Why Russian oil is cheaper than Arab

Another 12/01/20 Photo: Landmark/ Creative Commons Attribution-Share Alike 3.0 UnportedПочему Russian oil cheaper Arabic

the Price of oil depends on many factors: product quality, logistics, production and exports, the economic situation. In this respect, Russia has to withstand strong competition on the world market, including with countries of the Persian Gulf.


Not long ago, a Saudi oil company Saudi Aramco has published data on the cost of oil in different countries, taxes that have prepared her industry consultant IHS Markit. Considered the so-called break-even oil price (breakeven costs) at which the hydrocarbon production is considered cost-effective. According to the report, the cost of Russian oil is about $40, which is approximately two times higher than in the countries of the Persian Gulf: Saudi Arabia and Kuwait, it is $17, Iraq and the UAE is $20, in Iran — $22.

overall, data Saudi Aramco not strongly disagree with the Russian government regarding the cost of domestic “black gold” although a bit overpriced. According to Deputy Minister of energy Pavel Sorokin, a significant portion of the total cost of Russian oil is taxes, without them, it would be valued at $25. In addition, the official noted, the price depends is the one in whom the region is the fossil. For example, in fields where the property is depreciated, the cost can reach $5 per barrel, on the development of new fields, this amount is increased to $50. Cheaper production costs for the Russian Treasury in the area of the Volga-Ural basin, the most expensive – in the Arctic or the far East.

Given the wide variation in the cost of Russian oil, its average will be slightly higher than in the countries of the Persian Gulf. However, in the favorably oil production in the Saudition Arabia, so it is in the conditions. The Saudis develop fields where exploration has long been carried out, and, unlike Russia, mining is not there in artificial and in natural mode, when not required to maintain reservoir pressure –it provide backwater waters. In addition, in the Persian Gulf can ship the extracted oil tankers in Russia, however, it needs to be pumped, sometimes several thousand kilometers. This additional cost.

There is another shortcoming in the Russian oil low oil recovery factor (CIN), an average of 27%. That is, we leave the bowels more than 70% of the oil! These figures are comparable with Iran, but significantly lower than in Saudi Arabia. So, the Saudi oil giant Saudi Aramco KEEN not to fall below 50%. Largely due to this, in 2018, the company received a record oil industry profits —$111 billion.

in order to get at least at the global level on the oil recovery factor to 40% – Russia needs advanced technologies and additional investments, which will significantly raise the cost of oil production. According to experts, if at all existing fields in Russia KEEN to increase by at least 1%, then it will bring additional 2.7 billion tons of oil, which is equivalent to the discovery of new large deposits.


To calculate world prices for oil it is customary to use the reference brand, the North Atlantic Brent crude oil, as it has the most stable demand. Attached to her more than 70% of the varieties of the world’s oil, including Russia’s Urals, which is based on exported Russian oil. In fact, Urals – a mix of “easy” West-Siberian oil Siberian Light and heavy oil of Urals and the Volga region. Other brands are less popular due to lower quality.

you Should keep in mind that the final cost is expressed in percentage, which we hear in the media, is composed of many parts: the cost of field development, the value of stocks and the volume of current demand, the level of extractionChi and export, purification of raw materials and its transportation, economic, and political situation in the country and the world, stock prices, the earnings of intermediaries. A special place in pricing is the quality of the oil.

Oil, the product is heterogeneous, consisting of different kinds of impurities. The less impurities, the better is the product. The main indicator of “glasnosti” oil is the presence of sulfur. In the Urals oil, the sulfur content is 1.2-1.4 percent. In this respect, the Russian oil is not inferior to many competitors from the Arab countries. For example, the “sulfur content” brand Dubai Crude is 2%. However, there is in UAE and sweet crude grade, Murban from land-based fields in Abu Dhabi with a sulfur content 0,7-0,8%.

the purest brands in the world are considered to be North sea Brent and West Texas WTI. The first level is the sulfur of 0.37% in the second – 0,24%. This oil is enjoyed by consumers in high demand – at least sulfur components, less gasoline fractions, it is more lightweight and doesn’t require big spending in the processing. The lighter liquid hydrocarbons, the better it is suitable for the production of gasoline and kerosene.

What is the price of domestic oil in comparison with competitors? The price of a barrel of Urals oil is formed on the basis of the cost of Brent crude minus a small discount that is given for the worst compared to Brent natural properties. The average is 2-4 dollars lower than the price of the North Atlantic oil. U.S. crude oil are often cheaper than both Russian and European.

paradoxically, a variety of Dubai Crude is more expensive not only Russian Urals, but North sea Brent. It serves as a benchmark for the export of oil in the middle East and Asia-Pacific regions, where pricing is influenced by factors different from the European market, where does the bulk of the supplies of Russian raw materials.


it is considered that Russia is the leader in terms of proven oil reserves. This is not so. Our country doesnil 8th place in the list with 80 billion barrels. The top three looks like this: Venezuela – 300, 878 billion barrels, Saudi Arabia – 266,4 billion barrels and Canada has 170 billion barrels. Above us is Iran, Iraq, Kuwait and the UAE. This suggests that the greatest concentration of oil in the Persian Gulf region.

But on the production of “black gold” we are on 3rd place with 563 million tons in the year 2018 (12.6% of global oil production), second only to the United States with 669,4 million tons (15%) and Saudi Arabia from 578 million tonnes (12,9%). It is noteworthy that the total share of the three oil giants in the production of raw materials is 40.5%.

In terms of oil exports Russia is in second place. In 2018, our country exported 275,9 million tons. Above us all is the same Saudi Arabia with 367,4 million tons. However, the crown Prince of the Kingdom of Mohammed bin Salman is sure that Russia in the next 20 years and will relinquish these positions and it will take his country. The disappearance of a number of players from the world oil market, including Russia, will occur due to the fact that they will not be able to provide the same volume of deliveries, said the Saudi Prince.

In Russia is really not so smooth with the oil. According to experts, only 35% of stocks of “black gold” can be extracted using traditional technology, rest of the raw material occurs in an inaccessible formations deep underground is a high viscosity, bitumen crude oils that require special production methods. According to the Director of the Institute of oil and gas Academy of Sciences Anatoly Dmitrievsky, the coefficient of oil extraction in such areas is 50% lower than in already developed.

a Serious impact on the volumes of supply and ultimately the price of oil has logistics. In this respect, the Russian oil loses and the North Atlantic, and Arabic. Historically, most qualitative in Russia extract oil in the West Siberian region. Exporting through pipelines, it is mixed with heavy sour is notFTU of the Urals and the Volga region, which significantly reduces its quality. However in recent years the Russian oil company partly digest the Volga oil on the spot to avoid its mixing with Siberian. But while this is not enough.

in addition, importers of Russian oil often complain about poor quality product. Claim our country have imposed on Poland and Belorussia. According to the President of Russia Vladimir Putin, it deals primarily image-related damage to our country. The conclusion here can be drawn: the Russian oil industry will have to make the effort to not only keep up with competitors, but not to preserve their traditional partners.

Taras Repin

© Russian Seven

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