Russian oil a challenge to OPEC


	January 25, 2002	atimes.com

Central Asia/Russia

Russian oil a challenge to OPEC
By John Helmer
MOSCOW - Russia's oil producers are on a collision course with the Organization of Petroleum Exporting Countries (OPEC), company officials concede in Moscow, with Russian production growth almost matching the growth of oil demand expected worldwide for the year.

As a result, Asian oil traders and consumers can expect significantly lower prices by the second quarter.

Altogether, Russia's top six oil producers have announced that they will add 500,000 barrels per day (bpd) to their crude oil output this year. This is an 11 percent increase overall, compared to last year. Sibneft and Yukos lead the Russian majors with planned growth of 26 percent and 25 percent respectively.

Mikhail Khodorkovsky, chief executive of Yukos, held a press conference in Moscow recently to confirm his plan, and Yukos officials have told Asia Times Online that they remain staunch critics of the Russian government's decision last December to cut oil exports by 150,000 bpd.

"We believe that another row [between Russia and OPEC] and a potential price war is almost inevitable by the end of March," forecasts James Henderson, an analyst with Moscow's Renaissance Capital.

Among the many loopholes in last month's Russian offer to OPEC, which Russian companies are exploiting, the main one is that the cut does not apply to exports of crude to refineries in the Ukraine and Belarus, which share a customs union with Russia. The volume of these exports is expected to jump by 291,000 bpd in this quarter, according to Henderson.

It is possible, company sources hint, that a similar exception may be made for exports of crude between Russian producers and east European refineries, in which they have current or planned equity stakes, and with which there are supply guarantee agreements.

Yukos officials, for example, have said that they expect to supply at least 75,000 bpd to the Mazeikiu Nafta refinery in Lithuania, when negotiations are completed shortly. Another supply agreement is in the works for Yukos's takeover of the Slovak pipeline operator Transpetrol in a few days' time. Negotiations with the Polish government for a shareholding and oil supply deal between Yukos and the Gdansk refinery were stimulated by last week's visit to Warsaw by Russian President Vladimir Putin. Gdansk could take another 75,000 bpd from Russia.

Because the Kremlin's commitment to OPEC is limited to oil exported through the Transneft pipeline system, exports by rail and truck are exempt. They were already up by 80,000 bpd in the December quarter. There is also expected to be a jump in exports of fuel oil and other refined products from Russia.

Even though the international price for oil has been falling, industry analysts in Moscow point out that domestic prices for crude have fallen even more sharply, widening the differential between Russian and Western prices, and increasing the incentive to export.

In the past, Russia's ability to export more crude has been limited by pipeline and port capacity. But the opening of the new Baltic Pipeline System, and the Primorsk terminal near St Petersburg last month, allow another 300,000 bpd of exports. If the Latvian port of Ventspils is included, Russian export capacity could rise by 450,000 bpd this year.

In December, when the Kremlin agreed to the OPEC request, Yukos and Sibneft said that they opposed export cuts; while Lukoil, Tyumen Oil Company (TNK) and Tatneft had openly favored them. Surgutneftegas had not announced its position publicly, although it was believed to oppose the export cut. The companies favoring the cut say that their planned output growth this year is less than 7 percent.

Falling Western prices for oil hurt Lukoil, TNK, Tatneft and Sibneft, but benefit Yukos. According to market analysts in Moscow, investors, including Yukos, are looking for the opportunity to capture oil assets from rival companies at distress prices.

Russia holds about 10 percent of world oil reserves, and produces about 9 percent of current world output. Russian exports amount to between 5 percent and 9 percent of world export volumes, but it is the rate of Russian oil export growth that is now shaking OPEC's attempt to restrain supply and keep prices up.

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