Russia needs new shale laws – minister of natural resources says

Oil pump in Siberia
Source: DollarPhotoClub

According to the Russian minister of natural resources Sergei Donskoi, Russia needs new regulations to accelerate the pace of shale gas and oil exploration. The new laws should take into the account the sanctions imposed by the West, which hinder access to new technologies and methods of financing.

Russia, which until recently was a world leader in oil and gas exploration, has recently been forced to turn to developing its unconventional resources, in the face of dwindling production from its maturing fields.

With an estimated 285 trillion cubic feet (tcf) of shale gas and 75 billion barrels of shale oil – the richest deposits in the world – Russia was hoping that with the aid of the technological know-how of its western investors, it could start production soon. These dreams have been all but shattered by the recently imposed sanctions by the U.S and EU, in the wake of the Ukrainian crisis.

“Russia is facing serious challenges. It is essential to clearly understand which sources will allow sustaining a mineral resources production level essential for the country’s economic development,” Sergei Donskoi told Reuters.

The much-needed development of Russia’s shale resources was recently dealt another blow, when plummeting oil prices put into question the probability of the expensive shale extraction. Russia introduced some tax breaks to boost shale oil production last year, but this is still not enough to give the much needed boost to the country’s shale exploration.

In order to remedy the situation, Sergei Donskoi proposed several new measures, which include:

  • skipping tenders for unconventional oil exploitation,
  • cancelling mineral extraction tax for unconventional oil,
  • guaranteeing access to refining facilities and funding, including from the National Wealth Fund, and
  • offering rights to develop such deposits based only on a request from a firm, with a bias towards smaller companies.

These smaller companies would be obliged to start exploration no later than 4-5 years after the acceptance of the offer. Should the company fail in securing the appropriate technology within the agreed time period, the field would then be transferred to another firm.

The recently-imposed sanctions can be very damaging to a country whose economy is highly dependent on its hydrocarbons, with oil and gas revenues accounting for more than 50 percent of the federal budget revenues. However, some analysts believe that the gap created by the departing western investors can be filled by players from outside North America and Western Europe, especially China, which many commentators expect to emerge as an important alternative supplier of both capital and knowledge over the next 5-10 years.

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