Russian companies have reduced the cost of extracting oil from shale but not by enough yet to make it viable to exploit crude from reserves locked in rocks in the Bazhenov formation in West Siberia, analysts say.

Russia is pinning its hopes on hard-to-recover oil, hidden beneath non-porous rocks, such as at Bazhenov, as conventional oil reserves in West Siberia, its main oil-producing area, are falling.

Gazprom Neft estimates that the reserves of the light, low-sulphur and low-viscosity Bazhenov formation stand at between 18 billion and 60 billion tonnes.

Gazprom Neft is one of the main companies working to extract the Bazhenov oil and plans to cut production costs this year to 8,500 roubles per tonne ($15.8 per barrel), down from 30,000 four years ago, which will then make it economically viable to produce.

Some parts of the Bazhenov site can be tapped for as little as 5,000 roubles per tonne ($9.3 per barrel), said Pyotr Stulov, head of the Shpilman analytical centre which studies the formation.

The International Energy Agency has described Russia’s Bazhenov formation as the world’s largest source rock, a bed of ancient organic matter dating back to the Jurassic period which has given rise to most of the crude oil pumped from the fields of West Siberia.

As the costs fall, companies are increasing production there despite the Western sanctions which ban cooperation with Russia on shale oil.

Last year, production from the formation increased by almost 70% to 900,000 tonnes thanks to cranking up of drilling, including by Gazprom Neft.

Gazprom Neft, in particular, has said it plans to produce nearly 1 million tonnes from Bazhenov alone by 2025, a tenfold increase from its current output levels there.

But as Russia in total pumps more than 500 million tonnes of oil per year (more than 10 million barrels per day), there is a long way to go before production at Bazhenov scales up. “They (the U.S.) had started to apply hydraulic fracturing in Texas in early 1980s, while the shale oil revolution happened only 25 years after,” said Alexei Kokin from UralSib brokerage in Moscow.

In the United States, shale oil has helped to turn the country into the world’s largest oil producer.

($1 = 73.2536 roubles)

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