Sam Fletcher
OGJ Senior Writer
HOUSTON, Oct. 2 -- The common interests of Russia and the US in developing and sustaining energy security outweigh any differences over Iraq or other issues, said Daniel Yergin, chairman of Cambridge Energy Research Associates, Wednesday at the 2-day US-Russia commercial energy summit in Houston.
A new poll by Deloitte & Touche indicates 60% of the US population favors increased imports of Russian oil as a means of diversifying US supply sources, Yergin said.
Meanwhile, Marathon Oil Corp., Houston, and Russian state-owned Rosneft Oil Co. announced late Tuesday they signed a letter of intent to form a joint venture to import and market Urals crude in North America.
Russian 'miracle'
In the opening address at Wednesday's summit sessions, Yergin cited the "miracle" of Russia's accomplishment in increasing its oil production by 25% in 3 years. Some Russian oil companies have increased their production as much as 50%, he said, while slashing production costs to $2/bbl from $3-5/bbl previously.
However, a few skeptics at the Wednesday session privately questioned some of the production figures quoted by both US and Russian representatives.
The 2-day meeting—the first in what officials promise will be a series of summit meetings of government and energy industry leaders from Russia and the US—came, Yergin said, at "a crucial moment" in the development of new geopolitical and energy relationships among countries, "to which the US and Russia are central."
Participants appeared optimistic about joining efforts to develop Russia's vast oil and natural gas resources to supply US and world markets. "They've got some of the top government leaders and the industry decision-makers at this meeting. They (industry representatives) are getting the signs from on high as to what (government) energy policies will be," Red Cavaney, president and CEO of the American Petroleum Institute, told OGJ.
Realism
However, Yergin warned, government and industry officials must be realistic and focus on goals that are practical and achievable. Too often, he said, good intentions can be frustrated by the daily details of projects. He also pointed out that the oil and gas industry is governed by the "law of long lead times" necessary to bring projects to fruition.
ConocoPhillips Chairman Archie Dunham "hit one right down our alley" with his call Tuesday for stable Russian regulation of foreign-funded projects, an executive of the US Agency for International Development told OGJ.
In recounting the early entry of ConocoPhillips's forerunners into the former Soviet market at the summit's plenary session Tuesday, Dunham said, "Experience has taught us the necessity of (reliable) production sharing agreements (PSAs)." Because of post-production changes in the original agreement for its Polar Lights Co. joint venture, he said, that project remains "only marginally profitable and still has outstanding debt."
Polar Lights, a joint venture involving the former Conoco Inc. and Russian partners Arkhangelskgeoldobycha and Russian state firm Rosneft, was the first Russian-American joint venture to develop a new oil field in Russia. Production began in 1994 in Ardalin field, located in the harsh arctic tundra of the Nenets Autonomous Okrug in the Timan Pechora basin, about 1,000 miles northeast of Moscow.
Last year, Ardalin field passed the 75 million bbl production milestone. In the ensuing period, Polar Lights paid $241 million to Russian federal and local governments. Tax payments from Polar Lights provide more than half of the Nenets Autonomous Okrug's budget, which as a result was deficit-free in 2000 for the first time. In addition, Polar Lights is the second largest taxpayer in the city of Arkangelsk (OGJ Online, Feb. 7, 2001).
However, Mikhail Khodorkovsky, OAO Yukos CEO, subsequently claimed Polar lights "may have been in far better shape today" if "Conoco [had] agreed to work within the national tax regime instead of seeking preferential treatment (OGJ, Mar. 26, 2001, p. 20)." He claimed that project also was adversely affected by "the ratcheting up of taxes in the oil industry. . .partly brought on by the insistence of the IMF (International Monetary Fund)."
Marathon-Rosneft JV
The Urals North American Marketing JV is expected to begin operations in the third quarter of 2003, subject to signing of definitive agreements and pending approval of US and Russian government agencies.
The new venture is "intended to help establish the US as a significant long-term marketplace for Urals crude, while providing the US with added diversity of crude oil supply," said officials of the two companies in the joint announcement. Its goal is to "provide an efficient and cost-effective means of moving crude oil from this increasingly important supply region to US markets, utilizing existing Russian and US transportation and market infrastructure."
In early July, Yukos, the largest private Russian oil company, delivered the first direct oil shipment from Russia to the US through Houston's port to ExxonMobil Corp. refineries in Baytown and Beaumont, Tex., in a pilot program aimed at developing new markets for its rapidly increasing oil production (OGJ Online, July 08, 2002). By mid-October, that program will have imported 8 million bbl of Russian oil into the US through the US Gulf Coast.
Contact Sam Fletcher at [email protected]
