A frigid field in eastern Siberia, via Rosneft
Russia's huge push into Arctic oil continues with new tax breaks on "tight" oil. More commonly referred to in the US as shale oil, tight oil is hard to exploit without advanced drilling technologies like hydraulic fracturing and horizontal drilling. Russia thus hopes that the tax breaks announced September 1 will help fuel a fracking boom that can rival that of the United States'.
According to Reuters, the tax break runs as high as $21 per barrel, which is a rather large incentive in today's market. As Reuters notes, it's driven by Russia's urgent need to unlock new oil fields. Russia has relied on its vast West Siberian reserves since the Soviet era, and they're nearing the end of their productive life. With oil export deals worth hundreds of billions of dollars on the line, Russia—led by state-controlled oil behemoth Rosneft—has redoubled its efforts on tapping hard to reach oil.
Russia currently produces about 10 million barrels of oil per day (Saudi Arabia is currently around 10.5 million, while the US averaged 6.4 million last year), but with Rosneft contracted to double exports to China and Western Siberia getting tapped, there's a whole lot of pressure to keep that production up.
That means a new focus on more advanced, riskier extraction technologies, including expensive, difficult Arctic offshore drilling and now fracking. It should come as little surprise that Rosneft is the firm that lobbied for the new tax break, as it has forced its way into controlling Russia's Arctic and has an enormous amount of political clout.
(Already the world's largest oil company by volume, Rosneft also just bought the remaining stake in Taas, a mid-sized oil firm it partially owned. Russia's anti-monopoly approved the deal.)
The $270 billion Chinese deal already offered a funding lifeline to Rosneft, which has stretched itself thin in buying up drilling rights, and the big new tax breaks will offer fresh chances to develop Siberia's potentially lucrative Bazhenov Formation. The Bazhenov reserves amount to somewhere between 22 billion recoverable barrels (Rosneft's estimate) and 75 billion (US Energy Information Administration study), but they're largely locked away in hard-to-reach places.
Even with the incentives, a fracking boom isn't a done deal yet. Russia currently produces only 10,000 barrels per day (0.2 percent of its total) through fracking, compared to two million barrels a day in the US. In other words, despite vast reserves, Russia lags in fracking ability. But with tax breaks of between 4.2 and 21 percent per barrel, depending on extraction difficulty, Rosneft's engineers now have a good reason to learn.