Russia to earn over $180bn in oil tax revenue due to high prices, Rystad says

Escalating gas prices in Europe and Asia will generate an additional $80bn of tax flows in Russia this year, according to the consultancy

A pipeline is installed in northern Greece that will give countries in the region dependent on Russian imports greater access to the global natural gas market. AP

Russia's oil tax revenue will jump to more than $180 billion this year, spurred by buoyant crude prices, according to a report by Rystad Energy.

This is 45 per cent higher than in 2021 and 181 per cent higher than in 2020.

Escalating gas prices in Europe and surging liquefied natural gas prices in Asia will generate an additional $80bn of tax flows to Russia this year, the Oslo consultancy said.

Europe’s dependence on Russian energy has been a “deliberate and decades-long and mutually beneficial relationship”, Daria Melnik, senior analyst at Rystad Energy, said.

“In this early phase of sanctions and embargoes, Russia will benefit, as higher prices mean tax revenues are significantly higher than in recent years.”

Owing to the war-related trade and production disruptions, the price of Brent — the global benchmark for two thirds of the world's oil — is expected to average $100 a barrel this year, its highest level since 2013, after increasing by more than 40 per cent annually, according to a report released by World Bank last week.

However, prices are expected to moderate to $92 next year — well above the five-year average of $60 a barrel, the Washington-based lender said.

Russia is the world’s third-largest oil producer, with about 5 million barrels a day of its crude representing roughly 12 per cent of global exports. About 60 per cent of Russia’s oil exports go to Europe and another 20 per cent to China, according to the International Energy Agency.

After Russia's invasion of Ukraine in late February, European buyers started to avoid Russian crude amid sanction-related fears. But loadings began to recover on March 24, supported by new orders from China and India, Rystad said in its report.

Though Russian crude exports remained resilient in April, increasing tensions between Europe and Russia may result in more crude embargoes, it said.

Russia’s ability to redirect all unwanted cargoes from the West to Asia are limited and it will be forced to reduce production further as it lacks storage capacity for extra crude volumes.

Russian oil volumes are estimated to drop by 2 million barrels per day by 2030 compared to 2021, while gas production will grow marginally, but will still be lower than pre-conflict estimates, Rystad said.

However, with mounting western sanctions over the military incursion of Ukraine, Russia is aggressively looking towards the East for new markets and export opportunities.

Its Power of Siberia 1 pipeline will initially serve as Russia’s main gas supply artery to China.

Energy company Gazprom completed feasibility studies on the Soyuz-Vostok gas pipeline — the Power of Siberia 2 project (50 billion cubic metres of annual capacity) — in the first quarter of this year. The pipeline, which received government approval on February 28, will stretch from Yamal in western Siberian to northern China, running through Mongolia.

By tapping into the vast reserves in western Siberia, Russia will enhance its ability to divert gas flows towards Asia instead of Europe, Rystad said.

“Pivoting exports to Asia will take time and massive infrastructure investments that in the medium term will see Russia’s production and revenues drop precipitously,” said Ms Melnik.

The Russian economy might take a while to overcome the impact of sanctions and generate demand for crude internally, the consultancy said.

Crude output from the country will only start recovering in mid-2023, Rystad estimated.

Lack of investments and foreign technologies are expected to further lead to a slowdown in drilling activity, it added.

Russia, as a result, is not expected to return to pre-conflict production levels even by 2026.