to explore the Bazhenov and other shale reservoirs. However, Russian firms have made little progress in developing shale resources because sanctions and low oil prices have hindered shale projects.

Caspian Sea
Lukoil has been actively exploring some of the deposits in the North Caspian Sea, and in 2010, Lukoil launched the Yurii Korchagin field, which produced about 30,000 b/d in 2016.[24] Lukoil launched the Filanovsky field in the second half of 2016. Production at Filanovsky reached 100,000 b/d in June 2017, with plateau production expected to be more than 120,000 b/d.[25] Other discoveries in the area include the Khvalynskoye and Rakushechnoye fields. The development of the region is highly sensitive to taxes and export duties, and any change or cancellation of tax breaks may negatively affect development.

Sakhalin Island
Sakhalin Island is located off Russia’s eastern shore. The offshore area to the east of Sakhalin Island is home to a number of large oil and natural gas fields that have had significant investment from international companies. Many of Sakhalin’s oil and natural gas fields are being developed under two production-sharing agreements (PSA) signed in the mid-1990s. The Sakhalin-1 PSA is operated by ExxonMobil, which holds a 30% share. Other members of the PSA include Rosneft (through two subsidiaries), Indian state-owned oil company ONGC Videsh, and a consortium of Japanese companies.[26] The Sakhalin-1 PSA covers three oil and natural gas fields: Chayvo, Odoptu, and Arkutun-Dagi. Production started at Chayvo field in 2005, at Odoptu field in 2010, and at Arkutun-Dagi field in January 2015.[27] Sakhalin-1 mainly produces crude oil and other liquids, most of which are exported via the De-Kastri oil terminal. Most of the natural gas currently produced at Sakhalin-1 is reinjected, with small volumes of gas sold domestically.

The Sakhalin-2 PSA covers two major fields—the Piltun-Astokhskoye oil field and the Lunskoye natural gas field—and it includes twin oil and natural gas pipelines that run from the north of the island to the south end of the island, where the consortium has an oil export terminal and a natural gas liquefaction and export terminal. The Sakhalin-2 consortium members include Gazprom, which owns 50% plus one share, Shell with 27.5%, Mitsui with 12.5%, and Mitsubishi with 10%.[28] When the PSA was originally signed, the consortium did not include any Russian companies, and compared with most PSAs, the terms were heavily weighted in favor of the interests of the consortium over the interests of the government. Sakhalin-2 produced its first oil in 1999 and its first liquefied natural gas (LNG) in 2009. The project incurred significant cost overruns and delays, and these issues were part of the justification the Russian government used to force Shell, which at the time owned a 55% interest in Sakhalin-2, and the other consortium members to sell a controlling interest in the consortium to Gazprom.[29]

Russia’s oil grades
Russia has several oil grades, including Russia’s main export grade, Urals blend. Urals blend is a mix of heavy sour crude oils from the Urals-Volga region and light sweet crude oils from West Siberia. The mixture, and thus the quality, can vary, but Urals blend is generally a medium (about 31°API) gravity sour (about 1.4% sulfur content) crude oil blend and, as such, is generally priced at a discount to Brent crude oil. Siberian Light crude is a higher quality and thus more valuable when marketed on its own, but it can also be blended into Urals crude oil because of limited infrastructure to move it to market separately.[30]

Sokol grade is produced by the Sakhalin-1 project and is a light, sweet crude oil with an API gravity of 35.5° and 0.28% sulfur content.[31] Sakhalin blend includes crude oil produced from the Piltun and Astokh fields under the Sakhalin-2 PSA and condensate produced from Gazprom’s Kirinskoye natural gas and condensate field under the Sakhalin-3 license.[32] Sakhalin is a light (42.5°API), sweet (0.16% sulfur content) blend.[33] Sakhalin blend is loaded at the Prigorodnoye port on the southern tip of Sakhalin Island.

The Eastern Siberia-Pacific Ocean (ESPO) blend came on stream in late 2009 and is a mix of crudes produced in several Siberian fields. This grade is exported through the recently constructed ESPO Pipeline to China and through Russia’s Pacific coast port of Kozmino to other Asian countries. ESPO blend is a fairly sweet, medium-light blend with a typical gravity of 36.0°API and a 0.47% sulfur content.[34]

Varandey grade crude oil is a light (37.8°API), fairly sweet (0.42% sulfur content) crude. It includes a mix of crudes exported through Lukoil’s proprietary pipelines and terminal on the Pechora Sea that opened in 2008.[35] Gazprom Neft’s two Arctic fields, Prirazlomnoye launched in 2014 and Novoportovskoye launched in 2016, produce very different grades of oil. Arctic Oil (ARCO) grade from the Prirazlomnoye field is a medium-heavy (24°API), sour (2.3% sulfur content) crude,[36] and Novy Port grade is a medium-light (30-35°API), sweet crude (0.1% sulfur content).[37]

Sector organization
Domestic companies dominate most of Russia’s oil production (Table 2).[38] Following the collapse of the Soviet Union, Russia initially privatized its oil industry. Starting in the late 1990s, privately-owned companies drove growth in the sector, and a number of international oil companies attempted to enter the Russian market with varying degrees of success. More recently, the Russian oil industry has consolidated into fewer firms with more state control.

In 2003, BP invested in the Tyumen Oil Company (TNK), forming TNK-BP, a 50-50 joint venture and one of country’s major oil producers. However, in 2012 and 2013, the TNK-BP partnership was dissolved, and the state-controlled Rosneft acquired nearly all of TNK-BP’s assets.[39] In the previous decade, Rosneft emerged as Russia’s top oil producer following the liquidation of Yukos assets, which Rosneft acquired. In 2016, Rosneft further increased its share of oil production in Russia when it acquired the federal government’s 50.8% controlling interest in Bashneft, the country’s sixth-largest producer.

In 2016, the top five firms in Russia (counting Rosneft and Bashneft as a single firm) accounted for more than 80% of total Russian oil production.[40]

A number of ministries are involved in the oil sector. The Ministry of Natural Resources and Environment issues field licenses, monitors compliance with license agreements, and levies fines for violations of environmental regulations. The Ministry of Energy develops and implements general energy policy. The Finance Ministry is responsible for hydrocarbon taxes,[41] and the Federal Antimonopoly Service regulates tariffs.

Russia has two main hydrocarbon taxes: the minerals extraction tax (MET) and the export tax. The export tax varies for crude oil and for petroleum products. In 2011, Russia changed product export taxes so that export tax rates on all products were lower than the crude oil export tax to encourage investment in refining capacity. In recent years, the government has also offered special MET rates or MET holidays for difficult-to-develop resources such as Arctic offshore and low-permeability reservoirs, including shale reservoirs. Recent increases to the MET rate have increased the value of these previously-agreed MET discounts for difficult resources.

On January 1, 2015, hydrocarbon tax rates changed again. These changes are often referred to as the 2015 tax maneuver. Previously, the export tax was about twice as high as the MET. This tax maneuver raised the MET and lowered export taxes for 2015 and set out additional changes for 2016 and 2017 that would further raise the MET and lower export taxes. The increases in the MET were designed to roughly balance the decreases in the export taxes, making them roughly revenue neutral, neither increasing nor decreasing overall taxes on the energy industry.[42]

On January 1, 2016, the MET increased in accordance with the previously enacted tax maneuver. However, in late 2015, the Russian government adopted a new law that postponed the corresponding decrease in export taxes. This law also substantially increased the MET on natural gas produced by Gazprom in 2016. Throughout 2016 and 2017, several proposals have been made to further raise taxes on the oil and natural gas industry in order to close persistent federal budget deficits.

Beginning January 1, 2018, the Finance Ministry plans to test a new tax system, applying it to several small fields. The new tax would be calculated based on profits rather than values, which is how the MET and export taxes are currently calculated. The profits-based tax could eventually replace the existing tax system, however the Finance Ministry’s current proposals face some opposition.

Refinery sector
Russia had more than 30 oil refineries with a total crude oil distillation capacity of 5.1 million b/d as of January 1, 2017, according to Oil and Gas Journal.[43] Rosneft, the largest refinery operator, owns nine major refineries in Russia.[44] Lukoil is the second-largest operator of refineries in Russia with four major refineries.[45] Many of Russia’s refineries are older, simple refineries, with mazut, a low-quality fuel oil, accounting for a large share of their output. Recent tax changes have raised the export duty on mazut and other heavy oil products to equal the export duty on crude oil, eroding the already slim profit-margins of less-complex refineries. Mazut production and exports dropped significantly in 2016 as refinery upgrades continued and as companies lowered utilization at less-complex refineries.
Oil exports
In 2016, Russia exported more than 5 million b/d of crude oil and condensate. Most Russian exports (70%) went to European countries, particularly the Netherlands, Germany, Poland, and Belarus (Figure 3).[46] About 36% of Russia’s federal budget revenue in 2016 came from oil and natural gas activities.[47] Although Russia is dependent on European consumption, Europe is similarly dependent on Russian oil supply, with more than one-third of crude oil imports into OECD Europe in 2016 coming from Russia.[48]

Asia and Oceania accounted for 26% of Russian crude oil exports in 2016, with China accounting for a growing share of total Russian exports. In 2016, Russia was the largest supplier of crude oil to China, surpassing Saudi Arabia.[49] Part of the increase in Russian crude oil exports to China has been growing exports to independent refiners—known as teapot refiners—in China. Russian ESPO crude oil does not have to travel as far as Middle East crude to reach Chinese ports. This shorter distance allows Russian crude oil to be shipped in smaller volumes and with more flexible scheduling, which makes it more desirable to independent refiners.

Russia’s Transneft holds a near-monopoly over Russia’s pipeline network, and most of Russia’s crude oil exports must traverse Transneft’s system to reach bordering countries or to reach Russian ports for export. Smaller volumes of exports are shipped via rail and on vessels that load at independently-owned terminals.

Russia also exports fairly sizeable volumes of oil products. According to Eastern Bloc Research, Russia exported about 1.3 million b/d of fuel oil and an additional 990,000 b/d of diesel in 2016. It exported smaller volumes of gasoline (120,000 b/d)[50] and liquefied petroleum gas (75,000 b/d) during the same year.[51]

Pipelines
Russia has an extensive domestic distribution and export pipeline network (Table 3).[52] Russia’s domestic and export pipeline network is nearly completely owned and run by the state-owned Transneft. One notable exception is the Caspian Pipeline Consortium (CPC) pipeline, which runs from Tengiz field in Kazakhstan to the Russian Black Sea port of Novorossiysk. The CPC pipeline is owned by a consortium of companies, with the largest share (24%) owned by the Russian government (whose interests in the consortium are represented by Transneft). KazMunaiGaz (19%), the state-owned oil and natural gas company of Kazakhstan, and Chevron (15%) are the second- and third-largest shareholders in the consortium. Another exception is the TransSakhalin pipeline, owned by the Sakhalin-2 consortium, in eastern Russia (Figure 4).

Figure 4. Major eastern Russian oil and natural gas pipelines

Source: U.S. Energy Information Administration and IHS EDIN

Table 3. Russia’s major crude oil pipelines

Facility	Status	Capacity (million b/d)	Total length (miles)	Supply regions	Destination	Details
Western pipelines
Druzhba	operating	2	2,500	West Siberia and Urals-Volga regions	Europe	completed in 1964
Baltic Pipeline System 1	operating	1.5	730	connects to Druzhba	Primorsk Port on the Gulf of Finland	completed in 2001
Baltic Pipeline System 2	operating	0.6	620	connects to Druzhba	Ust-Luga Port on the Gulf of Finland	completed in 2012
North-West Pipeline System	inactive	0.3	500	connects to Druzhba	Butinge, Lithuania and Ventspils, Latvia on the Baltic Sea	completed in 1968; inactive since 2006
Caspian Pipeline Consortium (CPC)	operating	1.3 by end 2017	940	Tengiz and Kazakhstan fields in Kazakhstan and Russian Caspian fields	Novorossiysk, Russia on the Black Sea	completed in 2001
Baku-Novorossiysk Pipeline	operating	0.1	830	Caspian and central Asia, via Sangachal Port, Azerbaijan on the Caspian Sea	Novorossiysk, Russia on the Black Sea	completed in 1996
Omsk-Pavlodar-Atasu Pipeline	operating	0.2	650	West Siberia and Urals-Volga regions	Pavlodar refinery in Kazakhstan and China via the Kazakhstan-China Pipeline	part of a series of pipelines originally completed in the 1980s
Eastern pipelines
TransSakhalin	operating	0.2	500	Sakhalin fields (offshore northern Sakhalin)	Pacific seaport of Prigorodnoye (Southern Sakhalin Island)	completed in 2008
Eastern Siberia-Pacific Ocean (ESPO) Pipeline	operating	ESPO-1 – 1.2 currently, 1.6 by 2020 ESPO-2 – 0.6 currently, 1.0 by 2020 China spur – 0.4 currently, 0.6 by 2018	ESPO-1 – 1,700 ESPO-2 – 1,300 Daqing spur – 660	East Siberian fields and, via connecting pipelines, West Siberian fields and Yamal-Nenets region	Pacific seaport of Kozmino with a spur to Daqing, China	ESPO-1 (Taishet-Skovorodino) completed in 2009 ESPO-2 (Skovorodino-Kozmino) completed in 2012 Skovorodino-Daqing, China spur completed in 2010
Purpe-Samotlor Pipeline	operating	0.5	270	Yamal-Nenets and Ob Basins	connects to ESPO Pipeline	completed in 2011
Zapolyarye-Purpe Pipeline	operating	0.6 (expandable to 0.9)	300	Zapolyarye and Yamal-Nenets region	connects to ESPO pipeline via the Purpe-Samotlor pipeline	completed in 2017; initially expected to operate below capacity as development at connected oil fields has been delayed
Kuyumba-Taishet	operating	0.16 expandable to 0.3	440	Yurubcheno-Tokhomskoye field and Kuyumba field (startup delayed until 2018)	connects to ESPO Pipeline	completed in 2017; initially expected to operate below capacity as development at connected oil fields has been delayed
Source: U. S. Energy Information Administration based on Transneft, Sakhalin Energy, Caspian Pipeline Consortium, State Oil Company of the Azerbaijan Republic, Orlen Lietuva.

Ports
The top four Russian ports (Novorossiysk, Primorsk, Ust-Luga, and Kozmino) for crude oil exports together accounted for 84% of Russia’s seaborne crude oil exports in 2016 (Table 4).[53]

Novorossiysk is Russia’s main oil port on the Black Sea coast. It handles petroleum from Central Asian countries as well as from Russia. The Primorsk and Ust-Luga terminals are both located near St. Petersburg, Russia, on the Gulf of Finland. The Primorsk terminal opened in 2006, and the Ust-Luga oil terminal opened in 2009. Both Primorsk and Ust-Luga receive oil from the Baltic Pipeline System, which brings crude oil from fields in the Timan-Pechero, West Siberia, and Urals-Volga regions. Ust-Luga is also a major port for Russian coal and hydrocarbon gas liquids exports.

Kozmino is located near the city of Vladivostok, in Russia’s far eastern Primorsky province, and is the terminus of the ESPO crude oil pipeline. The port opened in December 2009 with an initial capacity of 0.3 million b/d. Kozmino initially received crude oil by rail from Skovorodino until the second phase of the ESPO pipeline opened in 2012.[54] In 2016, almost 0.6 million b/d of crude oil was exported through Kozmino port, slightly below the current capacity.[55]

Table 4. Crude oil exports from Russian ports, 2016

Port	Thousand b/d
Novorossiysk	1,407
Primorsk	978
Ust-Luga	669
Kozmino	594
De Kastri	230
Murmansk	185
Prigorodnoye	112
Others	180
Total	4,355
U.S. Energy Information Administration, based on Lloyd’s List Intelligence (APEX tanker data)

Source: EIA