Russia’s oil production could peak as early as in 2021 due to high taxes and costs, provided there are no benefits for exploration or tax incentives introduced, Russian Energy Minister Alexander Novak said on Tuesday.

Russia’s oil production is expected to average around 553 million tons this year, or 11.105 million bpd, Interfax news agency quoted Novak as saying at a government meeting on incentives to boost Russia’s oil industry.

By 2021, Russia’s oil production will rise to 570 million tons, which, without more benefits and lower taxes, could be the peak oil production, Novak warned.

If current production trends continue, and if Russia doesn’t do anything to further stimulate oil exploration and new field development, after 2021, production may start to fall and reach just 310 million tons by 2035, that is, Russia’s oil production could drop by 44 percent by then, Novak said, as quoted by Interfax.

If no incentives are adopted, Russia’s budget may lose US$49 billion (3.3 trillion Russian rubles) in taxes and another US$19 billion (1.3 trillion rubles) in investments starting in 2022, The Moscow Times quoted Novak as saying.

“This is the inevitable result of increased production costs and excessively high taxes in West Siberian oil fields,” the minister said.

Exploration and new oil field development are becoming increasingly important for Russia’s oil industry, Prime Minister Dmitry Medvedev said at the meeting, adding that the government needs to first assess reserves, draft measures for the incentives mechanism, and review the current benefit system.

Over the past two months, Russia has already reversed most of its production cuts in the OPEC/non-OPEC production cut deal, and has been keeping production at near record levels in its post-Soviet history.

Last week, Novak told Bloomberg in an interview that Moscow was ready to pump at record levels should the oil market require it. Russia hasn’t made any decision on production levels yet, Novak stressed, but added that Russia and its OPEC partners would discuss production at the meeting in Algiers this coming weekend.

Russia is capable of adding 300,000 bpd to its production within a year, Novak said last week.

By Tsvetana Paraskova for Oilprice.com