Petrochem/Utilities Industry Trends

The Changing Face of Russia’s Oil Industry

Issue Table of Contents

The Changing Face of Russia’s Oil Industry The Importance of Gosstandart: Q&A with Steen Andersen The Evolution of GOST Standards Gosstandart of Russia (GOST) Related Standards and Publications

With an overwhelming bounty of natural resources — the world’s largest natural gas reserves, its second largest coal reserves, and eighth largest oil reserves — Russia seems destined to play an important role in the petrochemical industry. These resources, combined with the potential offered by the relatively recent privatization of the Russian oil sector and the increasing desire of many Western nations to look beyond the Persian Gulf for a secure oil supply, would seem to attract considerable foreign investment to Russia’s oil industry. But up until now, this hasn’t been the case.

According to the Energy Information Administration¹ , investments in Russia’s oil industry have remained cautious. This is due to a number of reasons. Many investors, for example, were scared off by Russia’s financial crisis of August 1998. While the situation has stabilized, a volatile legislative framework has continued to keep investors from fully leaping into the market.

However, Russian oil companies have been stepping up oil production, which fell to a low of six million barrels per day (bpd) in 1996, a significant decrease from the late 1980s, when the Soviet Union was the world’s leading oil producer, producing 12.5 bpd in 1988, its peak year. But significantly lower production costs (led by the devaluation of the ruble) and higher oil prices made it attractive to Russian oil companies to increase production, even though Russia’s oil consumption has continued to decline. With lowering domestic consumption and increased production activities, in 2001 Russia exported 4.91 million bpd, making the country the second largest exporter of oil in the world. Only Saudi Arabia exports more.

This recent growth in production along with an effort to provide tax breaks to outside investors is helping to slowly encourage foreign money to enter the market. Production-sharing agreement (PSA) legislation in particular has resulted in the creation of a few PSA deals, but many more remain mired in the paperwork trap of government commissions.

Still, the movements by the standards organization Gosstandart of Russia reflect the growing emphasis on foreign investment. The establishment of its wholly owned organization, Interstandard, which is dedicated to providing standards to commercial organizations and translating a large body of formerly Russian-only publications into English, reflects this changing focus.

Also, says Steen Andersen, sales and marketing director for IHS Nordic, Russia is working hard to bring its standards in line with international standards. “A number of these standards are fairly different from international standards, and Russia wants them to reflect what you see everywhere else. They are trying to change their standards and make them more compatible with international standards. There is a lot of change going on — changing technology, changing standards, and a gradual progression towards international standards.”

This emphasis on international cooperation is important, since many experts believe that in order for the Russian oil industry to become the powerhouse that its local company leaders hope for, foreign investors must step in to provide the billions of dollars required not only to expand pipelines and new ports, but also to shore up and repair Russia’s rapidly decaying infrastructure.

¹Source: Energy Information Administration