Russian oil could help the US

Feb 14, 2002 01:00 AM

Russia's rising oil output and reduced costs may prevent a prolonged rally in prices because crude can be profitably shipped to the US from fields in Russia, the CEO of AO Yukos said. Yukos, Russia's second biggest producer, could pump oil at costs that rival those of Middle Eastern countries, which sit atop the biggest oil reserves in the world, CEO Mikhail Khodorkovsky told an industry conference.
"Hydrocarbons from Russia can play a stabilising role for US markets," Mr Khodorkovsky said. "If there are big price jumps in oil, then Russian oil becomes economically efficient and begins appearing on American markets."

With oil at $ 20 a barrel now, Russia doesn't ship oil to the US, which gets half of its daily needs from Mexico, Canada, Venezuela, Iraq and Saudi Arabia. When oil was at $ 25, transporting it to the US from Russia would take up just 25 % of per-barrel profit, Khodorkovsky said. At $ 18, shipping costs reduce profit by about 60 %.
Russian oil production grew by about 7 % last year to 6.9 mm bpd, 800,000 less than Saudi Arabia, the world's top supplier. Russian output grew for a third year after the 1998 rouble devaluation slashed the cost of operating exploration and production rigs.

As oil prices rose when OPEC began cutting output in March 1999, profits have soared at LUKoil, Yukos and other producers, allowing them to invest more to increase production capacity. Oil prices have dropped by one-third from a year ago because of the recession, after fetching between $ 25 and $ 35 for the year before September 11.
Separately, Yukos plans to start producing natural gas in Russia in anticipation that markets will be opened to competition in the country. Moscow-based Yukos plans to produce about 15 bn cm, or about 530 bn cf, of the fuel annually by 2005. Gazprom, the world's biggest gas producer, holds a monopoly on gas distribution in Russia. Yukos probably won't buy gas assets from its Russian rival, Mr Khodorkovsky said. "There are very many gas assets in the country, I don't get the feeling that Gazprom intends to sell any of theirs," he said.

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