Russia's Energy Industry

Russia: upstream priorities and new markets

Russia is consistently among the world’s top three producers of hydrocarbons and holds the largest proven natural gas reserves globally. It is also a major LNG exporter, although sanctions and technology restrictions have slowed the expansion of several flagship Arctic LNG projects and tempered growth ambitions.

Hydrocarbons continue to play a central role in Russia’s public finances, but their contribution to the federal budget is lower and more volatile than it once was. In recent years, oil and gas revenues have generally accounted for around a third of federal budget income, fluctuating with prices, taxation changes and export volumes. Even as the economy has adapted to sanctions, the oil and gas sector remains a key source of hard-currency earnings and a cornerstone of state spending.

Domestic firms dominate Russia’s upstream sector, with Rosneft, Lukoil, Gazprom and Novatek among the largest players.  Much of the country’s production base consists of mature fields, particularly in western Siberia, which has historically been the heart of the country’s oil industry. As a result, companies have focused heavily on brownfield optimisation, enhanced recovery and infrastructure upgrades, while pushing into more complex resources that were previously constrained by cost or technology. New growth areas include eastern Siberia and the Arctic, where gas projects and LNG developments have been central to the long-term strategy, even as project timelines have been disrupted by restrictions on equipment, finance and shipping.

Russia has extensive midstream infrastructure, including one of the world’s largest crude pipeline systems. The Druzhba pipeline network has historically been a key export route to Europe, but the structure of the country’s energy trade has shifted dramatically since the war in Ukraine. Pipeline gas exports to Europe have fallen to their lowest levels in decades, and crude and product flows have increasingly been redirected to non-OECD markets.

To sustain exports under sanctions, Russia has accelerated its pivot to Asia, expanding seaborne crude flows and reinforcing pipeline links to China. China has remained the single largest buyer of Russian oil, and Russian gas deliveries to China via the Power of Siberia pipeline have continued to grow as Moscow works to replace lost European market share with long-term Asian demand.