Russia produces more expensive oil than its rivals

Russia is unlikely to compete with Saudi Arabia when looking for foreign investors in the oil industry. It turns out that the cost of oil production in Russia is much higher than in Saudi Arabia. The Russian oil will remain expensive even with the use of the latest technology and in case Western sanctions are lifted. Moreover, the cost of delivery will make the oil from Russia even less attractive for investors. Meanwhile, Saudi Aramco, a national petroleum and gas company, is getting ready for its first initial public offering (IPO). Recently, the IHS Markit made an assessment of the cost of oil production in Saudi Arabia in comparison with other oil producing countries. The cost of gas and oil production for Russian offshore and onshore projects is only cost-effective when the price of oil is set above $40 per barrel. That is more than twice the $17 per barrel production costs in Saudi Arabia, IHS Markit estimates. No other country in the world can offer oil to potential investors with such a low production cost, given such impressive oil reserves at the same time. Notably, Azerbaijan is considered to be the most expensive place to produce oil with more than $60 per barrel in offshore production. In response to Saudi Aramco initiative, Igor Sechin, the Executive Chairman of Rosneft, provided his own estimates, “We assume that the cost of oil production of Rosneft is the most profitable in the world ($3.2 per barrel). So, we are ready for any changes in the oil market.” However, even with the tax relief provided for Rosneft, the company continues to extend losses.