The US and Russia had long been in a secret war to try and discover a method to access and extract hydrocarbons locked in tight rock formations such as shale. Both led failed programs that saw nuclear bombs detonated underground in an attempt to crack open the rocks; then Russia left the race to concentrate on its abundant, easily accessible reserves, and the US moved on to eventually develop hydraulic fracturing.
Having watched the success of the US shale boom Russia is keen to re-enter the field; although this time they will be looking to imitate rather than compete against.
The Russian government has been wary of fracking technologies being exported out of the US due to fears that it could enable European countries to develop their own tight natural gas reserves, and threaten the export volumes of the state-owned Gazprom.
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The idea of developing shale oil, however, is very attractive to the Kremlin.
The US Geological Survey has estimated that Russia could contain between 80 billion and 140 billion barrels of crude oil in shale formations in West Siberia. Being able to extract even a fraction of this volume would significantly add to their overall, conventional reserves of 67 billion barrels.
Before the end of the year the Kremlin is expected to propose a large tax break for all companies working in the offshore industry, or in tight oil formations. The tax break will make shale oil economically viable in Russia.
Ahead of this, Exxon Mobil has entered a joint venture with the state-owned oil company Rosneft, to start testing for shale oil in Siberian formations.
Successful exploration could see Rosneft’s existing oil reserve estimates of 23 billion barrels increase by five billion. With the hope of the tax credit to increase the profitability of the shale oil, Bank of America Merrill Lynch is advising its clients to buy into Rosneft.
By. James Burgess of Oilprice.com