Russian Oil Has `Peaked,' Billionaire Vekselberg Says (Update1)
By Greg Walters and Maria Kolesnikova
April 23 (Bloomberg) -- Oil output in Russia, the world's biggest supplier after Saudi Arabia, has ``peaked'' and may decline in the coming years, said billionaire Viktor Vekselberg, an owner of BP Plc's venture TNK-BP.
Russian companies need tax breaks to spur exploration and development of new fields to revive growth, Vekselberg told an American Chamber of Commerce conference in Moscow today.
Oil output is falling for the first time in a decade as Soviet-era wells dry up and the costs of developing harder-to- reach deposits surge. Russia pumped 9.76 million barrels a day in March, down from 9.83 million in December, according to CDU TEK, the Energy Ministry's central dispatch unit.
``The output level we have today is a plateau, stagnation,'' Energy Minister Viktor Khristenko said in an interview April 10.
A drop in annual output would end a 58 percent surge in production since 1998, when Russia defaulted on about $40 billion of domestic debt and devalued the ruble. That year, Urals crude, Russia's benchmark blend, averaged $12.02 a barrel. The price reached a record $111.72 yesterday.
The Finance and Energy ministries have agreed on the need to reduce taxes and plan to reach an accord on the size of the cuts by July, the Energy Ministry said last week.
`Insufficient'
``The sector that has helped us all these years now deserves support,'' Finance Minister Alexei Kudrin told Economy Ministry officials on March 25. Kudrin said one proposal, a cut in the crude-extraction tax, would save companies a combined 100 billion rubles ($4.3 billion) a year.
That's not enough to spur development in the Arctic and other remote areas, Vekselberg said today.
``This is insufficient and it won't turn the sector around,'' Vekelberg said, adding that he's ``not too pessimistic'' about the industry's future.
Vekselberg and his billionaire partners Mikhail Fridman and Len Blavatnik own half of TNK-BP International Ltd., while BP Plc, Europe's second-biggest oil company, owns the rest. TNK-BP International in turn owns 95 percent of Moscow-listed OAO TNK-BP Holding, Russia's third-biggest producer.
The Energy Ministry has said it expects production of crude and gas condensate to increase 1.8 percent increase this year to 10 million barrels a day, or about 11 percent of world consumption.
To contact the reporter on this story: Greg Walters in Moscow gwalters1@bloomberg.netMaria Kolesnikova in Moscow at mkolesnikova@bloomberg.net.
Last Updated: April 23, 2008 04:47 EDT
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