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Why the IEA is Wrong About Peak Oil Demand

Why the IEA is Wrong About Peak Oil Demand

The International Energy Agency (IEA)…

Vanand Meliksetian

Vanand Meliksetian

Vanand Meliksetian has extended experience working in the energy sector. His involvement with the fossil fuel industry as well as renewables makes him an allrounder…

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The Biggest Threat To Russia’s Arctic Oil Ambitions

Arctic oil

The collapse of the Soviet Union was a geopolitical victory for the United States and a disaster for Russia which suffered politically, economically, and socially. Although citizens enjoyed more individual freedoms, the quality of life decreased substantially as state institutions collapsed and basic services disappeared. In the early 2000s, Moscow started exerting more influence over its mining sector which increased the state’s income substantially.

The production of raw materials from Russia’s rich soil of which oil is by far the most important has provided the resources for the modernization of the society. Therefore, Moscow must maintain a steady supply of exports and revenue. According to a government strategy document cited by Kommersant, it is likely that the pre-pandemic level of oil production won't be matched.

Russia’s oil industry was able to reach a post-Cold War record in 2019 when the sector produced 11.3 mbpd which is approximately 560 million tonnes. Production has decreased substantially due to the Covid-19 pandemic. Nevertheless, Russia's free-floating exchange rate helped cushion the negative effects of decreased sales because oil deals are usually executed in dollars.

Before the pandemic, a third of the government's revenues came from energy exports. This number increases to 40 percent when tax income from other sectors such as minerals is included. Therefore, significant resources are being spent for Russia to remain an energy superpower well into the 21st century.

According to the strategy document, Russia’s oil production will grow after the pandemic to 11.1 mbpd in 2030 which is short 200,000 barrels of its record of 2019. After which it will gradually decrease to 9.4 mbpd in 2035. In the most likely scenario in which prices and demand are high, production could increase to 12.8 mbpd in 2030.

Related Video: Guess What? Offshore Oil Is Cleanest Producer

The longevity of the Russian oil industry’s history means that easy-to-extract and therefore cheap to produce oil fields are usually depleted. Ever since the discovery of the first oil field in the Caucasus, Russia’s oil sector has been moving further north and deeper into Siberia for new resources. Most untapped fields currently are in the Arctic which is relatively expensive to develop due to the harsh climate. Still, the region could contain 16 percent of the world's yet-to-be-discovered oil, according to the U.S. Geological Survey

Moscow has put high hopes on the development of its Arctic region. In its quest for energy dominance, companies are given significant tax exemptions to lower costs and lure the right business people to the north. Energy giant Rosneft, for example, has announced the massive Vostok project that will create 130,000 jobs and allow access to around five billion tonnes of oil. Rosneft intends to produce 30 million tonnes by 2024 and eventually 100 million by the end of the decade from this project alone. 

A major threat to Russia’s position is the energy transition and the electrification of societies. This could offset the demand for fossil fuel products. Although hydrogen is slowly creeping into Moscow’s strategy, the bulk of the Russian energy industry’s efforts remains with fossil fuels. According to Dmitry Loukashov, VTB Capital's deputy head of oil and gas research, "While international oil [majors] are falling over themselves in their business transformation potential to become 'clean,' Russians are unlikely to compete with them in this renewables drive."

However, the energy transition is also an opportunity for the Russian fossil fuel industry. Western IOCs such as Shell and BP are gradually increasing their investments in carbon-neutral technologies and slowly decreasing oil and gas expenditure. This means that even in a situation where demand is decreasing, Russia could maintain its share and position as an energy superpower. 

According to Rystad Energy, the pandemic has drastically changed the outlook for oil. Previously it was expected that demand would peak around 2030 with 106 mbpd. Rystad, however, now predicts that demand will plateau around 102 mbpd in 2028 and rapidly decrease to 62 mbpd in 2050.


Russian energy companies have been increasing their presence in regions where demand will remain growing for the foreseeable future such as Asia and Africa. Although developed countries will likely decarbonize, the rest of the world won't any time soon. Therefore, expect Russia to at least maintain its position in the near future. 

By Vanand Meliksetian for Oilprice.com

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  • Mamdouh Salameh on April 24 2021 said:
    Thanks to the Arctic, Russia will maintain its position as the world’s energy superpower throughout the 21st century.

    President Putin has long ago recognized the great importance of the Arctic for the Russian economy and the Russian oil industry. That is why he has been pouring hundreds of billions of dollars into the region.

    Russian oil giant Rosneft’s Vostok project which started in November 2020 will become the backbone of Russia's oil industry. Rosneft expects the project to cost $170 billion over a decade that will employ 400,000 workers, create 15 new industrial towns, and build 800 km of new pipelines. Furthermore, harbours will need to be built including at least 12 ice-class super oil tankers that can ensure access even during harsh winter seasons when the sea is covered with ice. The first tanker had already been delivered in June 2020. Rosneft is projected to export initially some 602,000 barrels a day (b/d) from the Vostok project by 2024 rising to 2.0 million barrels a day (mbd) by the end of the decade.

    Russia’s number two gas producer Novatek plans to build out its LNG export capacity up to 70 million mtpa by 2030. This, in turn, dovetails into Russia’s plans for LNG production of 80-140 million mtpa by 2035, which would be greater than that of the world’s two largest producers Qatar and Australia.

    Energy transition doesn’t pose any threat to Russia’s position because it is based on an unsubstantiated assumption that peak oil demand is nigh. There could neither be a post-oil era nor a peak oil demand either throughout the 21st century and probably far beyond. The global economy will continue to run on oil and gas well into the future. Therefore, a threat to Russia’s Arctic oil ambitions won’t materialize.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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