Russia and Venezuela: mutual attraction of two oil giants

Moscow is preparing to welcome Venezuelan President Hugo Chavez. His upcoming talks with his Russian colleague, Vladimir Putin, have already evoked much interest in the world.
Venezuela and Russia are rich in hydrocarbons and pursue independent oil policies because they are not members of OPEC. Venezuela, the 5th largest oil exporter, produces 3.1 mm bpd and Russia, the 2nd largest oil exporter, produces 9.33 mm bpd.

The approaches the two leaders, who are popular in their countries, have taken to reinforce the state's role in the energy sector have some similarities. Chavez said that a recent 16-fold tax hike (from 1 % to 16.6 %) for foreign companies and joint ventures producing oil in Venezuela was the start of the second phase of the nationalization of oil industry. Its motto is: the energy sector should be more involved in modernizing the entire national economy. The United States imports 15 % of its crude from Venezuela and Venezuela has the largest explored reserves in the Western Hemisphere (77 bn barrels).
General Chavez's idea to create an inter-American oil company to export refine products rather than crude, is also popular in Latin America. In the Venezuelan leader's opinion, over $ 100 per barrel should be the fair price for oil.

In Russia, with Putin's approval, the gas giant Gazprom is merging with another company to form Gazpromneft, a large oil company. After the Kremlin won the Yukos affair, which concerned billions of dollars of back taxes, Yukos -- the largest Russian oil producer -- is on the verge of bankruptcy and its production units are about to be put up for sale to repay its debts. Most Russians view the Kremlin's victory in the Yukos affair as a victory for Putin in his fight with the Russian oligarchs.
The growth of the Russian economy is largely due to favourable international conditions and high hydrocarbon prices. Therefore, the Russian leadership believes it is very important to regain control over the fuel and energy complex. In an effort to bringorder to the sector and end the predatory exploitation of subsoil, the state made the deposit licensing procedure more rigorous and dramatically increased oil export duties.

Sharing common objectives for the development of their fuel and energy sectors, Russia and Venezuela are obviously seeking closer economic cooperation in this area. A short time ago, a Russian-Venezuelan fuel and energy sub-commission was created to function as part of the Russian-Venezuelan high-level commission. Moscow maintains the same level of relations with only a few foreign partners outside the CIS, including Brazil, a South American giant.
The October talks in Moscow with Venezuelan Vice President Jose Vicente Rangel, who is preparing for Chavez's visit, confirmed Caracas's desire to put cooperation with Russian oil and gas companies on a practical footing. This cooperation presupposes joint exploration, development and production as well as an exchange of technologies. Russia has stepped forward by offering to train Venezuelan specialists at Russian universities. The Russian government is welcoming this cooperation in every possible way.

LUKoil Overseas, a subsidiary of Russian oil major LUKoil, was the first Russian oil company to sign a memorandum of understanding with PdVSA, the Venezuela national oil company. Gazprom is working on a similar memorandum of understanding. Gazprom would like to be involved in the exploration and development of natural gas, the development of gas infrastructure, provision of gas, and conversion of natural gas in Venezuela. Venezuela's gas potential is so huge that it is considered to have the largest reserves in the Western Hemisphere.
Grigory Volchek, a spokesman for LUKoil Overseas, said his company was ready to set up a joint venture with PdVSA to produce oil in the eastern basin and in Lake Maracaibo. He said negotiations with Venezuelan partners were well under way. In the near future, LUKoil Overseas will open a representative office in Caracas, as Venezuelan projects are very important to the company's management.

Venezuela is going to become the second Latin American country to have LUKoil specialists working in it. In 2002, Columbia launched a project to develop the Condor block. Preparations have already been completed and exploratory drilling is to begin in the near future, said Volchek.
Today, LUKoil Overseas' foreign projects are responsible for 30 mm barrels, or a third of its yearly output. The company is expected to invest $ 9.6 bn in these and other projects until 2010.