Friday, September 26, 2008
Russian Oil Reserve Could Affect Prices
26 September 2008 - The Moscow Times by A. Medetsky - Russia will work to influence global oil prices, Energy Minister Sergei Shmatko said Thursday. Oil prices now depend on such conditions as production levels in the members of the Organization of Petroleum Exporting Countries, financial speculation and U.S. oil reserves, he said. "We hold such a significant position in the high society of world oil that a Russian factor should appear and maybe not a single one," Shmatko told reporters in Petropavlovsk-Kamchatsky, where he was accompanying President Dmitry Medvedev on a tour of the Far East. "We didn't work on this before. We want to formulate these approaches." Russia currently accounts for 12.3 percent of the world's oil output, making it the biggest producer after Saudi Arabia. The decision to seek leverage over prices, Shmatko said, was prompted by oil prices' "rollercoaster ride" in the past few months, when they reached an all-time record in July, lost one-third of their value in the following weeks and began climbing again recently. As one tool, Russia could create a reserve of oil fields that can swiftly begin producing if necessary, Shmatko said. It could also change forecasts of its oil production as a way of affecting the price, he said. The government will finalize its proposals before sending a delegation to an OPEC summit in Algeria in December, Shmatko said. But he stressed that Russia would not act in concert with OPEC. Russia stepped up its contacts with OPEC earlier this month, when Deputy Prime Minister Igor Sechin led a delegation of government ministers and oil company CEOs to the OPEC meeting in Vienna. Sechin, who is also chairman of state-controlled Rosneft, the country's biggest oil producer, and the executives called for measures to support prices at a level that would allow companies to invest in new and more expensive fields. OPEC secretary-general Abdalla Salem El-Badri promised to travel to Moscow next month to foster cooperation. Russia's oil production is poised to decline this year for the first time after years of sustained growth, a result of heavy taxes, depleting fields and the rising costs required to bring new fields online. Rosneft spokesman Nikolai Manvelov said the company has fields in various degrees of readiness for operation, and some of them could fall under the category of "reserve" fields. He declined further comment on any possible proposals to influence world oil prices. A LUKoil spokesman sounded upbeat about Shmatko's plan, but declined to speak about any steps that the company would want to take. "We support all proposals by the government that seek to establish a fair price," spokesman Dmitry Dolgov said. Russia has already been affecting the world oil price, said Lev Snykov, an oil analyst at VTB. Its declining output growth in the past two years has been one of the reasons why the price grew, he said. The bank forecasts a third consecutive year of modest growth this year. One of the government's strongest leverages on global prices will be the pipeline that it's building to bring oil from eastern Siberia to the Pacific coast, he said. Other possible measures could be hard to enforce because private companies account for a large portion of output, he said. "It's very difficult to set a formula that everybody will follow," he said. "Reducing output to support prices if they fall — I don't think a policy like this will work in Russia."