Sam Fletcher
OGJ Online
HOUSTON, Feb. 12 -- Russia is ready to crank up its oil production despite any risk of a price war with Saudi Arabia, warned both government and industry officials from that country Tuesday at a Houston conference of oil and natural gas executives.
"It would be wrong to expect that Russian officials will follow (production) rules imposed by outsiders. Russia is independent and will do what is in its own best interest," said Andrei Illarionov, economic advisor to Russian President Vladimir Putin, in a keynote speech at that annual meeting sponsored by Cambridge Energy Research Associates.
He noted that Russia 15 years ago had about 12% of the world oil market but that its market share has since dropped to around 6% as its crude production declined during its transition from communism to capitalism. "We lost half of our market share, but we did not complain, don't complain, won't complain," Illarionov said.
But in the future, he said, "We will do more to regain market share."
With Russia's oil production having increased 6% in 2000, another 7.7% in 2001, and expected to gain another 6% this year, Illarionov said, "It is absolutely inevitable that Russia will produce and export more oil in the next few years."
Responding to questions following his speech, Illarionov said, "Many people believe that high energy prices are profitable for Russia. In the short term, maybe it is, for (national) budget purposes. But in the longer term, our economic analysis shows that high oil prices hinder Russia's long-term economic growth."
That's because the resulting inflow of foreign "hard" currency from oil sales decreases the comparative value of the Russian ruble and undercuts the ability of other Russian industries to compete in both international and domestic markets, he said.
As a result, Illarionov said, high oil prices in the past have "eaten" some of the growth that otherwise might have occurred in Russia's economy. Although Russia is the second biggest crude producer behind Saudi Arabia, the Russian oil companies that benefited from high prices account for only 10% of its total national economy, leaving the other 90% to suffer, he said.
Illarionov echoed earlier claims Tuesday by Mikhail B. Khodorkovsky, chairman and CEO of Yukos Oil Co., Russia's second largest integrated oil company, that Russian firms can produce oil at lower price levels than many suspect.
"If we didn't have to pay taxes, we would have lifting costs of $3-$4/bbl and transportation costs of $6-$7/bbl," Khodorkovsky said at a press conference after participating in a plenary panel discussion of oil business risks.
"We are interested in expanding our markets, but low (world) prices put restraints on us because of the high price of transporting Russian oil," he said.
At the Tuesday conference and also in a Friday speech at the Carnegie Endowment for International Peace in Washington, DC, Khodorkovsky said Russian reserves of oil and natural gas are much larger than the figures commonly circulated in the west.
After being "isolated from the rest of the world" for some 70 years as a communist state, Russia under President Putin is now working to integrate with other nations economically, politically, and socially, said Illarionov. To achieve that, he said, Russia is trying to prove itself "an effective, stable, reliable, dependable partner."
Contact Sam Fletcher at [email protected]
