Russia's oil agenda contradicts that of OPEC

Oct 28, 2001 02:00 AM

Russia joins a powwow of OPEC experts in Vienna with few incentives to join the oil cartel but plenty of motivation to boost its own production even further in a bid to finance local reforms. Industry analysts say that Russia, already the world's third-largest oil producer, is on the verge of becoming the world's most important oil exporter outside OPEC and could soon be setting the world's energy agenda on its own terms.
For the moment, Russia's budget is suffering the consequences of the post-September 11 oil price plunge. In addition, the country's annual budget revenues are falling by $ 1 bn (1.12 bn euros) with each one-dollar drop on a barrel of what is termed here "black gold." Despite pressure from OPEC member states, Moscow is making up the difference through exports, reaping the benefits of heavy local investment that went into the oil industry over the past two years.
"In 1998, Russia exported 2.25 mm bpd . This year, crude oil exports may reach 3.10 mm bpd and as high as five mmbpd in 2005," Troika Dialog bank said in its monthly research report. Meanwhile revenues from foreign sales are already climbing fast.

Earning just $ 10 bn from oil sales in 1998, Russia could see a $ 28. 5-bn profit this year and up to $ 30 bn in 2005 -- even without any worldwide energy price rebound, analysts said. Troika Dialog said estimates were based on the low average price of $ 18 per barrel of Russian Ural oil.
"These figures show clearly that it's in Russia's best interest not to join any OPEC accord that would limit its production," said Christopher Weafer, an analyst with the Troika bank. And even if the price fell to $ 15 a barrel in 2003, exports would still bring Russia $ 24 bn, which would be only $ 4 bn less than this year.
The Russian economy could survive even a lower price should liberal economists on President Vladimir Putin's team continue to hold sway in the Kremlin and keep to a stern reform course, analysts stressed. If the price for a barrel of Ural oil plunged to $ 13-14, "the economic situation will stay manageable for the Russian authorities," said Alexei Zabotkin of the UFG investment bank.

Oil prices fell to that level in 1997-1998, rendering Russia helpless to prevent the financial implosion and rouble collapse of August 1998, a crash that saw Western investors flee the country, many vowing never to return. Some now are, keeping an eye on Russian bank reserves that have built up to a post-Soviet record of $ 38 bn, a figure that should help avert another debt default in the short term.
Brimming with a sense of confidence not seen in Moscow finance circles in years, Deputy Prime Minister Alexei Kudrin said that the government had contingency plans for "all scenarios" involving oil prices. Even a long-term collapse in world energy prices would not necessarily mean that Russia would run can-in-hand to the International Monetary Fund (IMF) for help, Kudrin said.

Further, Russia could also profit from a strategic partnership with the West, which had long soughta way to escape the OPEC oil hegemony. "Russian industry is recovering and its export capability will seriously increase," noted James Henderson, an analyst of the Renaissance Capital bank. "Russia could become an interesting alternative to the Middle East countries, which had always been more dominant and volatile." According to Renaissance, Russia's oil output would top 345 mm tons this year and rise to 500 mm tpy before 2010.

Source: AFP
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