Canadian NG supply up 9-11%, next shoe to drop is oil:
August 24, 2001
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.
Short PENG or KWK?
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