Despite overtures by the Organization of Petroleum Exporting Countries to bring Russia into its fold, experts don't see it happening. What Russian energy sector analysts do expect, however, is for the quickly evolving Russian energy sector to boost oil production, potentially forcing OPEC to cede market share, if it curbs production in the future.
"I would be surprised if (Russia) would take active steps to join OPEC," said Thane Gustafson, senior director at Cambridge Energy Research Associates and a leading consultant on Russian energy issues. OPEC has long courted Russia to join the organization, but there seems little incentive, and slim chance of it occurring any time soon.
"Russia won't join OPEC. Russia has been called on to cooperate with OPEC in recent years, and even that symbolic level of cooperation is going to be more difficult over time," said Amy Myers Jaffe, the Wallace Wilson fellow for energy studies at the James A. Baker III Institute for Public Policy at Rice University. She recently returned from a trip to Russia, saying that Russian oil companies aren't taking orders from OPEC, Moscow, or anyone else for that matter.
Gustafson said, "At the end of the day, Russia has always remained outside OPEC, because they don't have any incentive to limit production. The Russian oil companies, in fact, say they want to recover lost market share since the demise of the Soviet Union."
And even if the Russians are invited and attend OPEC meetings, bigger troubles could face the organization. Jaffe said if Russian oil production growth happens, as planned, and several other countries boost exports, then OPEC would likely feel pressures on its target band pricing strategy.
"Russia has planned oil production increases that could create a problem for OPEC, making it more difficult to maintain its price per barrel of around $25. If we see Venezuela and Iraq restore their industries, and if Nigeria, Iran, and Algeria continue to meet their expansion programs, along with the Saudis bringing on their new oil projects, and Russia also expands production, then oil prices will come down considerably, unless OPEC cedes market share to the Russians," Jaffe noted.
BP PLC Chief Economist Peter Davies, at the June 10 launch of the company's Statistical Review of World Energy 2003 in London, said oil production outside OPEC has begun to increase rapidly, by 1.45 million b/d in 2002 (OGJ Online, June 11, 2003).
"On a geological basis, the Russians can easily get to (oil production of) 10 million b/d by 2007-10. But the question is: will there be enough pipeline space to export the oil?" Jaffe added.
Russia's 'creative' export system
The biggest factor preventing the rapid development of Russian energy exports is its transportation network, including pipelines and cargo terminals.
"We're in a period of boom production in the Russian oil sector. Right now, the only thing holding them back is their export pipeline and terminal capacity," said Gustafson, adding that Russia's pipeline capacity is "pretty much full up."
While foreign investments are expected to contribute to the expansion of Russia's pipelines and shipping terminals, it will be several years before major expansions in capacity are possible.
Until then, Gustafson said Russians are coming up with innovative techniques for getting oil shipments out of the country.
"The Russians are able to push more crude than you would think from their existing pipeline capacity. In the past year, Russian oil companies have been very creative in devising ways of getting crude out of the country, by every means conceivable, other than using pipelines," said Gustafson, adding that railroad cars and barges are being used to transport oil out of Russia.
There are questions about the efficiencies of exporting oil outside the existing pipeline network, and the various tariffs that have to be paid in the process.
Russia's energy privatization
The privatization of the Russian oil and gas industries has led to greater independence from Moscow's government control, and experts say this trend will continue.
"The Russian government's ability to control the levels of oil output and export is going to decrease dramatically over time," said Jaffe.
And even if the government thinks it has a handle on Russian energy companies, there are questions as to whether that control is real.
"The Russian oil companies, if they are told by the government to curb exports, then in the past they have just gone ahead with refining the oil and then selling it on the world market as refined product," said Gustafson.
