Russia And Ukraine — Oil And Gas Fallout For The World, Now And Looking Ahead.

Martin Rylance is the Discipline Lead and Distinguished Advisor for Reservoir and Well Enhancement at THREE60 ENERGY Ltd. Previously he worked at bp, their NOJVs and partner companies for more than 37 years. Having lived in 12 Countries (30 years connected with Russia) and pumped in 45 he has a truly international footprint in fracturing and stimulation services, well control and multilateral drilling. He is a co-author of several books, including “Modern Fracturing: Enhancing Natural Gas Production”, and author of more than 200 industry technical papers, articles and patents.

Rylance has been an SPE Distinguished Lecturer in 2007, 2013 and again in 2018. He is a Distinguished Member of the SPE and received the SPE Completions Optimization and Technology Award for the SPE GCS in 2015 and Globally in 2021.

Natural gas prices increased by 150% in UK and EU since the Ukraine war. But only by 10% in US. Why is this?

Gas prices in the UK had already dramatically increased in the last 6 months, due to a variety of reasons, one of these is wholesale gas price rise (300% over last 12 months) and the government recently shifting the CAP which suppliers are allowed to charge. The Russian invasion of Ukraine will exacerbate this further, although the UK has relatively low import levels of Russian Gas < 3%. Countries in the EU are more exposed to imports of Russian gas, with Germany at 49%, Italy at 45%, and France at 25%. Certainly, in North America, the wider availability of gas either as a direct or secondary (with oil) production phase has insulated the USA from the full magnitude of these effects.

Can Russia survive loss of oil and gas income, from oil and gas bans on Russian exports and consequences of bp, Shell, etc. offloading their businesses in Russia.

The amount of revenue that Russia can access will be driven by the oil and gas market. Even under sanctions Iran and Venezuela continued to ship and sell oil and gas, albeit at a discount from the primary market. It is certainly likely that those countries which abstained from the recent UN General Assembly vote will have no qualms about buying cheaper oil and gas if directly available from Russia. Countries like this will continue to find ways and means of trading and purchasing cargoes, through a range of complicated approaches. This discounted secondary market, and the pricing of oil and gas as it stabilizes, will determine how much revenue Russia is able to replace. Note that the USA, only, has directly banned Russian oil and gas imports, although the UK will phase them out through 2022, but these amounts are both relatively insignificant.

Can liquefied natural gas (LNG) from Qatar, Australia, and US fill the gas shortage in Europe?

As far as I am aware, Russia is continuing to pump gas to Europe, so no change so far. As noted, there are some countries that have quite a large exposure to the Russian gas market, but those offtakes are not directly subject to sanction. If they should become so or if Russia closes the taps to Europe, then it is likely that the sources that you name as well as others such as Algeria, Nigeria, etc. could come into play to fill the gap. Some short-term deficit is likely to take place until infrastructure and logistics catch-up with the changing nature of the supply, but this is likely to be manageable. A number of EU countries, such as Germany, may consider temporarily restarting mothballed nuclear power plants to help fill that gap.

What are your predictions for the future of oil and gas production, and the prices of oil and gas, if Russia does takeover Ukraine and stay in there to sustain a Russian-imposed government?

As Niels Bohr, the famous quantum physicist, once stated “Prediction is very difficult, especially if it is about the future”. However, we can look at past trends/occurrences and speculate what might occur. I would expect a higher stabilized oil-price once the global market is settled, perhaps in the 70 – 90 USD/bbl range, and gas at a healthy pricing as it has been for some months now. Countries such as Libya, Iran and even Venezuela may likely play a larger role in the primary market with Russia servicing a secondary market at a discounted pricing.

Oilfield technology: are Russia and the US joint partners in research or oilfield activities that could go down the drain as a result of US resistance to the Ukraine war? Would Russia lose more than the US?

Sanctions imposed from 2014 have effectively stifled most cooperation between the USA and Russia in the oil and gas environment. As a consequence, Russian operators have invested in and fully developed technologies, tools, software, equipment and skillsets to replace these areas of sanction, particularly in the area of unconventionals and hydraulic fracturing. Additionally, Russia is really only just at the beginning of its journey into very poor rock quality, such as the shale revolution we have developed within the USA, so Russia is less affected than most would think.

Climate change: could the EU rev up their renewable energy production to fill the oil and gas import gap? Is it even feasible?

Certainly, there will likely be an increased focus on this, but interestingly there has also been a begrudging admittance that oil and gas will be part of the mixture for some time to come and that the transition from oil and gas needs to be managed more coherently. We are already seeing efforts from many EU governments within existing oil and gas infrastructure, to maximize and accelerate existing reserves. This is in addition to renewed efforts with renewable resources and is all part of the growing transition plan. Renewables are a helpful and contributory part of the EU energy mix but there is a number of pragmatic aspects, such as uptime/stability, storage, grid inertia, infrastructure, etc, that will take many decades to address in an efficient manner.

BP, Shell and ExxonMobil have declared their intention to exit ventures in Russian oil and gas projects. These may result in stranded assets – in this case caused by the Ukraine takeover. Could scenes like this occur in the US oil and gas industry due to government policies on climate change, such as goals to replace coal and gas-fired power plants by renewables, or goals for substantial new vehicle sales to be electric?

Many Companies like bp, Shell, Exxon and Equinor have indicated their plans to leave the Russian oilfield, while others such as TotalEnergies plan merely to suspend deeper investment. In all such cases the assets will continue to be produced by their majority Russian partners, state controlled and independent. The lack of access to development CAPEX will likely pose problems in the short-term because Russian oil and gas is CAPEX-intensive (many wells at low flow rates, with infrastructure and access in remote areas). So it remains to be seen where such oil and gas project funding will come from. There is always the possibility of course, that countries such as India and China will bypass, circumvent or ignore sanctions, to contribute investment as they have done previously. So as with other business, Russia may turn to the East for funding.

As regards the likelihood of stranded assets in North America, I would say that it is highly unlikely that market forces could be distorted so badly that economically developable assets would be stranded and not be recovered if the market continued to exist, as I predict it will. Differential energy pricing across the American continent is beginning to demonstrate the price that individual states will have to pay for imposing non-oil and gas policies; it’s a consumer driven market and the consumers will eventually drive the policy.

Any other thoughts you’d like the readers to know about?

Unconventional shale oil and gas has been a difficult journey, but I believe is reaching a golden-age, not dissimilar to the period that we enjoyed with tight-gas in the 1970s/80s. Much of the early sunk cost will not be recovered, but the insight and learning of that period has launched a new era of understanding and with a healthy oil and gas price there is no reason why shales in North America, and Internationally, should not enjoy a strong decade of delivery. Innovation, optimization and insight continue to maximize recovery and increase the knowledge base for all.

Additionally, I believe that there will also be a new drive for enhanced recovery within our existing unconventional developments, particularly shale oil and gas, and that the well and gathering system and infrastructure will have a new lease of life as a result. I don’t believe that it is beyond the bounds of reasonable consideration to think that the recovery factors could potentially be doubled. Techniques such as tailored Huff n’ Puff with specialized approaches long proposed, developed and applied by companies like GaStimTech are now gaining impetus with a number of operators performing pilot studies. Continued innovation if combined with competent fiscal control in North American unconventionals, offers a bright future as oil and gas takes its place in the energy mix and also assists with technologies in the renewable and sustainability efforts such as conventional geothermal, Enhanced Geothermal Systems (EGS) and Carbon Capture Use and Storage (CCUS).