The era of record profits from oil and gas has ended – 2008 is likely the year when oil and gas production in Russia peaked, stated Russian Finance Minister Alexei Kudrin, as reported by the portal Russia Today.
Kudrin stated last month, according to the Financial Times, that if the price of oil falls below $70, the Russian state budget will enter a deficit zone. In recent years, Russia has generated one billion dollars a day in the oil sector, and the budget and economy largely depend on revenues from oil and gas. Indeed, the special reserve fund, which currently holds $143 billion and is expected to be activated if oil prices continue to fall, can mitigate some shocks to the economy, but according to statements from oil industry leaders, it is already calculating with a looming recession in consumer markets and falling oil prices.
Major oil companies are reducing investments in new projects; the financial crisis will affect the extent of this reduction. The president of the Association of Russian Oil and Gas Producers, Gennady Shmal, stated that oil giants themselves depend on foreign financing sources. – Many of our companies heavily rely on foreign financing sources. We do not have data on the total amount, but, for example, Gazprom has about $40 billion in foreign debt, Rosneft the same. Russia exports a lot of oil, so we also depend on international oil and gas consumers. The first signs of declining consumption in the USA and China – the largest oil consumers in the world – could be a precursor to a drop in oil prices to less than $60 per barrel, analysts say. This could close the loop of falling revenues and investments, while production in Russian oil fields is becoming increasingly expensive. (Davorka Zmijarević)
