From the NY Times:
Russia Raises Oil Output and Exports
By SABRINA TAVERNISE
OSCOW, Aug. 23 — Russia, the
world's second-largest oil exporter,
is increasing its production and export of oil,
just as the Organization of the Petroleum
Exporting Countries is seeking to cut back
output.
Russia's rising exports are threatening to
frustrate OPEC's efforts to bolster the price
of crude oil as economies, and demand,
slow, industry analysts say. While OPEC
has cut production quotas three times this
year, for a total of 13 percent of daily
output, Russia has increased production by
466,000 barrels a day, or 7 percent —
faster than any other non- OPEC country.
Russia is the largest of the non-OPEC
producers and is second only to Saudi
Arabia.
Exports are set to increase as two new
pipeline systems open additional routes to
the Baltic Sea and Black Sea this year, and
a new extension links a Ukrainian port to
Russia's main pipeline. Exports from Russia
and Kazakhstan will increase as much as 45
percent by 2005, according to estimates by
Deutsche Bank (news/quote).
Exports from Russia "have been rising very rapidly," said Adam Sieminski,
senior oil analyst with Deutsche Banc Alex. Brown in Baltimore. "The last
year has been a surprise in terms of the strength of production and exports
from Russia. It's a fairly sizable number for OPEC to contend with."
Russia's government has often pledged to support OPEC's moves to buoy
prices, as it did in 1998, when it said it would trim exports. But in practice it
has done little to hold back companies hungry to sell oil on lucrative world
markets.
More recently, that practice has become policy. In a news conference last
week, Russia's newly appointed fuel and energy minister, Igor Yusufov, said
Russia would disregard OPEC views in deciding whether to increase
exports. The Russian government rations access to this country's main export
pipeline, and companies, mostly private, are always pressing for bigger
allotments.
"There will be a lot of Russian oil in the market over the next few years," said
Mikhail Perfilov, an editor in Moscow for Petroleum Argus, an energy
industry publication group. "Russian companies are eager to use every hole,
every small terminal. They'll pump as much as they can to enjoy prices while
they are high."
Increased Russian supplies have put downward pressure on prices. Crude
oil prices are hovering around $26 a barrel, down from $30 in June and a
high a year ago of $37.
Last week, the Kuwaiti oil minister, Sheik Saud Nasser al-Sabah, said
OPEC countries were "feeling the pinch," from self-imposed cuts, while
non-OPEC countries "get the fruits of our policy," according to the Reuters
news service.
Oil revenues are at the heart of Russia's economy, and together with natural
gas sales, make up about half of its export earnings.
Russia's oil industry collapsed along with the Soviet Union in the early
1990's, with production declining about 40 percent between 1990 and
1996. But since a ruble devaluation three years ago cut production costs
sharply and made exports even more profitable, oil companies have become
cash rich.
As earnings rise, helped by high oil prices, investment in the industry has
jumped. Last year, investment was up 17 percent from the year before, the
biggest rise in Russia's 10 years of market changes. As a result, Russian
companies are now pumping more oil. Deutsche Bank estimates that by
2005 oil production in Russia will have risen 25 percent compared with
1995.
Companies scramble to export largely because prices at home are so low. A
barrel of crude oil inside Russia fetches about $14, less than half the world
price, though few companies sell crude on the open market, choosing instead
to supply their own refineries. Companies seeking to export are constrained
by Russia's pipeline system, currently at full capacity.
That is changing. Next month, the Caspian Pipeline Consortium, a group
owned in part by units of Exxon Mobil (news/quote) and Chevron
(news/quote), will open a new line to bring oil from Kazakhstan to the Black
Sea. Also, a pipeline linking Russia's Far North with the Baltic Sea port of
Primorsk is to begin pumping in December. According to Petroleum Argus,
the new projects will increase pipeline capacity by a third by 2005.
Increased supply from Russia first comes to European markets, though
quickly creates a ripple effect beyond Europe.
"We all underestimated the extent and pace of recovery in the Russian oil
industry," said Marshall Hall, oil analyst at UBS Warburg in London
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