Wednesday, Feb. 5, 2003. - Oil Prices Hit $5 on Domestic Glut(no not in the US)
By Valeria Korchagina Staff Writer
Domestic (in Russia) crude prices have plummeted to just $5 per barrel in February as bottlenecks in oil transportation capacity have squeezed exports and rising production has led to a glut at home.
Prices have fallen 72 percent from a high of about $18 in September, close to the prices at the beginning of 2002, when Russia cut exports in support of the Organization of the Petroleum Exporting Countries' effort to stabilize oil prices.
The drop in prices is likely to be temporary, as it has arisen from the combination of pipeline monopoly Transneft's refusal to ship crude to the Latvian port of Ventspils and bad weather stalling work at a number of Russian export ports, industry analysts said.
The current bottleneck situation should be resolved by April, when the seas calm, said Pavel Kushnir, oil and gas analyst with United Financial Group.
"But there's no guarantee it would not be repeated next year," he added.
Furthermore, analysts said low domestic prices would not hit the bottom line of most oil majors, but could affect companies such as Surgutneftegaz or Tatneft, which have few storage and refining facilities or high domestic sales.
Nevertheless, oil majors have portrayed falling prices as a warning sign of a potential crisis.
Rocketing oil production is outpacing the construction of new crude transportation infrastructure. Output rose 8.9 percent in 2002 with another 7.8 percent expected this year, UFG reported Tuesday.
Transneft can export an estimated 3.5 million barrels per day, while oil output hit a 10-year high of 8.07 million bpd in January, Reuters reported. Russia's exact export capacity, however, is classified as a state secret.
At the beginning of 2003, state-owned Transneft stopped shipments of crude through Ventspils after a year of pressure on Latvian authorities to allow a Russian investor to buy into the port.
Deputy Prime Minister Viktor Khristenko said this week that the ban on shipping crude through Ventspils will remain in place until at least March 1. Some companies have sent oil to Ventspils by railroad, but high rail costs make large shipments inefficient and are likely to hold them to 20 percent of the port's capacity, UFG estimated. Ventspils has throughput of 15 million to 16 million metric tons of crude per year.
With the seasonal bad weather expected to clear up by April, the government could keep Ventspils dry for at least six more months, Kushnir said. The pressure could make Latvian authorities more amenable to selling a stake in the port to a Russian investor, he added.
Oil majors have seized on the issue as a platform for airing concerns about their ability to keep boosting production in coming years.
LUKoil vice president Leonid Fedun said this week that bottlenecks could lead to a 29 million-ton export capacity shortfall by 2005 and a whopping 80 million-ton shortfall by 2010.
"What happened to Surgutneftegaz is the appearance of the first spot in the case of smallpox," Fedun told journalists. He was referring to No. 3 oil major Surgutneftegaz's recent forced closure of wells -- especially costly in winter -- after Transneft refused to accept more oil from the company than its quota.
Transneft said Surgutneftegaz's troubles were more closely linked to paperwork snafus like the failure to declare the crude's destination, Reuters reported.
LUKoil has a vested interest in spinning the capacity shortage of pipelines. It is in the process of negotiating with the state to build a pipeline from Western Siberia to the Kola Peninsula in north European Russia. But even as the company carries out its feasibility studies, key issues -- such as who will own and operate the pipeline, set the tariffs or decide on the conditions under which other exporters may access the pipe -- remain up in the air.
"The producers realized it's better to address the issue now then to pay for the capacity shortage later," said Timerbulat Karimov of the Aton brokerage.
themoscowtimes.com |
