Siberian oil wells face potentially permanent loss as Russia's southern ports stay blocked

Russia's oil and gas sector under strain

According to ХВИЛЯ: Russian oil producers are being forced to shut down fields because of the blockade hitting southern ports, a move that could cause irreversible damage to Siberian wells. According to oil and gas market expert Mikhail Krutikhin, idle wells accumulate paraffin in their shafts, develop hydrate plugs, and see their crude thicken. Once a well has been shut in, Krutikhin says, bringing it back into production is no longer commercially viable. Water had been pumped into the wells during operations, and now they are yielding roughly 95% water with only a thin oil film on top. This underscores how even temporary disruptions to export routes can create lasting damage to production capacity.

Outlook and wider consequences

The situation in Russia's oil and gas sector continues to deteriorate. Rystad Energy analysts have cut their forecast for Russian crude output to 8.95 million barrels per day by 2026, with a further drop to 8.6 million barrels per day expected in 2027. In the second half of 2023, Russia will need to find room for roughly 1.4 million barrels per day that its refining system cannot absorb.

Onshore storage tanks are already so full that production cuts look unavoidable. Spare capacity is only about 620,000 barrels per day, and most of that is tied to ageing, waterlogged wells whose risk of being lost increases the longer they remain shut in. As Krutikhin put it,

“production companies are being forced to stop operations, then mothball or liquidate the wells.”

This situation highlights the severe pressures confronting Russian oil and gas amid port blockades and weaker demand. Losing wells and reducing output could have a major impact on the country's economy, since oil remains one of its principal revenue sources. Further production declines and the buildup of surplus crude may force a rethink of industry strategy and could also reverberate through global energy markets.