2016

Top Markets Report

Upstream Oil and Gas Equipment
Country Case Study


Russia
OverallRank:20


Aslongasexistingeconomicsanctionsremainin
place,U.S.companieswillhavedifficultyfinding
profitableinvestmentsinhighcost,longterm
projectsinRussia.U.S.companieswillbe
impactedbyU.S.Governmentsanctionson
deepwater,Arcticoffshoreandshaleprojectsin
Russia.InlightofongoingRussianactionsin
easternUkraine,operatinginRussiasO&Gsector
remainsrisky,asthereareconcernsoverthe
weaknessandinstabilityoftheRussianeconomy.
Thishasresultedinsomewesterncompanies
abandoningthemarketwithothersslowingtheir
operations.U.S.exportersshouldconsultwith
boththeU.S.TreasuryDepartmentsOfficeof
ForeignAssetControls(OFAC)andtheU.S.
DepartmentofCommercesBureauofIndustry
Security(BIS)forthemostcurrentlistingsand
descriptionsofapplicablesanctions.

Background
Russiaholdstheworldseighthlargestproved
reservesofcrudeoilandthelargestprovedreserves
ofnaturalgas.Givenitsvasthydrocarbonresources,
Russiaistheworldslargestproducerofcrudeoil
andthesecondlargestproducerofnaturalgas(after
theUnitedStates).O&Gexportsarecentraltothe
Russianeconomy,withhydrocarbonsales
accountingformorethanhalfofthegovernments
totalbudgetrevenues.Russiacurrentlyexportsan
overwhelmingmajorityofitscrudeoilandnatural
gastoEuropebutisattemptingtoincreaseits
exportstoEastAsia,asEuropeisworkingtodiversify
itsnaturalgassources.TheRussianandChinese
governmentshaveagreedtolongtermnaturalgas
salesandconstructionofatransmissionpipeline.
Detailsoftheagreement,however,needtobe
negotiated,andthepipelinehasnotyetbeen
constructed.RussiacurrentlyhasoneLNGexport
facilityatSakhalinIsland,whichtransportsLNGto
JapanandSouthKorea.Explorationand
developmentofadditionalhydrocarbonresourcesin
theArctic,theCaspianSeaandotherregionscould

2016 ITA Upstream Oil and Gas Equipment Top Markets Report 1

This case study is part of a larger Top Markets Report. For additional content, please visit www.trade.gov/topmarkets.
U.S. Department of Commerce | International Trade Administration | Industry & Analysis

changethedynamicsofRussiasO&Gindustry,but
givencurrentstrainsontheRussianeconomyand
lowinternationalpriceofoil,Russiaisexpectedto
delayinvestmentsinthesehighcostandriskyareas.
TheRussiangovernmentstrivestomaintainatight
controlontheO&Gindustry,viewingittobeof
strategicsignificanceforitsnationalsecurity.The
statehascloselycontrolledthesectorbypromoting
thecreationofdomesticverticallyintegratedoil
companies(VIOCs)(whichaccountforabout90
percentoftheoveralloilproductionandrefining),
takingpoliticalcontroloverredistributionof
ownershipwithinVIOCs,heavilytaxingtheindustry
andlimitingdirectaccessofforeigncompaniesto
explorationanddevelopmentofoilfields.Thereare
currentlyonlythreeproductionsharingagreements
(PSAs)inplaceinRussia:Sakhalin1(ExxonMobil,
Rosneft,SODECO,ONGC);Sakhalin2(Shell,
Gazprom,MitsuiandMitsubishi)andKharyaga
(Total,Statoil,ZarubezhneftandNenetsOil
Company).NoPSAshavebeenaddedtodatedueto
therestrictivenatureofthePSAlaw,andtheshare
ofallthethreeprojectsinRussiasoveralloiloutput
remainslow.
MarketAnalysis
Russiarepresentsalargeglobalimportmarketfor
O&Gfieldequipmentandisthesixthlargest
equipmentimporterglobally.In2015,U.S.exports
ofO&Gequipmentdroppedto$409million(from
$674millionin2014)andrepresentedlessthan2
percentofglobalU.S.exports.Duetoongoing
sanctions,U.S.marketshareisexpectedtodecrease
furtherin2016.
In2014,theUnitedStateswasthefourthlargest
sourceforRussianimportsofO&Gequipment,
holdingan8percentmarketshare.Russiaslargest
sourcesforO&GequipmentwereChina,Germany
andItalywith17,16and11percentmarketshares,
respectively.Machineryandmechanicalappliances,
filter/purifymachinesforgasesandtankersforthe
transportofgoodsrepresentedmorethanhalfof
RussiasO&Gequipmentimports.In2015,the
largestU.S.exportstoRussiawerepartsforboring
orsinkingmachinery(20percent)andmachinery
andmechanicalappliances(44percent).
2016 ITA Upstream Oil and Gas Equipment Top Markets Report
This case study is part of a larger Top Markets Report. For additional content, please visit www.trade.gov/topmarkets.
PolicyContext:OpportunitiesandChallenges
InresponsetoRussiasoccupationandattempted
annexationofCrimeain2014anditscontinued
violationofUkrainessovereignty,theUnitedStates,
theEuropeanUnionandotherinternationalpartners
haveimposedanumberofsanctionsonindividuals
andentities,aswellasatradeembargoonthe
territoryofCrimea.Thosetargetedbythesanctions
includecertainO&Gcompanies.Formoredetailed
information,U.S.companiesshouldcontacttheU.S.
DepartmentofCommercesBureauofIndustry(BIS)
andSecurityandtheU.S.TreasuryDepartments
OfficeofForeignAssetsControl(OFAC).
Westerncompanies,includingU.S.firms,have
traditionallyenjoyedagoodreputationforquality,
modernO&GequipmentandskillfulO&Gproject
managementinRussia.Manywesterncompanies
thatventuredintoRussiaatearlierstagesand
successfullymanagedthemarket'suncertaintyand
instabilityhaveseentheirproductsandservices
acceptedbythelocalindustry.DuetoRussias
actionsinCrimeaandUkraineandtheimpositionof
economicsanctions,however,manyjoint
projectshavebeenputonhold.Lowcrudeoilprices
havefurtherstressedRussiasO&Gsector,andU.S.
companiesmayfinditmoredifficultthanbeforeto
selltotheRussianmarket.
Decliningoilprices,coupledwithalackofeconomic
reformsandeconomicsanctions,haveslowed
economicgrowth,therebyputtingpressureon
Russiascurrencyandbankingsectorandreducing
accesstoforeignfinancingandnewtechnologies.As
aresult,RussianNOCshaverevisedtheirinvestment
plansandarelesslikelytosupportthedevelopment
oftechnicallychallenginganduneconomicdeposits
(i.e.deepwater,Arcticoffshoreandshaleresources).
Tomeetproductiontargets,RussianO&Gcompanies
haveredoubledeffortstomaximizeconventional
deposits,includingstimulationanddrillinginexisting
brownfields,andsomegreenfielddevelopment.
UntilRussiacanfulfillthecommitmentsoutlinedin
theMinskProtocol,includingrespectforUkraines
bordersandsovereignty,sanctionswillnotbelifted.
Inthispolicycontext,inadditiontothecurrent
stagnationoftheRussianeconomy,U.S.company
participationinRussiasO&Gsectorwillbelimited.
2
Thecurrenteconomicsanctionsarelikelytocause
U.S.companiestoencountermorecompetitionin
RussiasO&Gindustry,astheRussiangovernmentis
encouraginggreaterimportsubstitution.Since
sanctionswereputinplace,therehasbeengrowing
sentimentinRussiaformoredomesticallysourced
technologyandservices,notonlyinthesubsectors
whichwerespecificallysanctioned(deepwater,
Arcticoffshoreandshale)butalsowithregardto
othertypesofequipmentandtechnologyusedin
conventionalO&Gexplorationandproduction.The
keytechnologiesforimportsubstitutionin2016
includehorizontaldrilling,wellcompletionand
stimulation,andtechnologytofacilitatethelowering
ofequipmentintothewellbore.

2016 ITA Upstream Oil and Gas Equipment Top Markets Report 3

This case study is part of a larger Top Markets Report. For additional content, please visit www.trade.gov/topmarkets.