Russian Output Of Crude Shows Signs of Recovery
WSJ.com - Russian Output Of Crude Shows Signs of Recovery
By GREGORY L. WHITE
Staff Reporter of THE WALL STREET JOURNAL
October 4, 2005; Page A2
MOSCOW -- Russian oil production is showing signs of a modest recovery after nearly a year of month-to-month declines, and industry officials say Russia could again become an important source of new crude for the supply-starved world market.
No one in the industry expects a surge back to the 10%-plus annual growth rates seen in the past few years. But industry officials and analysts say fears that production increases would stay as low as the 1% to 2% rates seen in recent months appear exaggerated as the effects fade of the Kremlin's dismemberment of OAO Yukos, once Russia's largest producer, and other companies step up investment amid persistently high world oil prices.
"There are enough signs...to suggest that the nadir of supply growth could be past," says David Fyfe, who tracks world oil supplies at the Paris-based International Energy Agency. He figures that Russian output could grow as much as 300,000 barrels a day over the next year, or about 3%. Other analysts say production could rise as much as 500,000 barrels a day next year, boosted by expanded output at a number of Russian companies, as well as more production from relatively new projects on Sakhalin Island in the Pacific.
Output in Russia, the world's No. 2 oil exporter after Saudi Arabia, hit another post-Soviet high of 9.53 million barrels a day in September, according to Energy Ministry figures released yesterday. Though up only 0.4% from August, it was the fourth straight month-to-month increase after eight months of declines. So far this year, output is up 2.7% to an average of 9.38 million barrels a day.
With world oil prices near record levels and spare production capacity at the Organization of Petroleum Exporting Countries stretched thin, even relatively small additions to supply can help ease pressure in the global oil market.
Outside OPEC, few countries have much room to increase output significantly -- the IEA estimates non-OPEC production globally will increase only 500,000 barrels a day this year -- so even seemingly modest gains can have a big impact.
"In terms of the swing for the future, Russia remains key," says Mr. Fyfe.
Surging Russian output in the first years of this decade provided a critical offset to rising demand from China. Then the Kremlin's campaign against Yukos, which was driven to the brink of bankruptcy by $28 billion in back-tax claims and saw its main unit nationalized last year, combined with steep tax increases, alarmed the industry.
But fears that other oil companies would be targeted like Yukos have so far proved unfounded. Instead, most of the industry's major players have been able to clear up back-tax claims without much damage to their bottom lines. Government officials, meanwhile, are promising changes to the tax system, including tax holidays to stimulate development of new fields.
"It's absolutely obvious that we need to help companies that are working in this direction," President Vladimir Putin said in televised remarks last month. "I think this kind of stimulus should motivate both exploration and production growth."
The Kremlin has come under increasing pressure in recent months from other members of the Group of Eight leading nations to do more to help stabilize world energy markets. Some government officials say tax and other regulatory changes could help push output to 11 million barrels a day by the end of the decade.
So far, the turnaround in production remains fragile and could easily be reversed. Another wave of official pressure on the remains of Yukos could hurt overall Russian production, analysts say. And any indication that the wave of nationalizations in the sector is continuing would likely alarm investors.
The Kremlin's promised tax reforms and new export-pipeline projects also could wind up mired in the bureaucracy, where some officials worry Russia could be running down its reserves too fast. Government forecasts currently call for annual output increases of just 1% to 3% through 2008.
But several major Russian oil companies have stepped up investments in new projects. TNK-BP Ltd., BP PLC's Russian joint venture, in August approved plans to invest as much as $270 million in a field in eastern Siberia, for example.
TNK-BP Chief Executive Officer Robert Dudley, who warned in April that Russia was becoming "more difficult to navigate for well-intentioned investors, Russian and foreign," said last month that "there is less uncertainty today," adding, "we are not holding back on our investment plans."
By GREGORY L. WHITE
Staff Reporter of THE WALL STREET JOURNAL
October 4, 2005; Page A2
MOSCOW -- Russian oil production is showing signs of a modest recovery after nearly a year of month-to-month declines, and industry officials say Russia could again become an important source of new crude for the supply-starved world market.
No one in the industry expects a surge back to the 10%-plus annual growth rates seen in the past few years. But industry officials and analysts say fears that production increases would stay as low as the 1% to 2% rates seen in recent months appear exaggerated as the effects fade of the Kremlin's dismemberment of OAO Yukos, once Russia's largest producer, and other companies step up investment amid persistently high world oil prices.
"There are enough signs...to suggest that the nadir of supply growth could be past," says David Fyfe, who tracks world oil supplies at the Paris-based International Energy Agency. He figures that Russian output could grow as much as 300,000 barrels a day over the next year, or about 3%. Other analysts say production could rise as much as 500,000 barrels a day next year, boosted by expanded output at a number of Russian companies, as well as more production from relatively new projects on Sakhalin Island in the Pacific.
Output in Russia, the world's No. 2 oil exporter after Saudi Arabia, hit another post-Soviet high of 9.53 million barrels a day in September, according to Energy Ministry figures released yesterday. Though up only 0.4% from August, it was the fourth straight month-to-month increase after eight months of declines. So far this year, output is up 2.7% to an average of 9.38 million barrels a day.
With world oil prices near record levels and spare production capacity at the Organization of Petroleum Exporting Countries stretched thin, even relatively small additions to supply can help ease pressure in the global oil market.
Outside OPEC, few countries have much room to increase output significantly -- the IEA estimates non-OPEC production globally will increase only 500,000 barrels a day this year -- so even seemingly modest gains can have a big impact.
"In terms of the swing for the future, Russia remains key," says Mr. Fyfe.
Surging Russian output in the first years of this decade provided a critical offset to rising demand from China. Then the Kremlin's campaign against Yukos, which was driven to the brink of bankruptcy by $28 billion in back-tax claims and saw its main unit nationalized last year, combined with steep tax increases, alarmed the industry.
But fears that other oil companies would be targeted like Yukos have so far proved unfounded. Instead, most of the industry's major players have been able to clear up back-tax claims without much damage to their bottom lines. Government officials, meanwhile, are promising changes to the tax system, including tax holidays to stimulate development of new fields.
"It's absolutely obvious that we need to help companies that are working in this direction," President Vladimir Putin said in televised remarks last month. "I think this kind of stimulus should motivate both exploration and production growth."
The Kremlin has come under increasing pressure in recent months from other members of the Group of Eight leading nations to do more to help stabilize world energy markets. Some government officials say tax and other regulatory changes could help push output to 11 million barrels a day by the end of the decade.
So far, the turnaround in production remains fragile and could easily be reversed. Another wave of official pressure on the remains of Yukos could hurt overall Russian production, analysts say. And any indication that the wave of nationalizations in the sector is continuing would likely alarm investors.
The Kremlin's promised tax reforms and new export-pipeline projects also could wind up mired in the bureaucracy, where some officials worry Russia could be running down its reserves too fast. Government forecasts currently call for annual output increases of just 1% to 3% through 2008.
But several major Russian oil companies have stepped up investments in new projects. TNK-BP Ltd., BP PLC's Russian joint venture, in August approved plans to invest as much as $270 million in a field in eastern Siberia, for example.
TNK-BP Chief Executive Officer Robert Dudley, who warned in April that Russia was becoming "more difficult to navigate for well-intentioned investors, Russian and foreign," said last month that "there is less uncertainty today," adding, "we are not holding back on our investment plans."
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