Russian authorities and oil producers are discussing a dramatic reduction in output as a result of western sanctions against the country and its corporations, banks and individuals, according to a key governmental official.

Speaking at an industry conference in the West Siberian city of Surgut, the head of Russia's hydrocarbons regulator, State Reserves Commission, Igor Shpurov said output might have to be reduced by as much as 2.3 million barrels of oil per day in the event that all oil exports to Europe and the US are blocked.

So far only the US has banned imports of Russian oil, but the UK will follow suit by the end of 2022, and the European Union is moving in the same direction.

Speaking earlier last week, Shpurov said a reduction in upstream production on such a scale could technically be achieved by halting development drilling and closure of “about 13%" of producing wells currently in operation.

Once production was shut in by such measures, he warned, the oil producers might be capable of restoring only about 70% of the original output once restrictions on exports are lifted again.

Shpurov noted that Russia's oil industry has not yet recovered from the effects of production cuts put in place in 2020 after the Kremlin backed price-support measures agreed by the Opec+ alliance.

Russian commitments to Opec+ resulted in the country’s oil output falling by about 980,000 barrels per day, according to the official.

According to the country's energy ministry, Russia delivered an average 1.27 million barrels per day of seaborne cargoes to Europe and the US in 2021, from the Baltic ports of Primorsk and Ust-Luga and Novorossiysk on the Black Sea.

Most of these shipments were sold under spot or short-term contracts, with Russian and affiliated sellers reported to have problems finding buyers for these cargoes in the wake of the Kremlin's decision to attack Ukraine.

Additionally, about 720,000 bpd of oil was exported last year through the Druzhba pipeline that connects West Siberia to Ukraine and Poland, as well as Germany, Slovakia, the Czech Republic and Hungary.

These volumes are usually sold under long-term supply agreements and are believed to be more difficult to replace than seaborne cargoes because of direct connections from the Druzhba pipeline to European refiners.

Equipment at many European refineries is designed and fine-tuned to process heavy and sour Russian barrels.

Asia help

Shipments of Russian oil to China and Asian markets in Asia via the East Siberia–Pacific Ocean pipeline, operated by state controlled monopoly Transneft, averaged about 1.5 million bpd last year, according to ministry data.

Customers in China and Asia have not yet given any sign of backing Western embargos on Russian oil exports.

President Vladimir Putin's spokesman Dmitry Peskov said in Moscow on Monday that the country intends to divert more oil to countries in south-east Asia.

One report by Reuters news agency over the weekend suggested that China may indeed be looking to distance itself from Moscow and the Russian oil sector in the wake of international criticism of the assault on Ukraine.

Unnamed officials were quoted to say that China’s state-run Sinopec Group has suspended talks for a major petrochemical investment and a gas marketing venture in Russia, but nothing of the kind has been confirmed yet.

Technology drain

Shpurov also warned that the withdrawals of major international oilfield service providers from Russia may lead to the loss of advanced reservoir management technologies that support much of the country’s oil and condensate production.

Russia reported oil and condensate production of about 10.5 million bpd in 2021, against 10.3 million bpd in 2020 and 11.5 million barrels per day in pre-Covid year of 2019.

Shpurov also said Russian oil producers has no option than to get pepared for such a drastic production cut because of a shortage of underground storage facilities for oil.

According to Transneft, reservoirs within its network can hold only estimated 140 million barrels of oil for a maximum period of not more than one month.

In previous years, the pipeline operator had temporary restricted the acceptance of oil into its network for producers when these reservoirs reached maximum capacity.

Though proposals from Transneft and authorities to build dedicated underground storage for oil came up during the last two decades, Russian oil producers have reportedly never agreed to provide financing to such initiatives, according to reports in Moscow.

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